Thread by @ChayuDamsinghe

Now that the initial euphoria/rage about the IMF approval has hopefully faded, going to talk a bit about what it means and how I look at it.

#SriLanka #lka #EconomicCrisisLK

Usual disclaimer of being personal opinion and thereby, subjective. I'm also especially aware of how political and partisan the topic has become, and being clear that's not my goal.

3/ So yeah, the IMF is here. For me, it's part of a long process and there's so much that remains up in the air, but broadly I remain cautiously optimistic.

4/ The key point - the IMF money or the loan isn't what matters, focusing on it alone is a bit incompleteI feel. In fact, only about $330m has come in now, not really that much.

5/ Of course, the money will likely be used to meet government expenses this month, maybe meet pensions or pay for welfare.

But that still isn't the point. The point is the IMF programme overall is what this should be about, and what the discussion should ideally focus on IMO.

6/ The programme, quite simply, is about a few areas. Taxes, welfare, debt, SOEs, financial stability, anti corruption. These areas are where there are targets and actions to be taken.

7/ I think we need to take all of these together, and NOT any of them individually. On these, there are clear targets given for this year, and only once we actually meet them are we getting the next bit of money.

8/ The IMF package also "unlocks" money from the World Bank, ADB etc, but even those are going to be directly tied to specific projects, likely related to the overall package.

9/ For me, the fact that the IMF and other MDB financing is directly tied to specific projects is part of what reduces the likelihood of "theft". It's not open-ended money to do as you please.

10/ The question then, is are these projects and policies good for Sri Lanka? That's a harder question to answer since so many have their own view, but I'll give a few thoughts here.

11/ Taxes - there's tax increases + tax reforms. I think there's consensus that taxes had to rise, just on whether this is the right way to do it. We can argue whether the new levels are fair, but realistically they probably aren't getting reversed soon - earliest next IMF review

12/ We've already started to see some improvement in tax admin reform, use of WHT, digitalisation of tax payments, and then targets for combining tax information etc. Hopefully, there's further progress.

13/ Welfare - There's a minimum spend for welfare in the program, and with WB support, amounts paid have expanded and set to further.

Beyond this, also improvements in the way healthcare and education is provided, while keeping it free. Of course, higher taxes is part of this.

14/ Debt and financial stability - There's targets to reduce the value of our debt through restructuring, which is primary part of the external default. Separate targets to strengthen financial system. These 2 are seperate topics, so not going into detail here.

15/ SOEs - this is a critical one because the SOE debt levels have been so high. We can't simply "sell" debt-ridden loss makers, noone would buy. But we need to make progress on bringing them to a good position.

16/ Selling "profit makers" is part of it, because government earns more revenue by divesting their stake than keeping it (proceeds of sale + profit growth + reduced bureaucracy cost + tax proceeds). Reduces future areas of stress.

17/ Anti-corruption - This is a new area for the IMF, so admittedly less evidence here.

This is one to really keep a look out for, not only for the direct impact. These measures are a critical part of the whole package. It's part of what can make the package more palatable

18/ For me, the combination of all this, even if only 75% implemented, along with some small progress on inclusive structural changes like land, labour, regulation will create an economic environment far better than before.

19/ There will be losers - primarily those who benefitted from the usual debt-driven consumption mirage. The sad part, is that while many are, many others are not rich, not wealthy, not connected.

20/ Therefore, I do think that government needs to focus a lot more than now on the welfare, social support, and anti-corruption side, and critically, communicate these things well.

21/ Sri Lanka has had this chance multiple times before, but we've never stuck to it - because the debt-driven consumption mirage has worked with the political system to reverse these changes every time.

22/ Of course, every government at the time who didn't act properly is also to blame. It's not enough to just enact policy and say "unpopular but needed", but action MUST be taken to actually act properly too.

23/ This may be areas lacking on governance, on anti-corruption, on democracy, on human rights, on just simple optics alone. Whatever it is that is also needed, these things being left behind means the economic pathway becomes far easier to reverse.

24/ Even from a pure economic line therefore, even if you don't care about sociopolitics, the sociopolitics matter immensely. That is a key message that shouldn't be left to chance, but active steps need to be taken.

25/ However, there's one ounce of hope I have. Unlike the 16 times before, this time we started from rock bottom. Whereas before, a reversal would have taken 3 years for pain, now a reversal will mean immediate pain.

26/ For me, I'm hoping that the changes Sri Lanka is taking to its economy will continue for a while, and thereby allow for the benefits of the change to fully be felt by everyone.

27/ It'll be a hard journey still, and it is upto the government of the day to make that as easy a journey as possible, but I do believe the journey will be worth it.

28/ Overall, I remain cautiously optimistic, that the future of Sri Lanka will be better. All of us will have to act towards it, and to make it fairer, but I have some hope we can do it.

I might also do a version of this in Sinhala even though Twitter isn't the best place for it.

Please do ask any questions or comments, will try to answer them, the less aggressive they are of course!

A bit of a technical clarification on tweets 8 and 9, it's not technically correct to say the money is definitely tied to specific projects (though part of it will). It's more that continued disbursement is tied to performance criteria and benchmarks to meet.