Decisive policies

Sri Lanka is struggling to return to normalcy. After the unprecedented Easter Sunday attacks people are still afraid to step out, resulting in people being actively discouraged from gathering in public areas and even using public transport. The business community is concerned that a prolonged security crisis will have a deep impact on the economy and will undermine investor confidence for an extensive period of time.

The International Monetary Fund (IMF) this week called on the Government to act decisively to restore normalcy and encourage people to return to their normal lives. Obviously this is easier said than done. But what cannot be denied is that the economy will need extra care after the events of this week. The IMF has said that its Executive Board is likely to agree to extend the Extended Fund Facility (EFF) program till 2020, and potentially release the latest tranche of the $ 1.5 billion next month. This would be a huge boost of confidence to markets as Sri Lanka continues to ready for more debt repayment from later this year and next year. 

The IMF has also said it remains optimistic of Sri Lanka’s Budget which aimed to reduce the deficit to 4.5%, but this goal is based on robust revenue measures that are now likely to be hampered as exports and consumption take a hit after the attacks. Revenue from tourism, which is the third largest foreign exchange earner could be reduced by as much as $ 1.5 billion according to some industry estimates, which would put the Government’s current Budget in difficulty. 

Analysts have already predicted that with Sri Lanka’s reserves at a low $ 7.7 billion, it would be impossible for the Central Bank to intervene to protect the currency from depreciating and this could place additional burdens on inflation as the country remains important dependent for many essentials. Some international analysts have even predicted that the IMF may have to increase its assistance to Sri Lanka given its multitude of challenges.

The country’s economic woes, already pretty serious given its high debt, low growth and pending elections, has reached a new high after Sunday’s attacks. Foreign investors would be unimpressed by the massive security lapses that the Government has admitted to and would be even less inclined to trust there money to be safe. All countries at one time or another will face security threats. But the fact that intelligence warnings were clearly ignored is hard to get past. 

Sri Lankans themselves are still reeling from this admission and public anger remains strong. The call for more resignations remains and the public is now waiting to see who the new Defence Secretary will be. It is clear from the events of these last few days that the need for competent and professional appointments must supersede political loyalties. The ugly and open political infighting must end and the President and Prime Minister especially need to stop making statements that only fuel public anger. They must be a change in the narrative from victims to a nation that is rebuilding and for this transition to take place, there has to be much stronger and much better leadership from the top. If the people believe they are in better hands, then the world will believe it too.