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Friday December 8th, 2023

Sri Lanka needs extensive discussions, debt fix, for program – IMF says

ECONOMYNEXT – Sri Lanka needs ‘extensive discussions’ for an International Monetary Fund backed program and debt has to be made ‘sustainable’ the Washington based lender said after the country made a request for rapid financing.

“The specific design of Sri Lanka’s IMF-supported program, including the program targets and conditionality, would be agreed through extensive discussions between the authorities and IMF staff, and guided by the applicable IMF policies,” IMF mission chief for Sri Lanka Masahiro Nozaki said.

“The discussions are still at an early stage.”

The IMF had already decided that Sri Lanka’s debt is unsustainable.

Sri Lanka will have to re-structure foreign debt to bring the gross financing needed to a feasible level and has to allow rates to go up to stop central bank financing of domestic debt.

“When the IMF determines that a country’s debt is not sustainable, the country needs to take steps to restore debt sustainability prior to IMF lending,” Nozaki said.

“Thus, approval of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored.”

Sri Lanka suspended debt payments on April 12 but has not yet begun discussions with creditors, but has advertised for lawyers and financial advisors to evaluate debt.

Sri Lanka said on Monday that the country had made a request for a Rapid Finance Instrument, a low access facility given under certain circumstances including commodity price shocks.


Sri Lanka asks for quick RFI from IMF, India backing for bigger EFF

Sri Lanka has hiked fuel prices but has not adjusted power prices, which worsens losses, and forces the Ceylon Electricity Board to borrow from banks, worsening pressure on credit and the policy rate and therefore the balance of payments.

“The precondition of debt sustainability is also applicable to emergency financing such as a Rapid Financing Instrument,” Nozaki said.

“IMF emergency financing such as RFI provides rapid financial assistance in case of urgent balance of payments needs, including those arising from commodity price shocks, natural disasters, and conflicts,” Masahiro said.

“It is designed for situations where a full-fledged economic program is either not necessary or not feasible.

“These considerations would need to be examined for a potential RFI for Sri Lanka, once adequate assurances are obtained that debt sustainability will be resolved.”

Sri Lanka’s rupee is falling after an attempt was made to float the currency without an adequate rate hike and a ‘surrender requirement’ that pushes the exchange rate peg down (strong side convertibility).

Sri Lanka has a soft-peg (unstable flexible exchange rate) with anchor conflicts which leads to frequent currency crises when a stimulus is attempted (output gap targeting, or production economy/developmental state with flexible inflation targeting).

Sri Lanka is most likely to need a reform backed Extended Fund Facility to restore the country to a reasonable growth path and arrest the current monetary meltdown.


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What Sri Lanka’s IMF program should look like

“We are very concerned about the current economic crisis in Sri Lanka and hardships suffered by the people, especially the poor and vulnerable,” Nozaki said.

“The Managing Director met with the delegation on April 18. Discussions covered economic and policy developments, the authorities’ policy plans, and options of IMF lending for Sri Lanka.

“An IMF-supported program should be designed to resolve Sri Lanka’s acute balance of payments problems and put the economy back on a sustainable growth path as early as possible.”

Analysts have warned that half-hearted bond auctions half-hearted floating will lead to steep depreciation.

Sri Lanka’s monetary meltdown will accelerate unless quick action is taken

Sri Lanka is now suffering the effects of a failed float though a new central bank Governor has hiked rates steeply which will help slow credit, though a surrender requirement is still in place, and power prices have not been fixed. (Colombo/April20/2022)

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SLPP enjoying “great demand” from potential presidential candidates: Namal

FILE PHOTO – President Gotabaya Rajapaksa with nephew Namal at the opening of the last part of the Southern Expressway/PMD

ECONOMYNEXT – The ruling Sri Lanka Podujana Peramuna (SLPP) enjoys “great demand” from potential presidential candidates, and the party will have to take a call on working with incumbent President Ranil Wickremesinghe, MP Namal Rajapaksa said.

Speaking to reporters on Thursday December 07, Rajapaksa claimed several names have come up concerning the SLPP’s candidate at next year’s presidential election.

“There is great demand: entrepreneurs, businessmen, politicians, are all there. There are presidents too, ready to come forward with our party,” he said.

“Out of all these people, we will put forward on behalf of our party the candidate that can take the country forward while stabilising the economy,” he added.

Commenting on continued support for President Wickremesinghe, Rajapaksa said the while SLPP at present works with the former in the present government, the party will have to decide whether that relationship continues going forward.

“The matter of whether we work with the United National Party (UNP) in the future – this is not a politics dependent on individuals; the SLPP is a party. We will talk as a party with other parties, but no discussions will be held centred around individuals,” he said.

Rajapaksa noted that Wickremesinghe was the only member of parliament representing the UNP at the time of his election by parliament following the resignation of his predecessor Gotabaya Rajapaksa .

“If we are to collaborate with the UNP in the future, we’ll have to discuss that. Once the party has decided on that, we can get a start on those discussions. Today, we work with the president in the present government,” he said.

Last month, when asked to comment on President Wickremesinghe’s 2024 budget, MP Rajapkasa sounded rather sceptical of the president’s ambitions for turning the crisis-hit economy around.

“We must study the budget. He had presented a lot of these proposals in last year’s budget too. They don’t seem to have been implemented,” Namal Rajapaksa said, speaking to reporters after the budget presentation Monday November 13 afternoon.

Rajapaksa’s father and leader of the SLPP former president Mahinda Rajapaksa, however, spoke in favour of Wickremesinghe’s budget.


Sri Lanka’s “forward-looking” 2024 budget will instill fiscal discipline: MR

While not without its shortcomings, the older Rajapaksa said, the 2024 budget is a forward-looking one that aims to ensure fiscal discipline and put Sri Lanka on the path to recovery. (Colombo/Dec07/2023)

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Sri Lanka ruling party MP contradicts poll to claim his party is overtaking president’s

ECONOMYNEXT – The ruling Sri Lanka Podujana Peramuna (SLPP) is rising from the ashes albeit at a slower than anticipated pace, while President Ranil Wickremesinghe’s United National Party (UNP) still commands only 1-2 percent of the vote, an SLPP legislator said.

MP S B Dissanayake, who is not a member of the cabinet of ministers headed by President Wickremesinghe, told reporters on Thursday December 07 that support for any major political party of the island nation is on a downward trend while the SLPP alone is gaining ground.

An independent poll by the Institute for Health Policy (IHP) however shows that this is decidedly not the case. Polling data for October showed that the leftist National People’s Power (NPP) had enjoyed support from 40 percent of likely voters, having dipped 2 percent from September, while the main opposition the Samagi Jana Balawegaya (SJB) stood at 26 percent, increasing four percent from 22 percent in September. President Ranil Wickremesinghe’s UNP’s support decreased marginally to 11 percent in October from September’s 13 percent. The SLPP also saw a decrease to 5 percent from the previous month’s 8 percent.

“You can’t gamble with elections. The election must be held. We always say electrons must be held. The presidential election must be held next year. There is no alternative,” said Dissanayake.

“Parliamentary elections can be called if needed. But that’s not how it is with the presidential election. Nominations for that will have to be called by September, October next year,” he added.

Asked by a reporter if the SLPP is ready for elections, Dissanayake acknowledged that support for his party had eroded, to nothing.

“We crashed to zero. We were turned to ashes. But we will rise from those ashes. We’re not where we thought we were. The 6.9 million [votes received at the 2019 presidential election] no longer applies. We’re at about half of that. But we’re rising, like this,” he said, gesturing upwards.

“As other major parties go in the opposite direction, we’re rising slowly. But the UNP is not. It’s still on the ground, and still at 1 to 2 percent,” he claimed.

“The SLFP is there too. Those who left us are the same. Even together they cannot form 1 percent. But we’re climbing,” he said. (Colombo/Dec07/2023)

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Sri Lanka president appoints main opposition MP advisor

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has appointed MP Vadivel Suresh as a Senior Advisor aimed at “fostering the integration of Hill Country Tamils into Sri Lankan society”, the president’s office said.

A statement from the President’s Media Divison (PMD) said Suresh’s “pivotal role will centre around overseeing the comprehensive integration of Hill Country Tamils, particularly focusing on the districts of Badulla, Nuwara Eliya and Rathnapura”.

“The Senior Advisor will play a key role in coordinating various initiatives related to the welfare of Plantation Companies, the promotion of women, safeguarding children, addressing disparities in Tamil schools and upgrading the delivery of health services,” the statement said.

In May this year, Suresh, who represents the main opposition Samagi Jana Balawegaya (SJB) in parliament and also serves as the general secretary of the Lanka Jathika Estate Workers’ Union, made headlines when he issued an ultimatum to opposition and SJB leader Sajith Premadasa, demanding an apology for a perceived slight on the Indian-origin Tamil community that Suresh represents. He also spoke favourably of President Wickremesinghe, hinting at a possible cross over.

Sri Lanka’s Indian-origin Tamils, most of whom have historically worked in the plantation sector and live in dire conditions on wages widely considered unacceptably low. Speaking at a May Day rally, the Badulla district MP said Premadasa must apologise to the estate Tamils for allegedly snubbing them at an event in Madulsima that he failed to attend.

“I would like to say to our leader, sir, do not take us for granted,” said Suresh.

“If you need us to stay with you, come right now to Madulsima and apologise to my people and then we shall restart our journey. Otherwise I won’t be part of that journey. There will be no Vadivel Suresh. If you don’t apologise to my people, I won’t be with the SJB,” he said.

Making matters worse, the MP also expressed a willingness to join President Wickremesinghe if he was able to raise the daily wage of plantation workers and resolve their grievances. He also said the president has been successful in containing the disruptions caused by the currency crisis.

“On this May Day, we say to both the opposition leader and the president, I and my people would join hands with a leader that worked to increase [estate workers’] wages and give them [access to the Samurdhi welfare scheme] and include them in national policy,” he said. (Colombo/Dec07/2023)

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