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Thursday June 20th, 2024

Sri Lanka has to improve governance, do transformational reforms to overcome crisis

ECONOMYNEXT – Sri Lanka has to do transformational reforms and improve governance to come out of the current crisis a senor World Bank official said, as the island suffers the worst currency crisis in the history of its intermediate regime central bank.

Sri Lanka’s gross domestic product is expected to shrink to 9.2 percent in 2022 according to World Bank projections after a collapse of the rupee following two year of money printing to support a tax cut, which ended in import controls and default.

Sri Lanka has reached a deal with the International Monetary Fund for a reform program and a loan of 2.9 billion US dollars.

“To come out of the crisis, really fundamental and transformation reforms are needed, because in the past, a lot has gone wrong under difficult circumstances,” Hans Timmer the World Bank’s Chief Economist for South Asia said.

“Sri Lanka came into the crisis because of a lot of external shocks, because some of some internal shocks also but also because of macro-economic management mistakes.”

Sri Lanka is reforming is tax system to boost revenues, and is also trying to trim government spending. With the IMF program Sri Lanka is in talk with creditors to res-structure its debt.

Improving Governance

An important reform was for Sri Lanka to improve governance to make sure that the “system works there is a level playing field and there are fewer opportunities for a mis-use of the system or even corruption,” Timmer said.

“The first priority is to set up a very efficient social safety net and put in place some measures so that a large part of population can become more productive and have access to markets and to finance,” Timmer said.

Before new funding came the Sri Lanka had to do the required reforms, improve governance and also make progress on debt sustainability alongside the IMF program.

Governance of spending, procurement and governance of the financial sector were areas Sri Lanka had to improve, Timmer said.

State enterprise reforms are also required.

Sri Lanka ongoing import controls and permits also have negative effects.

“Anytime you have this kind of restriction and you start introducing a permit system – whether you can import or not – you create opportunities for mis-using that system also,” he said.

Some critics date the corruption that gripped the public sector in the island to the import and exchange controls of the 1970s, where the economy was closed as the Bretton Woods collapsed and money was printed triggering forex shortages.

Sri Lanka has systematically tightened exchange and import controls since an intermediate regime central banks was set up in 1950.

Improving Opportunities

The World Bank played a key role in previous crises in Sri Lanka including in war affected areas and Covid-19 pandemic.

For many year the agency supported education reforms across the country, and focused on improving access to markets.

Helping women participate more in economic activities was an important change that was needed, Timmer said.

New funding could come after the IMF program and required reforms and governance improvements are made.

Sri Lanka’s government has said it is requesting the World Bank to reverse graduate the country from the current more market based lending under the World Bank’s International Bank for Reconstruction and Development to the International Development Association loans given to poorer countries.

“The current situation is difficult for lending and we are discussing with the government all kinds of options on how we can resume lending including whether under certain conditions there could be access to more conditional lending that IDA countries can benefit from,” Timmer said.

“And those are ongoing discussions.”

Though the World Bank has stopped new funding until the required reforms and debt sustainability is reached, it has played a key role in supporting the ordinary public with the procurement of liquefied gas, fertilizer and other emergency relief.

“There is a lot of hardship in Sri Lanka,” Timmer said. “For that reason we reprogramed some of our lending programs that were in the pipeline to provide immediate relief.

“And that focus on the people should also be central when we work together in reforming the economy. Ultimately it is about the people. And give people more opportunities.” (Colombo/Oct12/2022)

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  1. sacre blieu says:

    There are many, who should be spending their time in jail and justified so. Depending on the law courts that take a long delay in the conclusion of cases appear to be a setback and not the solution, even so with the attitude of human rights. Singapore was so crime and corruption-ridden and when Lee Kuan Lew took over. He jailed as many as should and started to clean up the environment to build the nation. We have descended into junk status and now are been ridiculed and humiliated also by world opinion.

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  1. sacre blieu says:

    There are many, who should be spending their time in jail and justified so. Depending on the law courts that take a long delay in the conclusion of cases appear to be a setback and not the solution, even so with the attitude of human rights. Singapore was so crime and corruption-ridden and when Lee Kuan Lew took over. He jailed as many as should and started to clean up the environment to build the nation. We have descended into junk status and now are been ridiculed and humiliated also by world opinion.

Sri Lanka shares debt management experience at global forum

ECONOMYNEXT – Sri Lanka has shared its experiences at a forum on debt management to “provide lessons for others”, State Minister of Finance Shehan Semasinghe has said.

Semasinghe spoke on “The Role of Debt Management in Navigating Crises” at the 14th Debt Management Facility (DMF) Stakeholders’ Forum, in Livingstone, Zambia.

“I shared the experiences of Sri Lanka which can provide valuable lessons for others and explored the critical elements of capacity building and sound institutional practices in managing debt, particularly in the context of economic challenges,” Semasinghe said on X (twitter).

“Sri Lanka’s experience demonstrates that effective debt management is not just about managing numbers but also about building robust institutions and capacities.”

The journey underscores the importance of transparent, accountable governance and the need for international support and cooperation in times of crisis, he said.

“Sri Lanka prioritized addressing gaps in public debt management by drafting a consolidated Public Debt Management Act, ensuring clarity and legal robustness and establishing a centralized Public Debt Management Office with operational autonomy.

“The role of debt management in navigating crises is multifaceted and critical. Further, by investing in capacity building, adhering to sound institutional practices, and strategically managing debt restructuring and liability operations, countries can better withstand economic shocks and pave the way for sustainable recovery.”

Developing countries face severe debt distress as they are more vulnerable to external shocks, Semasinghe said, and “managing global debt requires coordinated international efforts on debt restructuring where necessary, timely fiscal policy adaptation and help sustainable economic growth.”

The state minister also pointed out the financial impact of climate change was an emerging challenge, as countries need investment to mitigate and adapt to climate impacts, “especially through non-debt creating inflows, which would require private capital mobilization.” (Colombo/Jun20/2024)

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Sri Lanka rupee closes stronger at 305.10/30 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger ahead of the long weekend at 305.10/30 to the US dollar on Thursday, up from 305.40/55 to the US dollar Wednesday, dealers said, while some bond yields edged up.

A bond maturing on 15.12.2026 closed at 10.45/80 percent, up from 10.35/75 percent.

A bond maturing on 01.07.2028 closed at 11.20/45 percent.

A bond maturing on 15.09.2029 closed at 12.00/15 percent, up from 11.95/12.35 percent.

A bond maturing on 01.12.2031 closed at 12.05/25 percent.
(Colombo/Jun20/2024)

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Sri Lanka stocks close up, JKH trade pushes turnover

ECONOMYNEXT – The Colombo Stock Exchange closed up on Thursday, data on its site showed.

The broader All Share Index closed up 0.19 percent, or 23.11 points, at 12,249; while the more liquid S&P SL20 Index closed up 0.15 percent, or 5.33 points, at 3,610.

Turnover was 2 billion. Nearly half of this (Rs980mn) came from a crossing on John Keells Holdings Plc. The share closed down at 202.00.

“There were several crossings today which pushed turnover,” market participants said.

“Institutions and high net-worth activity drove the market, while the retail investors we feel are still about uncertain and adopting a wait-and-see approach.”

Melstacorp Plc was among the companies that saw active volumes (Rs194mn) in the day. The share closed up at 87.10.

Top contributors to the index included TeeJay Lanka Plc (up at 41.70), Sampath Bank Plc (up at 79.50), Hatton National Bank Plc (down at 201.00). Hayleys Plc (up at 105.00) and its subsidiary Hayleys Fabric Plc (up at 46.60) were also positive contributors. (Colombo/Jun20/2024)

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