IMF states the obvious: Epic financial mismanagement

The International Monetary Fund (IMF) released its much-anticipated report prepared by a staff team for its executive board on economic developments and policies in Sri Lanka. The report is an indictment on two years of mismanagement that has brought the country to the brink of economic collapse.

There is nothing new or unknown in the IMF’s assessment. It consists of what economists, including a few rare and astute lawmakers such as Eran Wickramaratne and Harsha De Silva had been saying for months. Yet now that the IMF team has made the same observations regarding the state of the economy it would be assumed that the authorities would at least take cognisance of the views of the experts. It is the least they could do after the disaster they have delivered in the last two years.

The IMF notes of an unsustainable annual fiscal deficit that exceeds 10% of Gross Domestic Product which was primarily created due to the tax cuts enacted by the Government of Gotabaya Rajapaksa. This has reduced Government revenue while there was no corresponding decrease in Government expenditure. The crux of the problem is the foreign exchange crisis that was precipitated by the current account deficit and the high debt payments. The downgrading of the rupee by rating agencies ensured that external financing options for the Government also dried up.

While the IMF has identified many elements of mismanagement, the report has not and was not expected to address the aspect of corruption that has significantly contributed to the current economic woes. The litany of projects that were either colossal wastes of public funds such as the Mattala International Airport and the Lotus Tower in Colombo or those projects such as the construction of highways that are mired in controversy due to corruption, have all contributed to the draining of public finances. 

The main players tasked with managing the country’s economy do not inspire confidence either. It does not help Sri Lanka’s cause at this moment of crisis that it has a barely educated finance minister who is often referred to as ‘Mister Ten Percent’ or a Governor of the Central Bank associated with pyramid schemes and numerous allegations of financial mismanagement. Many people who should ideally be in jail are now running the economy and are expected to save Sri Lanka from its current predicament.

Here lies the fundamental problem in attempting to address the economic crisis with the same individuals who created it. Individuals associated with the current administration have often profited from the crises of their own making. For example, during the COVID pandemic, persons associated with the administration made enormous profits through monopolies for importing medicines and test kits. The Colombo Stock Exchange has been marred by insider trading scandals, involving the same individuals who are now in the inner circle of decision-making. Similarly, it is reasonable to suspect that those who were responsible for the economic crisis have also benefited from these actions. 

It is curious why the Central Bank opted to settle a $ 500 million bond in January 2022, even at the brink of bankruptcy when every expert worth their salt advised to negotiate a debt restructuring program. It needs to be investigated if anyone within the administration had benefited from these actions which were to the greater detriment of the economy.

Those who have mismanaged the economy, owed a duty of care to the public to handle matters with a greater deal of competence. In the bare minimum they should be held liable for negligence in failing this duty. However, it is necessary to investigate if any vested interests were involved in the financial decisions made by those in authority. If so, any future administration should hold such individuals criminally liable for their actions that have brought untold misery to a vast number of Sri Lankans.