The Central Bank Governor Nandalal Weerasinghe has failed to take a firm decision to prevent the contraction of the economy causing the consumer market to shrink by 60% by April, the Sri Lanka United National Businesses Alliance (SLUNBA) alleged.

The consumer market had shrunk by 40% last December and due to this, the unemployment rate had increased.

The small and medium-sized enterprises (SMEs) will be forced to close their companies and while facing the current situation, the government is requesting that Sri Lanka should downsize the SME facilities, the SLUNBA said.

Therefore, SLUNBA Chairman Tanya Abesundara requested the government to take immediate action to protect the SMEs.

The central bank last year raised the key monetary policy rates by a record high level to curb inflation after the money printing.

The move, however, has hit the overall economy which was already on a downturn due to debt crisis and currency collapse.

The economy registered a real contraction of around 8.0 percent in 2022 and expected to record a gradual recovery from the second half of 2023 and sustain the growth momentum beyond, the central bank said.

But in 2022, at least half a million people lost their jobs, most of which were in the industry and services sectors and employed women, World Bank disclosed.

Those already classified as poor saw a 65 per cent increase in their cost of living, while the increase was 57 per cent for the non-poor, highlighting the significant loss of welfare for all Sri Lankans.

The economic crisis has left deep scars. Poverty nearly doubled in Sri Lanka between 2021 and 2022, climbing from 13 to a staggering 25 per cent (using a poverty line of US$ 3.65 per person per day), and is projected to increase by more than 2 percentage points in 2023.

In the same time frame, urban poverty tripled from 5 to 15 per cent. Sri Lankans have been forced to quickly adapt to a new reality where prospects for a good job are limited, incomes are lowered and eroded by inflation, and opportunities for a better future are becoming increasingly rare.

Meanwhile, National Construction Association of Sri Lanka (NCASL) Chairman Susantha Liyanaarachchi said the government did not control the dollar, but it had controlled inflation and created a recession while contracting the economy.

While describing the devaluation of the dollar and appreciation of the Sri Lankan rupee, he said the Etham market had not operated since March 2022 and the dollars in Sri Lanka had been saved.

“The dollar exchange rate was reduced, and people were forced to release their dollar reserves because they couldn’t get more Sri Lankan rupees. Now people have no buying power. People do not have rupees in their hands,” he said.

The Executive Board of the International Monetary Fund (IMF) is set to decide on Sri Lanka’s Extended Fund Facility (EFF) at its meeting on 20 March.

IMF Managing Director Kristalina Georgieva had said that she looks forward to presenting for approval Sri Lanka’s IMF-supported program to the IMF Executive Board on March 20. She said the Extended Fund Facility will support the authorities’ program of ambitious reforms.

The Managing Director of the International Monetary Fund (IMF) has welcomed the progress made by the Sri Lankan authorities in taking decisive policy actions and obtaining financial assurances from all major creditors including China, India and the Paris Club.

The arrangement will support the authorities’ program of ambitious reforms, that they have already embarked upon, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth.”

While welcoming the progress made on debt restructuring, the European Union today said that reforms are essential to come out of the crisis stronger.

“As the EU States gave early financing assurances to the Sri Lanka Government, the Delegation of the European Union to Sri Lanka welcomes the progress made on debt restructuring.

Reforms are essential to come out of the crisis stronger. The EU will continue supporting Sri Lankans, including through renewed efforts on social protection,” the EU in Sri Lanka tweeted today

Sri Lanka has closed in on getting a sign-off on the long-awaited bailout package of USD 2.9 billion from the IMF upon receiving fresh financial assurances from China on restructuring the island’s debt.

Addressing the parliament yesterday morning, President Ranil Wickremesinghe said a letter of agreement, signed by him as the finance minister and the Central Bank Governor. Nandalal Weerasinghe, was forwarded to the IMF soon after receiving assurances from the Export-Import (EXIM) Bank of China.

However, the Deputy Ambassador of China to Sri Lanka, Hu Wei officially handed over the financial assurance letter issued by the EXIM Bank of China to Sri Lanka’s Finance Ministry Secretary, Mahinda Siriwardana yesterday at the Presidential Secretariat.

The envoy noted that large-scale Chinese companies are looking forward to visiting Sri Lanka in the near future to explore new investment opportunities.

The objectives of this IMF-supported program are to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.

“This paves the way for consideration by the IMF’s Board on March 20 the approval of the Staff Level Agreement reached on September 1, 2022 for financing under an Extended Fund Facility,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department (APD) said in a statement.

The IMF says its board’s approval of a new loan for Sri Lanka would help catalyse financing from other creditors, including the World Bank and the Asian Development Bank.

“The arrangement will support the authorities’ program of ambitious reforms that they have already embarked upon, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth,” Srinivasan added.