Harsh reforms vital to stabilise Sri Lanka's economy: Central Bank Governor

Sri Lanka's Central Bank Governor Nandalal Weerasinghe (From Bloomberg)

Sri Lanka's Central Bank Governor Nandalal Weerasinghe has said that tough policy measures adopted by the government to overcome the ongoing economic crisis were vital to stabilise the island nation's economy.

"The difficult and painful policy measures implemented by the Government and the Central Bank thus far have helped to stabilise the economic conditions, compared to the unprecedented socio-economic tensions witnessed in 2022," Weerasinghe said.

Sri Lanka introduced painful economic measures such as tax hikes and utility rate hikes to unlock the $2.9 billion IMF bailout programme to help it overcome its economic crisis and catalyse financial support from other development partners. "Despite these reforms have resulted in significant adjustment costs, causing hardship to the people and businesses in the near term, they were necessary to restore stability, which will accrue benefits to the people and businesses in the period ahead," he said in a statement last week.

Trade unions and opposition groups have organised protests against such tough measures and have vowed to carry on with mass-scale agitation to seek personal tax reductions. The IMF, which approved a $2.9 billion bailout on March 20, said in a statement on Saturday that all must join in the recovery effort to pull the country out of the crisis.

The IMF further added that Sri Lankan authorities had committed to an ambitious reform program to stabilise the economy. The island nation received $330 million as the first tranche of the International Monetary Fund (IMF) bailout programme, which will pave the way for the country to achieve better "fiscal discipline” and "improved governance. Sri Lanka in April last year declared its first-ever debt default in its history as the worst economic crisis since independence from Britain in 1948 triggered by forex shortages sparked public protests.

The months-long street protests led to the ouster of the then-president Gotabaya Rajapaksa in mid-July.