Thread by @ChayuDamsinghe

What will happen to Sri Lanka, economically, over the next few months, especially to its people?

The answer isn't pretty, but it's something to prepare for.

#SriLankaProtests #SriLanka (Also tagging #GotaGoGama #GoHomeGota #OccupyGalleFace #අරගලයටජය for reach)

(1/11)

Let's assume there's some sort of political stability at some point. What that is doesn't really matter too much to this thread's outcomes, it just extends the timeline if it's delayed.

With that out of the way - what will SL need to come out of this?

(2/11)

As long as we keep engaging with the IMF and our creditors, it should hopefully bring enough confidence that there will be some inflows (bilateral, remittances, export conversions, aid) that allow the urgent essential shortages to ease across the next month or two.

(3/11)

However, there are still lots of painful reforms needed after. Some are already in- rate hikes, and depreciation

But full fuel price increases/electricity price increases will be needed to keep the lights on even when the forex situation clears

(4/11)

https://twitter.com/ChayuDamsinghe/status/1511211955302051840

Tax increases and expenditure cuts are also in line - we need to reduce our borrowing needs by reducing the budget deficit. This might also come along with politically difficult privatizations.

These are also things that will affect many people negatively.

(5/11)

The impact of previous money printing, the loss in overall confidence in SL's systems, and any future money printing that might be needed (explained in linked thread) will likely mean inflation will rise more before it falls.

(6/11)

https://twitter.com/ChayuDamsinghe/status/1514092187000061953

Hopefully, the government is able to really use this space to increase welfare spending on the poor, as is a key IMF condition as well, but regardless of IMF, is essential to protect the poor from the above.

(7/11)

https://twitter.com/ChayuDamsinghe/status/1511582030815186945

But remember, this is a lot of pain. More price increases, tax increases, fuel/electricity bill increases, negative fallout from depreciation and rate hikes, all need to happen

The alternative is far worse, powercuts, food/fuel/med shortages, etc - need to avoid that

(8/11)

The reason we need to take this is explained in linked tweets, and also why the alternative is far worse.

But the next few months, will not be easy for middle-income/upper-middle income Sri Lankans at all. Can't pretend it will be.

(9/11)

There's also a political question here that I will leave unanswered.

Who should take the fall for the massively unpopular actions that need to be taken to come out of the crisis? Should it be the same lot who got us in this mess, or should someone else bear that burden?

(10/11)

End of the day - next few months will be tough. This was set in stone some time ago, and that is now unavoidable. We can't pretend this isn't true

But afterwards, we will recover. It will take time, but we will come back to where we were. Let's hope that day comes soon.

(11/11)