80 years of IMF and World Bank Colonisation of the World — The Sri Lankan Experience

The International Monetary Fund (IMF) has recently become a prominent topic in Sri Lanka due to the austerity measures it proposed to address the country’s debt crisis. These measures have increased taxes for ordinary citizens, even as the previous interim government warned that Sri Lanka would face further difficulties if it did not adhere to the IMF package agreed upon in mid-2022. The IMF package was a key issue in the recent presidential election, resulting in a significant loss for the interim president, a strong proponent of IMF solutions. The election was won by left-party politician Anura Kumara Dissanayake, who takes a more measured approach to the IMF.

The IMF and the World Bank have played pivotal roles in shaping Sri Lanka’s economic landscape since their establishment in the mid-20th century. Founded in 1944, the IMF and World Bank were designed to promote global financial stability and development, respectively. Over the past 80 years, their involvement in Sri Lanka has included a mix of financial assistance, policy advice, and development projects, significantly influencing the country’s economic trajectory. However, Sri Lanka lost its debt sustainability in mid-2020, leading to widespread suffering among the population due to shortages of basic necessities, including fuel, gas, and food. This debt crisis sparked public protests, culminating in the ousting of former president Gotabaya Rajapaksa. His elder brother, Mahinda Rajapaksa, stepped down as Prime Minister, while their younger brother, Basil Rajapaksa, resigned from his position as Finance Minister.

Sri Lanka, then known as Ceylon, became a member of the IMF and the World Bank shortly after gaining independence in 1948. The initial years of post-colonial governance were marked by efforts to establish a stable economy and social welfare systems. The government sought assistance from the IMF and World Bank to address balance of payments issues, support infrastructure development, and promote economic growth.

In the 1970s, Sri Lanka faced economic challenges, including high inflation and low growth rates. The IMF stepped in with financial assistance, implementing structural adjustment programs aimed at stabilizing the economy. These programs typically involved austerity measures, currency devaluation, and economic liberalization policies. While they aimed to restore economic stability, the social implications were profound. During the protracted civil conflict that plagued Sri Lanka from 1983 to 2009, the World Bank’s focus shifted to humanitarian aid and reconstruction efforts in war-torn areas. The World Bank, in particular, invested in post-conflict recovery initiatives, aiming to rebuild infrastructure and restore livelihoods. Following the end of the conflict, Sri Lanka experienced significant economic growth, driven mainly by tourism, garment exports, and remittances from abroad.

The IMF and World Bank’s impact on Sri Lanka’s economy and society has been multifaceted. On one hand, their financial assistance and development projects have contributed to essential advancements in infrastructure, health, and education. Rural communities have benefited from improved access to basic services, and economic policies supported by the IMF have, at times, restored macroeconomic stability.

On the other hand, the social costs associated with structural adjustment programs and austerity measures have raised concerns. Focus on market-driven policies often overlooked the needs of the most vulnerable populations. Inequality and poverty remain pressing challenges, as the benefits of growth have not been evenly distributed. Whatever the solutions these spin doctors have given, about 24% of the population became poor due to the debt crisis that began in 2020. According to a more recent report by the FAO and the United Nations World Food Programme, it is estimated that 3.9 million people, or 17% of the population, are in moderate acute food insecurity.

The IMF has trained bureaucrats and politicians to praise its work and seek its advice constantly. Since joining the IMF, Sri Lanka has received assistance at least 16 times. While we’ve addressed some issues, our debt continues to rise, adversely affecting the population.

The Extended Fund Facility arrangement for Sri Lanka was approved by the Executive Board on March 20, 2023, amounting to SDR 2.286 billion (approximately US$3 billion). The most recent evaluation indicates that while most structural benchmarks due by the end of April 2024 were either met or implemented with delays, the economy remains vulnerable, and the path to debt sustainability is precarious.

Domestic debt in Sri Lanka increased to USD$57 billion in March 2024, up from US$52 billion at the end of the previous year, while external debt rose from USD$34 billion in 2022 to USD$37 billion in 2024. This growing debt is creating a vicious cycle, forcing citizens to work harder and pay more taxes. The VAT has been raised to 18%, and income tax has increased to 36%, highlighting the lack of tax justice in the country.

In conclusion, the roles of the IMF and World Bank in Sri Lanka over the past 80 years have been significant yet complex. While their contributions to economic stabilization and development are notable, they have also sparked challenges and criticisms regarding social equity and governance. Ultimately, the question of whether the people of Sri Lanka have truly benefited from their long-standing relationship with these institutions remains a pressing dilemma.