COLOMBO -
Sri Lanka's government, led by Ranil Wickremesinghe, faced public protests after implementing austerity measures linked to a US$3 billion bailout agreement with the International Monetary Fund (IMF) from March 2023. The stringent conditions, including spending cuts and tax reforms, are part of efforts to combat the nation's escalating inflation, debt crisis, and recent sovereign default. These measures have notably hindered wage recovery in the aftermath of a significant financial downturn.
The impact of the austerity measures has been uneven across Sri Lankan society. Reports indicate that these measures have disproportionately affected ethnic minorities and the country's poorest citizens, who typically support the opposition. This demographic has been burdened with increased taxes such as a doubled value-added tax rate now at 15%, and taxes on pension-fund returns. Meanwhile, the Buddhist Sinhalese elite, who often back the current government, were spared from wealth taxes.
This situation in Sri Lanka reflects findings from the study "IMF Lending: Partisanship, Punishment and Protest," which suggests a global pattern where governments might use IMF programs to their political advantage. The study highlights that administrations may impose adjustment burdens on groups that are not their traditional supporters while protecting their own political base from financial hardships.
Further research into IMF programs underscores that restructuring efforts can create distinct winners and losers within sectors of an economy. For instance, a survey covering civil servants from nine African countries found that only 30% perceived IMF reforms as beneficial.
Citizens' reactions to these policies have been marked by protests. While IMF programs are known to restrict economic policy autonomy, borrowing countries maintain considerable leeway in how loan conditions are applied. This discretion can lead to politicization and subsequent public demonstrations when citizens feel that reforms are implemented unfairly or target specific demographic groups.
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