The Unravelling of the Global Political Economy and Sri Lanka’s IMF Solution

Keeping track of the twists and turns of the proposed International Monetary Fund (IMF) agreement for Sri Lanka is difficult. The narrative justifications for the agreement reflect both the shifting priorities of the country’s elite and the speculative interests of global capital represented by powerful creditor countries. Over the past year, neo-liberal elements within the opposition and government have put forward various arguments for why Sri Lanka should go to the IMF. Perhaps first and foremost was the argument that because Sri Lanka was experiencing a crisis of macroeconomic adjustment, it required the IMF’s support to stabilise foreign exchange reserves. When it was pointed out that the IMF would technically only provide very limited resources—in the range of a few billion dollars—establishment experts claimed that an IMF seal of approval would also enable Sri Lanka to eventually regain access to international capital markets.

In this context, the government of Gotabaya Rajapaksa earlier in 2022 appointed a new central bank governor, a new finance secretary and a new fina­nce minister, Ali Sabry, who lasted just over a month in his position. The government and these policymakers took the disastrous expert advice to prematurely default on Sri Lanka’s external debt. Meanwhile, the opposition had also been going along with neo-liberal arguments that Sri Lanka did not have enough foreign exchange to cover essential imports, and that it should default on its foreign debt to apply the funds from debt repayments towards these imports. The premature default came with the outright refusal to prioritise imports, which betrayed the neo-liberals’ interest in continuing with the free trade regime while subjecting Sri Lanka to the dictates of the IMF.