Pragmatic partnership between Sri Lanka and IMF

The visit of International Monetary Fund (IMF) First Deputy Managing Director Gita Gopinath to Sri Lanka last week marked a significant milestone in the country’s economic recovery and international re-engagement since the sovereign default and economic collapse in 2022. It also offered a timely opportunity to assess the trajectory of the new Government’s handling of the $ 2.9 billion IMF bailout which by all reasonable measures, the verdict is encouraging.

The Government must be commended for its mature, disciplined approach to managing the IMF program. This comes despite relentless scepticism and fearmongering directed at the administration’s ideological leanings and presumed incompatibility with the Fund’s historically neoliberal outlook. Yet, reality has defied the rhetoric. The socialist-leaning administration of President Anura Disanayake has, thus far, demonstrated a commendable level of pragmatism and responsibility in engaging with the IMF, an institution once feared and easily maligned by socialist leaning political parties as a harbinger of austerity and suffering.

It is also worth noting that the IMF of today is not the same institution that it was in the 1980s. Gone are the one-size-fits-all prescriptions that prioritised fiscal contraction over social welfare. Today’s IMF is more nuanced, more flexible, and evidently willing to work with governments that recognise the importance of both economic sustainability and social protection and social justice. Free health and education are no longer on the chopping block for reducing Government spending.

President Disanayake’s remarks during Gopinath’s visit reflected this maturity. His articulation of the administration’s economic policy was both principled and practical. Acknowledging that sectors such as energy and banking require continued State involvement, he also made it clear that not all State-Owned Enterprises (SOEs) can be shielded from reform. Some, he acknowledged, must be restructured or even shut down. This is not ideological betrayal — it is realism. It is the kind of balanced policymaking that acknowledges the limitations of the State without blindly surrendering to the excesses of unfettered capitalism.

Sri Lanka’s privatisation history is a cautionary tale. Rushed and opaque deals led not to efficient markets but to crony capitalism and mafia-style profiteering. The erosion of public trust in the process was understandable. In that context, a policy that blends State stewardship with market discipline — what may be termed “pragmatic socialism” — is sensible though not ideal.

If the Government continues along this measured path, this may well be the last time Sri Lanka has to seek an IMF bailout. Such an outcome would be a triumph, not only for Sri Lanka but for the IMF as well, as it would underscore the success of a more collaborative, context-sensitive approach to economic reform.

The road ahead is not without its challenges. But with continued transparency, political will, and a commitment to fairness, the current Government has an opportunity to turn this moment of crisis into a foundation for long-term stability. The Government must relentlessly pursue its policies to address systemic corruption and bring those who are corrupt to justice. Such accountability will help to restore the trust deficit that had prevailed among the public. With the public trust on its side, difficult decisions on reducing Government spending which may even involve closing of State Owned Enterprises could be possible. This Government has the credibility and the mandate to deliver these difficult economic policies. The question is whether it will have the political courage to do so.