The aftermath of Sri Lanka’s economic crash

Subject: International Relations

Section: International organization

Concept:

Sri Lanka has been relying upon the International Monetary Fund (IMF) as the country is experiencing a balance of payments problem that escalated in 2022.
The citizens of the island nation who experienced crippling shortages and long power cuts undertook massive protests and ousted the Rajapaksas and the chants seeking IMF support persisted through these demonstrations.
In July 2022, Ranil Wickremesinghe was elected the President and one of his initial tasks was to negotiate an IMF deal to restructure Sri Lanka’s economy.
Later on, September 1, 2022, Sri Lanka reached an agreement with the IMF.

IMF’s bail-out

The Sri Lankan President announced that the government had completed 15 tasks prescribed by the IMF and that the provisional package of $2.9 billion would come through soon.
While Sri Lanka had hoped to avail the package by the end of 2022 the process was delayed as IMF had sought written financing assurances from Sri Lanka’s top three bilateral creditors namely China, Japan, and India.
India was the first country to send its assurances followed by the Paris Club group of creditors, which includes Japan. However, China’s written financing assurances are still pending.
Experts believe that a $2.9 billion Extended Fund Facility, over a period of four years would not be big money for Sri Lanka as the country even after streamlining its imports to save dollars spends a significant amount of dollars every month on essential imports alone and with a substantial drop in exports the trade deficit has been widening.
However, the IMF package will still help Sri Lanka become more creditworthy to global lenders such as the World Bank, the Asian Development Bank or even the bilateral lenders.

Opposition against the IMF package

As per critics, the IMF package has been seen as part of the problem and not the solution.
Critics opine that the austerity measures that come attached with the package could impact the working class of the country.
Even worker unions have expressed displeasure and are protesting against the increase in taxes and utility bills which have been introduced by the government in anticipation of the IMF bail-out.
However, these protests have only been over specific policy measures that are hurting them. Otherwise, there is no popular resistance to the IMF within Sri Lanka.

Tackling corruption

The IMF, while extending its package, has emphasised correcting Sri Lanka’s corruption vulnerabilities.
According to various economists and policy analysts in Sri Lanka, widespread corruption along with the government’s tendency to introduce populist welfare schemes that were unsustainable made the country’s economy fragile.

The problem of food insecurity

In the last year, poor households in the country have been forced to reduce their food intake as the soaring prices have made food such as eggs, fish, and meat out of reach for many which has resulted in concern over nutrition levels.
According to a survey conducted by Save the Children, a humanitarian organisation, inflation levels of over 50% have forced more than half of the families in Sri Lanka to reduce the amount they feed their children.
Furthermore, the World Food Programme has said that about 33% of Sri Lankan households are food insecure.

UN World Food Programme

The World Food Programme (WFP) is the food assistance branch of the United Nations and the world’s largest humanitarian organization addressing hunger and promoting food security.
Born in 1961, the WFP strives to eradicate hunger and malnutrition, with the ultimate goal in mind of eliminating the need for food aid itself.
It is a member of the United Nations Development Group and part of its Executive Committee.
WFP food aid is also directed to fight micronutrient deficiencies, reduce child mortality, improve maternal health, and combat disease, including HIV and AIDS.
It is governed by an Executive Board consisting of 36 Member States, which provides intergovernmental support, direction and supervision of WFP’s activities.
The organization is headed by an Executive Director, who is appointed jointly by the UN Secretary-General and the Director-General of the Food and Agriculture Organization of the United Nations.
Awards
In 2020, it was awarded the Nobel Prize for Peace for its efforts to combat hunger, for its contribution to bettering conditions for peace in conflict-affected areas and for acting as a driving force in efforts to prevent the use of hunger as a weapon of war and conflict.