As one expert recently put it, there is a bunch of crackpots at the lunatic fringe with nothing better to do than bash and vilify the IMF, and they’ve made it a national pastime.
However, the IMF’s unpopularity is universal, and the poignant resentment of citizens in a country with an IMF programme is both palpable and runs deep. To some, the IMF is the manifestation of all capitalism’s evils. Why? Perhaps because of the one thing synonymous with the IMF: austerity!
In most countries, protests, water cannons and tear-gas smog cover the streets following the passage of an IMF programme as angry masses protest austerity. Losing face, and needing to appease various unions, mobs and other self-proclaimed representatives of the people, ruling politicians blame the IMF for forcing down bitter austerity measures on them. Opposition lawmakers and their cabal of unions, smelling blood, fault the government for precipitating an economic collapse and inviting the IMF, vowing to reverse them if the voters give them a chance.
There is a pernicious outcome from this ignominious posturing on both sides of the parliamentary well: while the IMF may help achieve short-term stabilization, the reforms necessary to reset the economy for a sustainable future get shelved, and a country has to repeat the process several times (17 and counting for Sri Lanka), trapped in a mindless loop.
Hard choices and long-overdue reforms are vital, but misconceptions of austerity measures touted by lunatics can send the country to a violent end if rulers fail to look after the vulnerable. What does Sri Lanka’s latest dalliance with IMF do for vulnerable groups?
Sri Lanka’s Letter of Intent to the IMF elucidates its commitment and plan for resetting the economy, long-overdue reforms, structural adjustments and seeing through the $2.9 billion Extended Fund Facility programme to its conclusion. Starting on Page 89, the government has detailed its plans to bolster Social Safety Nets (SSNs) to cushion vulnerable groups from the economic crisis and policy changes. It proposes to increase both spending and coverage gradually and improve targeting.
In 2022, Sri Lanka spent Rs142 billion on SSN measures with funding from the World Bank and Asian Development Bank. “We provided top-up and additional cash transfers to 2.5 million existing recipients and 800 thousand waitlisted recipients of the Samurdhi programme and categorical programmes,” the government said in the Letter of Intent to the IMF. This year, the SSN programmes will expand to include all eligible recipients and raise the per-beneficiary amount. A new selection criterion will provide new cash transfers targeted at the poorest quintile of households.
Under the IMF EFF agreement, Sri Lanka proposes to increase SSN spending to cushion potential macroeconomic impacts on vulnerable groups, setting a spending floor of Rs187 billion in 2023 for cash transfers. The government has allocated Rs34.33 billion in the 2023 budget and received Cabinet approval for an additional Rs53.75 billion through the contingency budget allocation under the Department of National Budget. The government plans to establish donor coordination teams within the Ministry of Finance to raise external financing for SSN programmes.
The problem with Sri Lanka’s SSN programmes remains poor targeting and excess spending on those who do not require welfare. According to the Institute of Policy Studies, 33% of Sri Lanka’s households received Samurdhi payments in 2019 and included the top decile comprising the richest in the country!
The government intends these measures would help identify low-income families for welfare benefit payments. It is seeking parliamentary approval for a Welfare Benefits Board (WBB) under the Ministry of Finance to coordinate welfare benefit payments and be responsible for registering, selecting and validating payments to welfare beneficiaries.
The government also proposes to develop a new Social Registry, an electronic database of welfare programme applicants, and devise new eligibility criteria for targeted cash transfers. From January 2024, no ineligible beneficiaries will receive Samurdhi cash transfers, and recipients who no longer require full support will be graduated onto a lighter support package or livelihood development scheme.
Those are the government’s plans – not the IMF’s – to ease the burden of reforms on vulnerable groups, as part of its list of austerity measures, reforms and reversals. Blaming poor implementation on the IMF would be moot, but the IMF is a convenient scapegoat.
However, the big question remains, how do we deal with the reforms programme? Do we need to install a dictatorship, engineer a revolution, turn to fascism, or descend into anarchy? The stressful economic conditions are ripe for mass hysteria to grip us all, and we could unwittingly choose any of these options with loud applause and dancing on the streets. Or is there a better way? Especially where blood does not have to soak the earth?
Timely elections are vital for a functioning democracy, and we need the local government elections, followed by timely general elections, to appoint a credible bunch to lead the reforms programme.
However, what happens if the crackpots waiting in the lunatic fringe decide to reignite the Aragalaya to oust the next government because the reforms are painful? The temptation to assume they have a better chance to rule the country or they have the best solutions will be too hard to resist. What then?
We can avoid total disaster, provided we are mindful of the painful reforms necessary to bring the country back from the brink and willing to pay the price in taxes or fewer to no subsidies if we can afford to, being a little, or more, better off than the poor and vulnerable.