Government's success in building trust needs to expand

The government has been trying to overcome the most serious economic breakdown in the country's modern history.

- BY JEHAN PERERA

By negotiating without prevarication with the International Monetary Fund and by allowing the Commission to Investigate Allegations of Bribery or Corruption, the police and the courts to do their work, it has persuaded foreign partners and the general public that it can be trusted. That credibility now gives the government an opportunity that its predecessors failed to obtain. It can and must use the trust it has gained to confront the legacy of war and heal a country that is still divided.

The clearest indication of its credibility is the new relationship with the IMF. Last week the Executive Board of the IMF completed the fourth review of the Extended Fund Facility and authorised the disbursement of another USD 350 million to Sri Lanka. At the same sitting it granted waivers after the government admitted that it had under reported expenditure arrears during earlier reviews and outlined steps to improve the integrity of its data. Instead of imposing penalties, the IMF was lenient to acknowledge the corrective action and the deeper commitment to fiscal transparency.

In other cases, as in Ukraine in 2001 and Dominican Republic in 2004, the IMF has frozen assistance when borrowers misstate information. That it refrained on this occasion speaks well about the confidence it places in the government's determination to reform. Tariff increases, steeper taxes and the withdrawal of blanket subsidies have caused economic hardship to the people, yet the government has persisted. Reserves have stabilised, inflation is low and output is returning to modest growth even as turbulence in global trade poses fresh risks. Debt restructuring with bilateral and commercial creditors is close to completion, and the automatic electricity tariff formula, another unpopular measure, has been brought into play.