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‘IMF austerity measures provoking widespread public discontent’

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Hemantha Withanage with fellow social activists

By Ifham Nizam

The International Monetary Fund (IMF) has become a polarizing figure in Sri Lanka as the country grapples with a deep economic crisis. The austerity measures proposed by the IMF, aimed at addressing the nation’s debt burden, have sparked widespread discontent among ordinary citizens, said Hemantha Withanage, Chair of Friends of the International, a large network of grassroots environmental organizations from 74 countries.

Withanage added that the roles of the IMF and the World Bank in Sri Lanka over the past eight decades have been significant but complex. While their contributions to economic stabilization and development are notable, they have also provoked challenges and criticisms regarding social equity and governance.

He stressed that the critical question remains whether the people of Sri Lanka have truly benefited from their long-standing relationship with these institutions—a dilemma that continues to persist.

Speaking to The Island Financial Review, Withanage highlighted that the IMF’s influence in Sri Lanka dates back decades, shaping the country’s economic landscape through financial assistance, policy advice and development projects. However, the recent debt crisis, exacerbated by the pandemic and geopolitical tensions, has brought the IMF’s role into sharp focus.

Withanage added: ‘The IMF’s proposed measures, including tax hikes and spending cuts, have been criticized for disproportionately affecting the poor and vulnerable. Many argue that the government should prioritize debt restructuring and explore alternative avenues for economic recovery rather than imposing harsh austerity measures.

`Despite these challenges, the IMF remains a key player in Sri Lanka’s economic future. The country’s recent agreement with the IMF for a bailout package offers a glimmer of hope, but the road to recovery is likely to be long and arduous. As Sri Lanka navigates these turbulent times, the debate over the IMF’s role and the effectiveness of its policies will continue to shape the country’s economic destiny.

`IMF has become a prominent topic in Sri Lanka due to the austerity measures it proposed to address the country’s debt crisis. These measures have increased taxes for ordinary citizens, while the previous interim government warned that Sri Lanka would face further difficulties if it did not adhere to the IMF package agreed upon in mid-2022.

‘The IMF package was a key issue in the recent presidential election, resulting in a significant loss for the interim president, a strong proponent of IMF solutions. The election was won by left-party politician Anura Kumara Dissanayake, who takes a more measured approach to the IMF.

`Over the past 80 years, IMF and the World Bank involvement in Sri Lanka has included a mix of financial assistance, policy advice, and development projects, significantly influencing the country’s economic trajectory.

‘The IMF’s and World Bank’s impact on Sri Lanka’s economy and society has been multifaceted. On the one hand, their financial assistance and development projects have contributed to essential advancements in infrastructure, health, and education. Rural communities have benefited from improved access to basic services and economic policies supported by the IMF have, at times, restored macroeconomic stability.

‘On the other hand, the social costs associated with structural adjustment programs and austerity measures have raised concerns. Focus on market-driven policies often overlooked the needs of the most vulnerable populations. Inequality and poverty remain pressing challenges, as the benefits of growth have not been evenly distributed. Whatever the solutions these spin doctors have given, about 24% of the population became poor due to the debt crisis that began in 2020.

‘According to a more recent report by the FAO and the United Nations World Food Programme, it is estimated that 3.9 million people or 17% of the population, are in moderate acute food insecurity. The IMF has trained bureaucrats and politicians to praise its work and seek its advice constantly. Since joining the IMF, Sri Lanka has received assistance at least 16 times. While we’ve addressed some issues, our debt continues to rise, adversely affecting the population.’



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CBSL Explanatory Note on OMOs and money printing

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There have been recent claims in the media that the Central Bank of Sri Lanka (CBSL) has “printed” Rs. 100 billion on 25 October 2024, through its Open Market Operations (OMOs).

It is important to clarify that these claims are not accurate and are baseless. The liquidity (money) injected through OMOs is a routine central banking function aimed at managing adequate liquidity in the banking system for the purpose of stabilizing the short-term interest rates in the economy and ensuring price stability, and hence it should not be grossly misinterpreted as “money printing.”

What is Money Printing?

“Money printing” generally means issuing new money to the economy and in economic terms, new money issued by a central bank is known as ‘reserve money’ or ‘base money’.

Reserve money is also called the ‘monetary base’ of the country (or high-powered money), as the commercial banks can create more money based on the money issued by the central bank. Reserve money is also treated as the monetary liabilities of a central bank and this is reflected in the liability side of the central bank balance sheet, which includes total currency issued by the central bank and the commercial banks’ deposits with the central bank. During 2024, reserve money issued by the CBSL has only increased by about Rs. 147 billion, which is an adequate amount to facilitate transactions in the economy. During 2024, reserve money increase was an outcome of significant purchases of foreign currency by the CBSL, while there has been a reduction in the stock of government securities held by the CBSL.

One of the determining factors of new money issued to the economy by the CBSL in the past was purchasing Treasury bills by the CBSL directly from the primary market. However, with the introduction of the Central Bank of Sri Lanka Act, No. 16 of 2023, which came into effect in September 2023, the CBSL is now prohibited from printing money through the purchase of government securities in the primary market to fund the government.

Purpose of OMOs:

The main objective of the CBSL is to maintain domestic price stability, which means keeping inflation low and stable. Monetary policy, which is the strategy that a central bank manages interest rates and the money supply, is used to maintain price stability. The OMOs are a key instrument of monetary policy of a central bank. Currently, the CBSL relies on market-based policy instruments to implement monetary policy effectively, and hence one of the primary tools used in this process is the OMOs.

Under the OMOs, the CBSL provides liquidity to the commercial banks for the purpose of preventing sudden changes in the interest rates that can destabilize the economy.

Therefore, OMOs are a tool used by the CBSL to maintain stability in short-term interest rates, specifically the interbank call money rates. The CBSL conducts market operations to manage liquidity to ensure stability in the short-term interest rates.

OMOs are carried out through auctions involving the purchase or sale of government securities on either a temporary or permanent basis from the secondary market. Therefore, OMOs are predominantly short-term operations that help in managing liquidity imbalances in the banking system. During 2024, the liquidity injections by the CBSL are mostly overnight (1 day) or for 7 days. These operations were used as temporary liquidity injecting measures aimed at stabilizing the financial system by managing upward pressure on interest rates, and thereby ensuring smooth functioning of the economy and cannot merely be interpreted as money printing.

OMOs are carried out through auctions involving the purchase or sale of government securities on either a temporary or permanent basis from the secondary market. Therefore, OMOs are predominantly short-term operations that help in managing liquidity imbalances in the banking system. During 2024, the liquidity injections by the CBSL are mostly overnight

(1 day) or for 7 days. These operations were used as temporary liquidity injecting measures aimed at stabilizing the financial system by managing upward pressure on interest rates, and thereby ensuring smooth functioning of the economy and cannot merely be interpreted as money printing.

Furthermore, central banks worldwide regularly conduct similar operations to manage liquidity conditions. These are routine and standard actions carried out by central banks in liquidity management under monetary policy implementation.

Current Context:

During 2024, the CBSL has conducted frequent liquidity injections due to persistent liquidity asymmetries, despite the prevailing surplus in the banking system. Although the money market operates with surplus liquidity, this surplus is unevenly distributed among commercial banks, creating liquidity needs for domestic banks, for their day to day operations, including lending to the customers. Certain commercial banks have faced severe liquidity shortfalls due to stricter exposure limits for interbank transactions following the sovereign credit rating downgrade. Money market lending by the foreign banks operating in Sri Lanka has remained limited, despite their significant liquidity surplus, due to the strict exposure limits. Hence, the CBSL’s liquidity injections have addressed these shortfalls, ensuring that short-term interest rates, especially the call money rates remain stable.

Without such interventions by the CBSL, short-term interest rates could have increased sharply, disrupting the broader economy and affecting the CBSL’s ability to meet its inflation target.

Conclusion:

The above-mentioned media reports have misinterpreted the auctions and monetary operations conducted by CBSL as a part of its regular Open Market Operations. There has been no “money printing” or issuance of liquidity to finance the government’s budget by the CBSL. These actions are part of the standard process of monetary operations aimed at achieving the CBSL’s objective of price stability.

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Sustainable Development Council of Sri Lanka engages in current global discourses relating to Sustainable Development

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Chamindry Saparamadu

The 2023 Global Sustainable Development Report (GSDR 2023) – prepared by the Independent Group of Scientists (IGS) appointed by the United Nations Secretary General (representing both developed and developing countries) – arrived at the halfway point of the 2030 Agenda. It has reiterated that business-as-usual approaches to the Sustainable Development Goals (SDGs) must be replaced by transformative approaches operating at a systemic level that address multiple SDGs simultaneously.

The Report discusses essential transformations under six entry points to accelerate the progress on the SDGs. These are: 1) human well-being and capabilities, 2) sustainable and just economies, 3) food systems and healthy nutrition, 4) energy de-carbonization with universal access 5) urban and peri-urban development, and 6) the global environmental commons. The Report outlines the transformations required at each entry point at a country and regional level. It also identifies five levers that will drive transformation; 1) governance, 2) economy and finance, 3) science and technology, 4) individual and collective action, and 5) capacity building.

To complement the publication, the United Nations Department of Economic and Social Affairs (UNDESA), New York in partnership with the German Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) and the GIZ GmbH, convened a Regional Workshop for Asia and the Pacific in New Delhi. Held over 3 days from 22-24 October 2024, the workshop brought together policy makers, senior government officials and civil society to deepen knowledge of vital areas for sustainable development. The workshop was oriented around the 2023 GSDR Framework, its applicability to different contexts and to develop and platform national, local and regional sustainable development strategies.

Speaking during the High Level Closing of the Workshop, the Director General of the Sustainable Development Council (SDC), Chamindry Saparamadu, highlighted that while Sri Lanka has already commenced its transformative journey, the GSDR 2023 Framework is a useful resource to develop a greater capacity within Sri Lanka and strategically plan transformations underpinned by the vision of the SDGs. She noted that the SDC’s analysis of the government’s policy proposals found that 108 of 169 SDG targets are explicitly addressed in the policies outlined in the Policy Document titled “A Thriving Nation – A Beautiful Life”, while there are spillover effects on the other SDG targets. The Director General of SDC emphasized the importance of taking specific actions to breakdown, destabilize and phase out dominant unsustainable practices in parallel to specific actions taken to accelerate sustainable practices for transformative change. She also described the importance of proper assessments to monitor and evaluate the distributional effects of transformative actions on different social groups and communities.

Further, the 2024 Sustainable Development Transformation Forum (2024 SDTF) convened by the United Nations Office for Sustainable Development (UNOSD) from 29-31 October 2024 in Incheon, Korea focused on the application of the 2023 GSDR Framework for specific SDGs prioritized by the UN High Level Political Forum (HLPF) during 2025. These include SDG 3 (Good Health and Well-being), SDG 5 (Gender Equality), SDG 8 (Decent Work and Economic Growth), SDG 14 (Life Below Water), and SDG 17 (Partnerships for the Goals). The 2024 STDF facilitated peer learning through discussions on challenges, solutions, success stories, and lessons learned among a diverse group of participants, including policymakers, government officials, civil society representatives, local communities, youth, academia, and private sector leaders. This broad representation fostered inclusive dialogue and knowledge-sharing across sectors.

During the Roundtable Discussion on “Fuelling Future Green Growth – Competing Crises, the Demographic Dividend, and Decent Jobs,” Assistant Director of the Sustainable Development Council (SDC), Nadeeka Amarasinghe, highlighted key issues influencing Sri Lanka’s SDG progress. She discussed the implications of the demographic dividend, the role of women’s economic inclusion, the importance of creating decent jobs, and the impact of targeted investments on green growth and future well-being. Furthermore, the critical role of science and evidence-based policies in addressing these competing crises and mitigating future challenges was also emphasized.

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Celebratory launch of JITF’s 15th edition

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Dignitaries in a celebratory mood at the announcement of the trade fair.

By Ifham Nizam

The much-anticipated Jaffna International Trade Fair (JITF) is set to mark its 15th edition from January 24 to 26, 2025, at the Muttraweli Grounds, in the once war- torn Jaffna peninsula. Organized annually since 2002, the JITF has steadily grown into one of Sri Lanka’s largest trade exhibitions, serving as a vital link between northern and southern businesses and communities, especially following the end of the country’s 30-year civil war.

Organised by Lanka Exhibition and Conference Services (Pvt) Ltd. (LECS) in association with the Chamber of Commerce and Industry of Yarlpanam (CCIY), the JITF has grown significantly since its inception in 2002, becoming a dynamic hub where industry leaders, SMEs, and emerging entrepreneurs connect.

LECS Chief Operating Officer Husnie Rauf, speaking to The Island Financial Review said that the JITF has significantly impacted the Jaffna region by introducing a wide range of products and services that had long been inaccessible to the local population.

“This three-day exhibition offers a unique opportunity for residents to source everything from household goods to industrial supplies, educational resources, and more under one roof. The trade fair has become an annual event eagerly anticipated by locals, who look forward to the diverse opportunities it brings to their community,” he added.

He also noted that through its years of operation, the JITF has facilitated numerous success stories of business growth and collaboration. The fair has encouraged many southern entrepreneurs to expand their operations into the North, resulting in new ventures, mergers, and collaborations that have revitalized local industries.

He added: “Notable developments have included the establishment of sourcing hubs for agriculture, collection factories for vegetables and onions, and the growth of hospitality infrastructure. At the start of the JITF’s journey, Jaffna had limited accommodation options for visitors, but the exhibition has since created demand that has fostered the development of hotels, restaurants, transportation, and logistics services.”

He also said that the 2025 edition of the JITF promises to be the largest yet, with more than 350 stalls and a strong list of 23 sponsors, including DIMO as a Platinum sponsor for the second consecutive year. The level of participation speaks to the fair’s success and the value it brings to the businesses involved.

This year’s event will showcase numerous new products and services, he said, including exciting innovations from DIMO and other participating companies. Residents of Jaffna can expect an array of new offerings, from advanced paints to cutting-edge household products that are typically available in Colombo, thus providing them with unparalleled access to the latest industry developments.

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