Sri Lanka needs to stick to IMF programme to overcome crisis: Central Bank Governor

Sri Lanka's bankrupt economy has "no alternative" but to stick to the current USD 2.9 billion IMF bailout programme, central bank governor Nandalal Weerasinghem has said.

The International Monetary Fund (IMF) approved the release of the second tranche worth USD 337 million to Sri Lanka earlier this month.

Weerasinghe was responding to queries if the island nation was open to renegotiating the terms of the four-year programme on the back of claims by opposition parties that they would renegotiate conditions for the IMF's USD 2.9 billion bailout package.

“There is no alternative. The fact that we attempted alternatives was why we are here (bankruptcy) now,” Weerasinghe told reporters on Friday.

“We have to go in the same path, say, if the period of debt restructuring allowed is 10 years – if they (opposition) want to change it, the creditors can say, we don't support this anymore. 

If we were to leave the programme, we will have to pay USD 6 billion a year in repayments,” Weerasinghe said. Weerasinghe was repeating what President Wickremesinghe said on December 17. 

“There was no alternative to the IMF programme for the cash-strapped island nation to get out of its economic bankruptcy,” Wickremesinghe, who is also the Finance Minister, said as he responded to the strong criticism from the opposition to the reforms.

The main opposition Samagi Jana Balawegaya (SJB) has vowed to renegotiate the IMF bailout claiming that the conditions attached to it that were agreed by the president had heaped economic hardships on people.

As the finance minister, Wickremesinghe was the lead in the IMF negotiations and introduced tough economic reforms such as increasing personal taxes and high utility tariffs.

Further, a higher Value Added Tax net is coming into effect from January 2024 even covering items, such as fuel, which had been VAT-free.Wickremesinghe insists that his method which brought in the IMF bailout was the only method to bring long-term relief although it will cause short-term hardships.

Weerasinghe, the central bank chief, said renegotiating does happen under each review of the IMF. “There was renegotiation after the first review and it will be reviewed at the time of the second review too,” he said.

It was important to maintain the IMF programme to receive international support to solve the crisis, Weerasinghe said regarding the World Bank and the Asian Development Bank (ADB) support the island's economy had received since inking the IMF deal.

After it was hit by its worst economic crisis in history in 2022 when its foreign exchange reserves fell to a critical low, Sri Lanka went in for what the World Bank described as “foundational reforms” to restore macroeconomic stability and mitigate the impacts on the poor and vulnerable aided by private sector-led recovery.