A group of independent economists have launched an emergency plan of action with the aim of stopping further collapse of the economy and to stabilise it over the medium-term.
The independent group of economists state that macroeconomics risks will continue to worsen if immediate action is not taken.
“Sri Lanka has run dangerously low on foreign reserves and faces the spectre of a ‘disorderly default’ on its debt obligations.
Although a default may cause legal complications in debt restructuring negotiations and reputational damage for the future, much of the economic consequences of a sovereign default are already here,” a media release from the group stated.
The group calls on the Government to take steps to achieve this outcome immediately. They state that a staff-level “agreement with the IMF can establish market confidence and help unlock bridge financing.”
The independent economists who are signatories to the document are Aneetha Warusavitarana, Anushka Wijesinha, Asanka Wijesinghe, Chayu Damsinghe, Daniel Alphonsus, Deshal de Mel, Naqiya Shiraz, Rehana Thowfeek, Shiran Fernando, Thilina Panduwawala and Umesh Moramudali.
The economists noted:
* Sri Lanka has run dangerously low on foreign reserves, and faces the spectre of a ‘disorderly default’ on its debt obligations.
Although a default may cause legal complications in debt restructuring negotiations and reputational damage for the future, much of the economic consequences of a sovereign default are already here.
* The country is already locked out of International debt markets and is unable to refinance its maturing debt or its current account deficit. The result is an acute shortage of foreign exchange that has led to power outages, shortages of cooking gas, fuel, medicine and other basic necessities.
* With headline inflation based in CCPI at 18.7% and food inflation at 30.2% as of March 2022[1]. Sri Lankans are seeing the cost of goods spiraling upwards, and the value of their savings diminishing rapidly.
* Spiraling costs and wage demands are making it difficult to do business in particular for small and medium sized firms who are struggling to survive.
* Long-run policy errors have become concentrated to a point that make daily life very difficult. Most Sri Lankans are now facing more than 10 hours of power cuts, with no end in sight.
* This discontent is fuelling protests, as the authorities have thus far failed to put forward a credible plan to tackle the economic crisis. The economy is collapsing and people’s livelihoods are being destroyed, the immediate objective should be to stem further collapse.
* This document is an attempt to provide an emergency action plan to focus the attention of Parliamentarians, activists, and civil society to take urgent steps to stem the economic decline.
* The immediate priority is to stop things from getting worse and implementing policy changes that provide stability in the medium term.