Bite the Bullet Early or Take the Bullet Later: The Importance of a Timely IMF Arrangement

The announcement that negotiations between the Government of Sri Lanka (GoSL) and the International Monetary Fund (IMF) have been halted raises a number of concerns. It has been indicated that a major issue discussed related to budgetary support through an IMF Extended Fund Facility (EFF) Arrangement. Reports have also stated that the amount being negotiated was $1.5 billion over three years. The GoSL has adopted the position that it did not require any balance of payments support as its gross reserve position was adequate. From its perspective, the conditionality attached to an IMF arrangement would only be judicious, at this point in the political cycle (i.e. electoral calendar), if there was budgetary support forthcoming at a time when fiscal space is been squeezed sharply, most notably by a significant decline in revenue. Expenditure pressures also continue unabated and are likely to increase as major elections begin to loom up on the horizon.