Fiscal discipline matters. Sri Lanka learned what happens when governments borrow, spend, subsidise and pretend indefinitely that arithmetic is optional.
That does not mean economic policy should become an exercise in obeying yesterday’s assumptions regardless of today’s circumstances.
The IMF programme was constructed around forecasts: oil prices, growth, inflation, revenue, reserves, imports and the external environment. Those forecasts necessarily involved assumptions about a world nobody could predict with certainty.
That world has changed.
Oil at around US$105 is not a rounding error for Sri Lanka. Neither is prolonged disruption around the Strait of Hormuz. An energy-importing island recovering from sovereign default has considerably less room to absorb an external shock than a wealthy economy sitting on substantial reserves.
This does not justify abandoning reform. It makes intelligent reform more important.
The Government should not use the Middle East conflict as an excuse to restore wasteful subsidies, postpone politically inconvenient restructuring or reopen the door to fiscal indiscipline. Equally, the IMF should not regard every previously agreed deadline as sacred merely because it appears in a programme document.
There is a difference between discipline and rigidity.
The purpose of an economic programme is to restore an economy, not to demonstrate that every assumption made when the programme was written was correct.
Sri Lanka has made sacrifices to reach this point. Taxpayers have paid more. Electricity consumers have paid more. Businesses have absorbed higher costs and households have watched disposable incomes shrink.
If another major external shock is now arriving, the Government’s first obligation is to quantify it honestly. How much additional foreign exchange will US$100-plus oil require? What happens to inflation? What happens to fuel pricing? What happens to electricity? What happens to the balance of payments?
Those answers should determine policy.
Not pride. Not politics. And not an old spreadsheet.
Be that as it may, economic credibility does not come from refusing to change course.
Sometimes it comes from having the courage to recognise that the sea itself has changed.
