IMF Warns Sri Lanka’s Economic Recovery at Risk Amid Possible Trade Union Strikes
Sri Lanka’s fragile economic recovery could face setbacks due to threatened trade union strikes in response to cuts in government employee benefits included in the country’s 2024 budget, the International Monetary Fund (IMF) cautioned on Tuesday.
President Anura Kumara Dissanayake’s first budget raised public sector salaries but also implemented deep cuts to longstanding perks as part of efforts to stabilize the island nation’s finances. These measures have sparked discontent among public sector workers, with Sri Lanka’s main doctors’ union contemplating a strike starting Wednesday, and teachers also considering work stoppages.
Peter Breuer, IMF team leader for Sri Lanka, described the budget as the “last big push” for the country’s austerity program and urged sacrifices from all sectors to ensure its success. He stressed that continuing with these reforms is essential for Sri Lanka’s long-term sustainability. “This is the last budget where there is still a bit of an increase in revenues needed,” Breuer said, highlighting the crucial nature of the fiscal adjustments.
Sri Lanka faced an unprecedented economic crisis in 2022, leading to severe shortages of food, fuel, and other essential goods. The country secured a $2.9 billion bailout loan from the IMF in 2023, almost a year after defaulting on its $46 billion foreign debt. Since then, the government has raised taxes and cut public spending to boost state revenue.
While the IMF acknowledged the progress Sri Lanka has made, Breuer warned that the coming year would still be difficult, though the country could see an easier path ahead once these reforms take full effect. The IMF recently disbursed its fourth tranche of $334 million to Sri Lanka, commending the nation for adhering to its reform commitments.
IMF Deputy Managing Director Kenji Okamura noted that Sri Lanka’s economic recovery has been remarkable, with low inflation, improving revenue collection, and growing reserves. He expressed optimism that the recovery would continue into 2025, provided the country remains committed to its economic reforms.
