International Monetary Fund(IMF) early this month reviewed Sri Lanka government's austerity programme and approved the disbursement of US $ 252 million as the fifth tranche of its three year bail-out loan,
demanding the government further squeeze the living conditions of the working class and the poor.
The IMF staff review report was released on June 20. The total amount released with this instalment would be US$ 1,014 million.
The three year Extended Fund Facility(EFF) was approved by IMF in June 2016 to enable Sri Lanka to resolve the island nation's balance of payment crises on the strict conditions that the US backed government of Prime Minister Ranil Wickremasinghe and President Maithripla Sirisena implements economic reforms aimed at fiscal tightening, commercialization and restructuring state owned enterprises(SOEs) and privatization, and reforming its revenue laws. These measures are aimed at furthering cuts in social welfare for workers and the poor and increase of taxes.
IMF press release on June 1, cites its Acting Chair and Deputy Managing Director, Mitsuhiro Furusawa appreciating the Sri Lanka government's robust implementation of fiscal and monetary consolidation: "Sri Lanka has made important progress under its Fund-supported program. The authorities’ efforts to improve the policy mix through fiscal consolidation and prudent monetary policy, and landmark structural reforms are supporting the economic recovery."
The government has been heeding to the IMF demands of austerity by raising prices of essential items of food and gas and fuel price. Petrol and diesel prices have been increased by 17 percent and 15 percent, to 137 rupees per litre ($US0.87) and 109 rupees per litre respectively. The price of a 12-litre tank of cooking gas was hiked by 17 percent to 1,676 rupees per litre. These have led to repelling effects.
The price of kerosene was lifted by 130 percent to Rs.101 per litre. Later, in view of the island-wide agitation by the fishermen, the government was forced to reduce kerosene price just by Rs.30. However, fishermen demand the previous price, which is Rs.26 lower than the adjusted price.
On April 20, in terms of its demands under the third review report published in January, IMF mission chief for Sri Lanka Manuela Goretti stated that the IMF loan instalment was conditional upon the government implementing an automatic fuel pricing mechanism. This will adjust fuel prices every two months, according to the world crude oil prices and the rupee exchange rate.
Furusawa complimented the recent approval of an automatic fuel pricing formula as "a major achievement towards reducing fiscal risks from state-owned enterprises (SOEs)". He has also insisted that the government implement an automatic pricing formula for electricity and a "restructuring plan for Sri Lankan Airlines, as well as further strengthening SOE governance."
The government is forced to implement an automatic pricing mechanism also for electricity by September this year. The staff report provides that this pricing mechanism "ensures retail prices above cost-recovery levels and a financial position of Ceylon Electricity Board capable of covering debt service." Consequently, sharp increase in electricity bills will affect millions poor.
Furusawa stated, "Further progress with revenue-based fiscal consolidation, supported by the new Inland Revenue Act, is needed", calling the government for "fostering gradual trade liberalization, and the investment climate".
The IMF staff report demands that the government and the Central Bank push ahead with the austerity agenda for the coming years detailed in “Vision 2025” launched by the government last September, by "further advancing fiscal consolidation through stronger fiscal rules and SOE governance; modernizing monetary and exchange rate frameworks " and trade liberalization.
The government last year passed the new revenue law targeting a broad base of low income earners to its web of taxes. Under this law every person whose monthly income is Rs.50,000 or above is liable to pay tax. A greater number of private sector workers and state employees therefore fall into this category.
The Inland Revenue Department (IRD) has opened 49,000 new tax files in April, Finance and Mass Media Minister Mangala Samaraweera boasted in May. The government has set a target of 250,000 new tax files during the year. “The government’s tax revenue has increased to 12.6 percent of GDP from 10.3 percent; the government’s revenue has increased to 13.8 percent of GDP from 12.6 percent while the government managed to retain expenditure at 19.4 percent of GDP and 5 percent of government investments, ” Samaraweera declared.
The IMF-dictated austerity measures are aimed at slashing the fiscal deficit to 3.5 percent of gross domestic product(GDP) by 2020. The tax revenue is largely spent for debt and interest payments. As Samaraweera mentioned, debt to GDP ratio has fallen to 77.6 percent in 2017 from 78.8 in 2016, while the government will have to pay off Rs 11.4 trillion worth of loans.
According to the Central Bank, the debt service payment for this year is $US2.9 billion, rising to $4.2 billion in 2019 and continuing at $3.6 billion for each year from 2020 to 2022. Finance Ministry last month revealed that the heavily cash-strapped government of Sri Lanka accepted an eight-year syndicated loan of $ 1 billion from China Development Bank(CDB) to repay loans maturing this year.
Under IMF's third review, Sri Lanka is committed to fiscal consolidation in 2019 through further revenue mobilization, requiring to acquire primary surplus of 2 percent of GDP in the coming year.
The ensuing austerity measures are attacking jobs, wages, welfare programmes and living conditions of the masses, while slowing down the economy.
Last year Sri Lanka’s economic growth rate fell to 3.1 percent, the worst in 16 years, and down from 4.4 percent in 2016.
The rupee depreciated to its lowest of 161 rupees per US dollar in the third week of June, marking a 4.2% decline during the year up to June 22. This places upward pressure on the price of imports, further driving down the living conditions of the working people.
IMF has been demanding that the currency be subject to market forces and that the Central Bank’s foreign currency reserves not be used to prop it up.
Last week, Goretti commended Central Bank's "Road Map(monetary and financial sector policies for 2018 and beyond)" for flexible inflation targeting and stressed its recommendation that "exchange rate flexibility needs to remain as the first line of defence in case of volatile capital outflows."
According to the Central Bank, in the week ending on June 6, investors sold government securities worth a net Rs.2.8 billion, bringing the outflow of foreign reserves so far this year to 19.9 billion rupees, further pressing the rupee down.
Amid serious political crisis within the Sirisena-Wickremasinghe unity government, it is also faced with a wave of strike actions by workers including in university, health, railways, airports, postal, petroleum, telecommunication and power and plantations with wage demands and against commercialization and privatization of SOEs. Students have come to the streets against education commercialization, privatization and militarization, while farmers fight for subsidies.
Other than for some limited wage increase and cosmetic changes to subsidies to deflect the anger among workers and poor, since 2015, real wages have been freezing, World Socialist Web Site(wsws) reported early this year. According to a Central Bank report in last November, public sector real wages eroded 6.9 percent, while in private sector the decline was 5.6 percent during the first seven months of 2017.
Furusawa's claimed that "the impact of the reforms on the vulnerable can be mitigated by ongoing efforts to strengthen social safety nets." This is a lie to the core. Sri Lanka government like its counterparts in Europe -Greece, Spain, Italy and Ireland - is unleashing its counter-revolutionary measures to rewind all "social safety nets" to place the burden of economic recovery on the working class and the poor.
The IMF staff review report was released on June 20. The total amount released with this instalment would be US$ 1,014 million.
The three year Extended Fund Facility(EFF) was approved by IMF in June 2016 to enable Sri Lanka to resolve the island nation's balance of payment crises on the strict conditions that the US backed government of Prime Minister Ranil Wickremasinghe and President Maithripla Sirisena implements economic reforms aimed at fiscal tightening, commercialization and restructuring state owned enterprises(SOEs) and privatization, and reforming its revenue laws. These measures are aimed at furthering cuts in social welfare for workers and the poor and increase of taxes.
IMF press release on June 1, cites its Acting Chair and Deputy Managing Director, Mitsuhiro Furusawa appreciating the Sri Lanka government's robust implementation of fiscal and monetary consolidation: "Sri Lanka has made important progress under its Fund-supported program. The authorities’ efforts to improve the policy mix through fiscal consolidation and prudent monetary policy, and landmark structural reforms are supporting the economic recovery."
The government has been heeding to the IMF demands of austerity by raising prices of essential items of food and gas and fuel price. Petrol and diesel prices have been increased by 17 percent and 15 percent, to 137 rupees per litre ($US0.87) and 109 rupees per litre respectively. The price of a 12-litre tank of cooking gas was hiked by 17 percent to 1,676 rupees per litre. These have led to repelling effects.
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| Sri Lanka estate worker family |
The price of kerosene was lifted by 130 percent to Rs.101 per litre. Later, in view of the island-wide agitation by the fishermen, the government was forced to reduce kerosene price just by Rs.30. However, fishermen demand the previous price, which is Rs.26 lower than the adjusted price.
On April 20, in terms of its demands under the third review report published in January, IMF mission chief for Sri Lanka Manuela Goretti stated that the IMF loan instalment was conditional upon the government implementing an automatic fuel pricing mechanism. This will adjust fuel prices every two months, according to the world crude oil prices and the rupee exchange rate.
Furusawa complimented the recent approval of an automatic fuel pricing formula as "a major achievement towards reducing fiscal risks from state-owned enterprises (SOEs)". He has also insisted that the government implement an automatic pricing formula for electricity and a "restructuring plan for Sri Lankan Airlines, as well as further strengthening SOE governance."
The government is forced to implement an automatic pricing mechanism also for electricity by September this year. The staff report provides that this pricing mechanism "ensures retail prices above cost-recovery levels and a financial position of Ceylon Electricity Board capable of covering debt service." Consequently, sharp increase in electricity bills will affect millions poor.
Furusawa stated, "Further progress with revenue-based fiscal consolidation, supported by the new Inland Revenue Act, is needed", calling the government for "fostering gradual trade liberalization, and the investment climate".
The IMF staff report demands that the government and the Central Bank push ahead with the austerity agenda for the coming years detailed in “Vision 2025” launched by the government last September, by "further advancing fiscal consolidation through stronger fiscal rules and SOE governance; modernizing monetary and exchange rate frameworks " and trade liberalization.
The government last year passed the new revenue law targeting a broad base of low income earners to its web of taxes. Under this law every person whose monthly income is Rs.50,000 or above is liable to pay tax. A greater number of private sector workers and state employees therefore fall into this category.
The Inland Revenue Department (IRD) has opened 49,000 new tax files in April, Finance and Mass Media Minister Mangala Samaraweera boasted in May. The government has set a target of 250,000 new tax files during the year. “The government’s tax revenue has increased to 12.6 percent of GDP from 10.3 percent; the government’s revenue has increased to 13.8 percent of GDP from 12.6 percent while the government managed to retain expenditure at 19.4 percent of GDP and 5 percent of government investments, ” Samaraweera declared.
The IMF-dictated austerity measures are aimed at slashing the fiscal deficit to 3.5 percent of gross domestic product(GDP) by 2020. The tax revenue is largely spent for debt and interest payments. As Samaraweera mentioned, debt to GDP ratio has fallen to 77.6 percent in 2017 from 78.8 in 2016, while the government will have to pay off Rs 11.4 trillion worth of loans.
According to the Central Bank, the debt service payment for this year is $US2.9 billion, rising to $4.2 billion in 2019 and continuing at $3.6 billion for each year from 2020 to 2022. Finance Ministry last month revealed that the heavily cash-strapped government of Sri Lanka accepted an eight-year syndicated loan of $ 1 billion from China Development Bank(CDB) to repay loans maturing this year.
Under IMF's third review, Sri Lanka is committed to fiscal consolidation in 2019 through further revenue mobilization, requiring to acquire primary surplus of 2 percent of GDP in the coming year.
The ensuing austerity measures are attacking jobs, wages, welfare programmes and living conditions of the masses, while slowing down the economy.
Last year Sri Lanka’s economic growth rate fell to 3.1 percent, the worst in 16 years, and down from 4.4 percent in 2016.
The rupee depreciated to its lowest of 161 rupees per US dollar in the third week of June, marking a 4.2% decline during the year up to June 22. This places upward pressure on the price of imports, further driving down the living conditions of the working people.
IMF has been demanding that the currency be subject to market forces and that the Central Bank’s foreign currency reserves not be used to prop it up.
Last week, Goretti commended Central Bank's "Road Map(monetary and financial sector policies for 2018 and beyond)" for flexible inflation targeting and stressed its recommendation that "exchange rate flexibility needs to remain as the first line of defence in case of volatile capital outflows."
According to the Central Bank, in the week ending on June 6, investors sold government securities worth a net Rs.2.8 billion, bringing the outflow of foreign reserves so far this year to 19.9 billion rupees, further pressing the rupee down.
Amid serious political crisis within the Sirisena-Wickremasinghe unity government, it is also faced with a wave of strike actions by workers including in university, health, railways, airports, postal, petroleum, telecommunication and power and plantations with wage demands and against commercialization and privatization of SOEs. Students have come to the streets against education commercialization, privatization and militarization, while farmers fight for subsidies.
Other than for some limited wage increase and cosmetic changes to subsidies to deflect the anger among workers and poor, since 2015, real wages have been freezing, World Socialist Web Site(wsws) reported early this year. According to a Central Bank report in last November, public sector real wages eroded 6.9 percent, while in private sector the decline was 5.6 percent during the first seven months of 2017.
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| Anti-austerity protest in Dublin in 2012 |
Furusawa's claimed that "the impact of the reforms on the vulnerable can be mitigated by ongoing efforts to strengthen social safety nets." This is a lie to the core. Sri Lanka government like its counterparts in Europe -Greece, Spain, Italy and Ireland - is unleashing its counter-revolutionary measures to rewind all "social safety nets" to place the burden of economic recovery on the working class and the poor.
