report in The Sunday Times, Feb 26, 2023
A tumultuous week saw uncertainties becoming realities one after another. A raise in power tariffs, now effective, will add to the woes of Sri Lankans. It became clear this week that the increase was the last of the 15 conditions to be met for the International Monetary Fund’s (IMF) Extended Fund Facility of US$ 2.9 billion.
Professor Shantha Devarajan, one of the advisors to the government on matters related to the IMF told the Sunday Times, “If they (the IMF) receive financing assurance from China, as they have already from India and the Paris Club creditors, then the IMF management will likely present the Extended Fund Facility (EFF) programme to the IMF Board of Directors. If they don’t receive financing assurance from China, it may still be possible, under the IMF’s Lending into Official Arrears (LIOA) policy, to present the programme to the Board because the LIOA requires that 50 percent of the official creditors should give financing assurance, which is the case now, since China constitutes less than 50 percent and is the only creditor that has not yet given financing assurance.” A Q & A with Prof. Devarajan appears in a box story on this page.
“I think the prospects are good,” declared Professor Devarajan to a question of whether the EFF is now confirmed to be received by Sri Lanka from the IMF. He said, “The two-year moratorium from China is of course welcome but Sri Lanka will need more than that in order to reduce its debt burden.”
The IMF, on the other hand, has been saying since reaching the staff-level agreement in September that debt restructuring or debt sustainability has to be achieved prior to any board approval for EFF, he pointed out.
Looking at these statements collectively, unless there is a shift in the Chinese position with an up-front debt treatment pledge or clarity regarding what happens after two years, receiving IMF Executive Board approval for the EFF in the next few weeks seems unrealistic — unless the US and the remaining western powers which hold the largest voting share underwrite the Chinese debt just as the US did for Suriname. It may seem like apples and pears as the Suriname debt burden was only a small fraction of what Sri Lanka holds and the proximity to the US and its strategic interests in that region are incomparable.
The IMF shareholders could accept that an official creditor would consent to let the debtor run arrears during the programme, yet that would raise the risk that, afterwards, the recalcitrant creditor could be repaid with IMF and other creditors’ funds disbursed during the programme. Most of these concerns have played out in Suriname’s IMF programme. Therefore, it is unlikely that a repeat could be expected in the Sri Lankan situation. China, on the other hand, does not want to set a precedent that could hurt it in many other ‘yet to default’ countries. Unless the IMF invokes its lending into official arrears policies and deals with the consequences and risks, for Sri Lanka a boost to its foreign reserves seems too close, yet too far.
PUCSL chairman blamed
A delay in the EFF going for approval of the Board of Directors of the IMF, President Ranil Wickremesinghe, said on Thursday was due to “one person in this country.” He was alluding to the opposition from the Public Utilities Commission of Sri Lanka Chairman Janaka Ratnayake.
Explained President Wickremesinghe: “The government started talks with the IMF last August. Accordingly, it was possible to agree on the staff-level agreement in September. It assigned us fifteen tasks to complete. The IMF gave us until December 31 to implement them. But we couldn’t do it before that day. Then we made plans to get time until January 31st. Even at that time, we were unable to complete those 15 points. Finally, the deadline was pushed back to February 15. By 06:00 pm on February 15th, we completed all that was expected of us and sent them to Washington.
“Only one of these fifteen issues was being delayed. It is related to the increase in electricity tariffs. The Electricity Board incurs Rs.230 billion each year in losses. According to the IMF, government taxes should not be used to support institutions. It was informed that if this occurs, the IMF will not provide assistance. However, one person in this country opposed the decision to increase the electricity tariff.
“As a result, receiving assistance from the IMF was delayed by six weeks. Alternatively, we could have completed this by the end of January. All 15 tasks assigned to us have been completed. Now it is up to the IMF. This is being discussed further. The IMF also suggested that everyone should get on one platform and discuss. However, as China is a world power, its procedure is different…” In making the remarks, President Wickremesinghe had confirmed that the raise in electricity tariffs, for a second time, came on the recommendation of the IMF.
Jathika Hela Urumaya (JHU) Leader and former Power and Energy Minister Patali Champika Ranawaka, said in a letter to Sarwat Jahan, the IMF Resident Representative in Colombo, that the Ceylon Electricity Board’s formula for the increase in electricity tariff increase is “flawed on the distributional effects, and lacks awareness” of its operation. ……
https://www.sundaytimes.lk/230226/columns/govt-meets-imfs-15-conditions-prospects-good-for-eff-programme-513015.html
