Amid a severe economic crisis and 95% food inflation, Sri Lanka is planning to dismantle social security systems such as the Employees Provident Fund and Employees Trust Fund as part of an austerity response, as of Thursday. The International Monetary Fund (IMF) and World Bank have proposed measures including doubling the value-added tax, removing fuel subsidies, and raising electricity prices by 165%. In addition, they propose introducing Aswesuma, a targeted cash transfer scheme set to replace Samurdhi.
However, this approach has been met with criticism from various quarters. An array of 82 trade unions and an Oxfam report have raised concerns that these measures could lead to targeting errors, costly bureaucracy, social stigma, and corruption. To counteract these potential issues, a civil society campaign led by the Global Coalition for Social Protection Floors has been launched advocating for universal social protection by 2030.
In a move to stimulate growth amidst cooling inflation, the Central Bank of Sri Lanka (CBSL) has cut interest rates, following a careful analysis. This decision comes after the CBSL had previously hiked rates to control inflation during the financial crisis.
The IMF’s $2.9 billion bailout has played a significant role in stabilizing the economy and increasing international bond prices. However, during their first bailout review, a potential government revenue shortfall led to a failed agreement with the IMF. This failure could delay the release of the second tranche of funds meant to further aid Sri Lanka’s economy.
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