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By Veeragathi Thanabalasingham
Colombo, January 11: More than a week has passed since the dawn of the New Year. Although greetings were exchanged as per tradition, it cannot be said that Sri Lankans greeted each other without a tinge of apprehension about what is in store for them in the new year.
Newspapers carried New Year messages from political leaders and religious dignitaries along with news about impending steep rise in prices.
Most people had already taken austerity measures to cope with the skyrocketing cost of living will were preparing to face further hardships to be piled on them by a new Value Added Tax (VAT) rate. The government increased VAT from 14 percent to 18 percent from January and has brought many already exempted goods and services under the ambit of VAT.
The severe shortage of goods during the 2022 economic crisis was eased to an extent last year and the situation where goods were available though at unaffordable prices was editorially described by a Colombo English newspaper as an ‘Interval in Hell’.
But the interval was short. Again the cost of living has become unaffordable as a result of tax hikes in the New Year. .
The government cannot do without the IMF. It has no choice but to implement the IMF’s conditions to continue to receive its Extended Fund Facility. Beggars cannot be choosers.
The government is implementing the conditions. As per the IMF’s conditions expenditure is being curtailed and government’s revenue has been enhanced, but without thinking about the potential effects on the people.
It has been announced that a team of IMF officials will be in Colombo this week to assess Sri Lanka’s economic progress. The IMF, which has already given the first two tranches of the four-year bailout, may impose more stringent conditions if it is not satisfied with the measures taken by the government to boost revenue.
Although the national elections are looming on the horizon, one cannot expect sweet promises of economic relief from political parties as in the past. Even the main opposition parties, despite blaming the government for agreeing to the conditions of the IMF, will not be able to withdraw from the agreement with it.
Even if the leaders of those parties say they will renegotiate terms with the IMF, the key question whether they can bring about major changes.
The Central Bank Governor Dr. Nandalal Weerasinghe recently said at a press conference that any government can renegotiate the programme with the IMF, but it would have no option but to follow the path chosen currently to get international support.
“Foreign governments and other commercial entities are extending debt relief only with the understanding that this programme is moving forward. We need to go in this direction, during this period of 10 years of debt structuring. If that changes, they can also change their decision on debt relief. So, if this is broken, they can say we don’t support this any more. We will have to repay USD 6 billion per year in debt repayments” Dr.Weerasinghe stressed.
The governor’s explanation clearly shows the severity of the predicament Sri Lanka is in.
President Ranil Wickremesinghe has said several times in the past year that we will have to face serious challenges in the new year. He can pride himself on being a no-nonsense leader by saying that he does not want to lie to the people about economic recovery and will not hesitate to take decisions that are not popular with the people. But how long can the people bear the burden of the economic restructuring measures that are supposed to be carried out to recover from the state of bankruptcy caused by the misrule of the political class? Nor is the burden shared equitably among all sections of society.
The burden of indirect taxes presses the common man very hard. A report released by the Department of Census and Statistics two weeks ago and recent studies conducted by various organizations of the United Nations such as UNICEF, the World Food and Agriculture Organization, local civil society organizations and media organizations have exposed the misery of the people of Sri Lanka.
The monthly income of most of the employees is around LKR 40, 000. If both husband and wife are working, the monthly income of the family is LKR 80, 000. Most families have an average of two or three children. A family of four members needs at least one lakh 20 thousand rupees to meet their basic needs especially food.
As for private sector employees, salaries have not been increased for after the COVID -19 pandemic. Thousands of workers lost their jobs as businesses closed down. Many of them are still unable to get decent regular jobs.
The average monthly income of 60.5% of households has declined sharply while the monthly expenditure level of 91% of households has increased significantly. As the economic crisis worsened, 22% of the households were forced to borrow from banks or private individuals. 75.2% of the families have changed their food pattern.
97.2% of the households are forced to adopt various strategies to meet the expenses while 46.4% spend their savings on daily necessities.
After 2019, the number of poor people increased from around 40 lakhs to 70 lakhs. An estimated 31% of the population is below the poverty line. A third of the population, or 33 % skip meals on a daily basis and 47% cut down on food intake, while 27% of adults restrict their diet significantly lest their children go to bed with an empty stomach.
In order to cope with the situation, families have not only reduced their food intake but have been forced to give up staple foods and turn to cheaper alternatives. Sri Lanka is second only to Afghanistan in South Asia in terms of malnutrition among children.
This being the case, the Minister of Trade, Commerce and Food Security said last week that the government will take measures to reduce the cost of living burden by 75% by the end of the first quarter of this year. An important question is how feasible it is to make such a large reduction in the present circumstances?
The government may not be able to do anything without the help of the International Monetary Fund. But stringent measures implemented by the government while meeting the strict conditions of the IMF may risk igniting social unrest.
It seems that the government is smugly thinking that it is no longer possible for people to take to the streets and revolt like the Aragalaya uprising.The government may be confident that if there are signs of such an uprising, it can be suppressed by force at the outset.
The government in keen on bringing draconian laws to curb the freedom of expression, democratic protests and trade union activities.
Our government has not learned lessons from the political and social upheavals in countries like Argentina as a result of the IMF’s strict lending conditions. Such uprisings also occurred in Latin American, Middle Eastern and North African countries. In our region Pakistan is facing the same crisis now.
Many international human rights organizations have strongly criticized the IMF’s policies that have increased inequality and led to unrest in many countries.
The Human Rights Watch recently said in a report on IMF policies that austerity measures that reduce government spending on essential services or significantly increase regressive taxes have a well-documented history of undermining rights.
The IMF is pushing policies that have a long track record of exacerbating poverty and inequality and undermining rights. The IMF’ s own internal research indicates that the Fund’s policies are generally not effective in reducing debt, which is their chief objective, HRW has said.
IMF’s World Economic Outlook published in April 2023 observes that fiscal consolidations — a term usually linked to austerity programmes — do not reduce debt ratios , on an average.
It is doubtful whether some of the IMF’s policies and conditions are consistent with the UN Human Rights Council’s guiding principles that require strict criteria to be met and human rights impact assessment conducted by governments and the financial institutions when austerity measures are adopted.
By imposing stringent conditions the IMF, and by implementing those conditions governments, violate human rights and devalue human dignity.
(Editors’ Note. The views expressed in this article are those of the author and not of NewsIn.Asia necessarily)
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