The Asian Development Bank (ADB) has expressed expectations that Sri Lanka will continue to uphold the International Monetary Fund (IMF)-led policy reforms, despite impending elections, according to Takafumi Kadono, the ADB Country Director for Sri Lanka.
Historically, Sri Lanka has grappled with policy reversals driven by politicians exploiting populist sentiments, fostering a culture of unsustainable subsidies and accumulating debts at exorbitant borrowing costs. These actions culminated in an unprecedented economic crisis in 2022, marked by a sovereign debt default, from which the island nation is still endeavoring to recover.
Under the IMF's stringent guidelines, Sri Lanka has implemented various reforms, particularly targeting state sector enterprises, fiscal, and monetary sectors. These reforms, including elevated personal income taxes, have been executed amid concerns regarding their sustainability, especially in light of potential shifts in policies following democratic elections.
Kadono emphasized the ADB's stance, stating, "If that kind of reversal happens, we also cannot justify our support. We do expect these policy reforms to be sustained. So that is our expectation. That is the premise which we are providing our budget support. If they reverse, the whole premise will be collapsed. That kind of policy reversal cannot happen."
Despite Sri Lanka's recurrent solicitations for IMF bailout packages, totaling 17 times including ongoing assistance, challenges persist in fulfilling past loan disbursements due to politically motivated conflicts with the IMF's stringent fiscal policies.
