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“Program Risks” which are termed “exceptional” by the IMF staff themselves, will almost certainly materialize and negate the entire program.
The IMF Staff candidly acknowledge in their Report of March 2023 that the Risks of Sri Lanka’s Program are “exceptionally high”.
This is how the Report highlights the risks (page 2).
“Program Risks:
“Risks to program implementation are exceptionally high, given
Complex debt restructuring process,
Unfavorable external environment,
Elevated risks of persistently high inflation, and
Challenging political and social situation.
Given Sri Lanka’s weak track record of reform implementation, the program runs significant risks of slippages regarding fiscal consolidation, revenue mobilization, and reserves buildup.
A deeper crisis induced by a further economic fallout, the weakened banking sector, exchange rate pressure, and loss of market confidence could also complicate program implementation. In this regard, contingency plans are crucial and policies should remain agile to adjust to the evolving circumstances”.
It is as if the IMF Staff have already prepared the script to explain the failure of the Program when (not if) it occurs.
The IMF Staff have themselves admitted that almost every Program component is fraught with exceptional risks, which appears to indirectly suggest that failure is imminent.
The IMF clearly warns that a “deeper crisis induced by a further economic fall-out, the weakened banking sector, exchange rate pressure, and loss of market confidence could also complicate program implementation”. This statement aptly describes the dangerous nature of this fragile IMF Programme.
The crippling effect of this Program is already evidenced by the massive contraction of the “Real Economy” where there has been a severe reduction of USD 523 in the per capita income from USD 3,997 in 2021 to USD 3,474 by 2022.
Understandably, the IMF staff appear to be highly concerned about the risks faced by themselves as well, which is captured by their Report.
At Page 31, the IMF Report states:
“Enterprise risks are high but are partly mitigated by the program design and CD support. The Fund faces three types of enterprise risks.
First, financial risks arise from significant risks to Sri Lanka’s capacity to repay.
(Comment: That means Sri Lanka may not have the ability to repay the IMF debt).
Second, operational risks stemming from social unrest and socio-political tensions, which may pose risks to the operations of IMF staff missions and the field office if they escalate.
(Comment: That means they fear their own colleagues’ well-being and safety in Colombo), and
Third, reputational risks would be of concern if the public perceives policies under the program as too tight, weakening public support for the program.
(Comment: That means they are concerned as to the IMF’s own reputation being tarnished because of risk re. the design of the programme).
In summary, in addition to current “economic contraction” and other severe issues confronting the Sri Lankan Economy, the following outcomes are likely to be experienced in the foreseeable future when Sri Lanka follows its 17th IMF Program.
https://t.co/5CIpagCWTR
The IMF Staff candidly acknowledge in their Report of March 2023 that the Risks of Sri Lanka’s Program are “exceptionally high”.
This is how the Report highlights the risks (page 2).
“Program Risks:
“Risks to program implementation are exceptionally high, given
Complex debt restructuring process, Unfavorable external environment, Elevated risks of persistently high inflation, and Challenging political and social situation. Given Sri Lanka’s weak track record of reform implementation, the program runs significant risks of slippages regarding fiscal consolidation, revenue mobilization, and reserves buildup.
A deeper crisis induced by a further economic fallout, the weakened banking sector, exchange rate pressure, and loss of market confidence could also complicate program implementation. In this regard, contingency plans are crucial and policies should remain agile to adjust to the evolving circumstances”.
It is as if the IMF Staff have already prepared the script to explain the failure of the Program when (not if) it occurs.
The IMF Staff have themselves admitted that almost every Program component is fraught with exceptional risks, which appears to indirectly suggest that failure is imminent. The IMF clearly warns that a “deeper crisis induced by a further economic fall-out, the weakened banking sector, exchange rate pressure, and loss of market confidence could also complicate program implementation”. This statement aptly describes the dangerous nature of this fragile IMF Programme. The crippling effect of this Program is already evidenced by the massive contraction of the “Real Economy” where there has been a severe reduction of USD 523 in the per capita income from USD 3,997 in 2021 to USD 3,474 by 2022.
Understandably, the IMF staff appear to be highly concerned about the risks faced by themselves as well, which is captured by their Report.
At Page 31, the IMF Report states:
“Enterprise risks are high but are partly mitigated by the program design and CD support. The Fund faces three types of enterprise risks.
First, financial risks arise from significant risks to Sri Lanka’s capacity to repay. (Comment: That means Sri Lanka may not have the ability to repay the IMF debt).
Second, operational risks stemming from social unrest and socio-political tensions, which may pose risks to the operations of IMF staff missions and the field office if they escalate. (Comment: That means they fear their own colleagues’ well-being and safety in Colombo), and
Third, reputational risks would be of concern if the public perceives policies under the program as too tight, weakening public support for the program.(Comment: That means they are concerned as to the IMF’s own reputation being tarnished because of risk re. the design of the programme).
In summary, in addition to current “economic contraction” and other severe issues confronting the Sri Lankan Economy, the following outcomes are likely to be experienced in the foreseeable future when Sri Lanka follows its 17th IMF Program.
https://t.co/5CIpagCWTR
