IMF warns SL on “knife edge path” must sustain new found virtuous cycle than reverting to vicious phase

IMF's Senior Mission Chief for Sri Lanka Peter Breuer 

IMF’s Resident Representative in Sri Lanka Sarwat Jahan 

• Identifies EFF program was result of robust discussions and well thought out
• Says open to alternative suggestions from political parties on how EFF program objectives can be reached but stresses these must be realistic and achievable within the time frame of the program
• Emphasises hard-won gains over the last two years must not be unravelled
• Urges SL to keep the momentum going to reach debt sustainability and bring growth to a firmer footing on recovery

The International Monetary Fund (IMF) last week said it is witnessing the beginning of a virtuous cycle in Sri Lanka which must be sustained rather than reverting to a “vicious cycle” as the country is on a “knife edge” path.

The frank assessment was shared by IMF›s Senior Mission Chief for Sri Lanka Peter Breuer at the media briefing following the conclusion of the Second Review of the $ 3 billion four year Extended Fund Facility (EFF) program and Article IV consultation.

In response to a question about the outcome of IMF staff’s discussion with several political parties in an election year with some promising review of the EFF program, Breuer acknowledged that the team heard many different proposals.

“What is absolutely key is that the program objectives are achieved because with those, Sri Lanka has a chance of emerging from the crisis.  The path is a knife edged path.  We have to remember that,” he said. “We see some green shoots in the economy, and that›s the beginning of a virtuous cycle and we have to keep it there.  It is knife edge and could easily go back to a vicious cycle, and that›s what we want to prevent,” Breuer added.

He said that the IMF is willing to listen to alternative suggestions of how the program objectives can be reached, but stressed these must be realistic and achievable within the time frame of the program.

However Breuer added that the program was the result of robust discussions in 2022 and since then, at the periodic reviews where the IMF looks at progress under the program.  “So, I would argue it is quite well thought out.  But of course, we are willing to listen to alternative views.  The important part is that the hard-won gains of the Sri Lankan people over the last two years are not unravelled,” he emphasised.   

IMF’s Resident Representative in Sri Lanka Sarwat Jahan said Sri Lanka has achieved hard won gains and there has been very important reforms that Sri Lanka has undertaken and it is very important to keep the momentum going so that Sri Lanka can indeed reach debt sustainability and it can bring growth to a firmer footing on recovery.

According to the IMF, growth in Sri Lanka turned positive after six consecutive quarters of contraction, registering 1.6% and 4.5% year-on-year in the third and fourth quarter of 2023, respectively. The IMF insisted that sustaining the reform momentum going forward is absolutely critical to put the economy on a path towards lasting recovery and stable and inclusive economic growth. 

Pix by Pradeep Pathirana