ECONOMYNEXT – Sri Lanka aims to reach a staff-level agreement with the International Monetary Fund (IMF) and also have a framework in place for debt restructuring by the end of July, Prime Minister Ranil Wickremesinghe said.
Representatives of the financial and legal advisory firms Lazard and Clifford Chance are now in Sri Lanka to assist with the debt restructuring framework, he said, while talks will continue over the next few days with an IMF delegation already in the island nation. In addition to this, a team from the US Department of the Treasury is set to arrive in Colombo on June 27, preceded by a top-level Indian delegation on Thursday, June 23.
“We have concluded the initial discussions [with the main IMF team] and we have exchanged ideas on various sectors such as public finance, finance, debt sustainability, stability of the banking sector and social security,” Wickremesinghe said in a speech delivered to parliament on Wednesday, June 22.
Sri Lanka is going through its worst ever forex crisis, resulting in miles-long queues for fuel and ever-lengthening lines for cooking gas and other essentials as the cost of living skyrockets. The economic crisis has precipitated a political crisis, with widespread protests demanding the resignation of President Gotabaya Rajapaksa whose policies opposition parties and experts alike blame for triggering the crisis.
Wickremesinghe, whose surprise appointment as Prime Minister has not been uncontroversial, told parliament that the IMF was the only feasible way out and that, once a staff-level agreement has been reached and a debt restructuring framework was in place, the IMF’s executive board will arrive at its final decision.
“The only option before us now is to hold discussions with the IMF.
“We have to take this path. We aim to hold discussions with the IMF and arrive at an agreement to obtain an additional credit facility. As the next step, we hope to form a foundation to stabilise the economy and implement an immediate programme to increase our export revenue,” he said.
Wickremesinghe claimed that this plan has already been formulated following discussions with the Central Bank, Treasury, relevant government officials, professionals and experts.
As part of the government’s efforts to get Sri Lanka back on track, Wickremesinghe said, it has already reverted to the tax system that was in place in 2019.
Sweeping tax cuts by President Rajapaksa, purportedly on the advice of Keynesian economists, soon after his election in November 2019 has been blamed for an erosion of revenue, which led to a runaway budget deficit. The government raised value-added tax (VAT) to 12 per cent from 8 per cent with effect from June 01 2022 to contain this.
Wickremesinghe said the government has decided to ensure a primary surplus in the national budget by 2025.
“Next, an IMF team on revenue and taxation visited Sri Lanka for discussions. They presented us with the relevant report.
“Meanwhile, next Monday (June 27), a team of representatives from the US Department of the Treasury will also arrive in Sri Lanka,” he said.
“We have ensured that we created the background necessary for the immediate arrival of these three teams in Sri Lanka. We will conduct lengthy discussions with them. Their presence in the country will now allow us to hold meetings together with all three teams. It will only further assist us in expediting our programme,” said the prime minister.
Parallel to these discussions said Wickremesinghe, the government will organise a foreign credit aid consortium led by India, Japan and China, the country’s main bilateral lending partners.
“However, there have been some conflicts and disagreements between us in the recent past. We are working towards resolving these and fostering friendly relations once again. Each country has different processes for granting loans. Through the credit aid conference, we hope to arrive at a consensus on the lending processes,” he said.
“If we receive the IMF seal of approval, the world will once again trust us. It will help us to secure loan assistance as well as low-interest loans from other countries in the world,” he added.
According to Wickremesinghe, Sri Lanka is also currently holding discussions with the World Bank, the Asian Development Bank, the United States, other friendly nations and heads of state to secure interim short-term loans until IMF support is finalised.
“We will be able to lay the foundation to ensure economic stability following the successful completion of these tasks. But this by no means will be the end. It will be the beginning of our journey: a new journey toward a stronger economy,” he said.
“We will then have to forge ahead with our plans to strengthen and create a new Sri Lankan economy,” he added.
An interim budget will be presented to parliament in August to lay this foundation, the prime minister said, to be followed by the budget for 2023 which will be presented in November this year. New legislation aimed at strengthening the economy is also on the cards and discussions on such legislation have already been held with all parties represented in parliament, he said.
Food security is also on the agenda, said Wickremesinghe, referring to his own earlier warnings of an impending food shortage.
“Already a plan has been formulated to provide farmers with the necessary fertiliser for the next cultivation season. We will also take steps to import rice under an Indian credit line and issue stocks to the Sri Lankan market to ensure price controls. This will provide some relief to the Sri Lankan consumers,” he said.
With regard to political reforms, Wickremesinghe said the 21st amendment to the Constitution has already been approved by the cabinet of ministers but it was unfortunate that opposition parties had chosen this week to boycott parliament.
“We must now agree on the proposals put forward and present the final draft bill to parliament. However, it is unfortunate that the process will be delayed due to the boycott of parliament by the [main opposition] Samagi Jana Balawegaya (SJB) and the [opposition] National People’s Power Party (NPP),” he said.
“I have requested former speaker Karu Jayasuriya to present a complete plan and report on the newly proposed parliamentary committee system. He handed over his report on Monday (June 20),” he added.
Since his appointment as prime minister – for a record sixth time – Wickremesinghe has been spelling out the gravity of Sri Lanka’s unprecedented crisis in regular televised addresses to the nation. This has won the praise of some quarters and the scorn of others who claim that Wickremesinghe is stating the obvious and playing the role of a spokesman.
In his speech on Wednesday, Wickremesinghe drew attention to the feedback.
“Every two weeks since taking the reins of this government, I have taken steps to inform you of the real situation faced by the country and the measures we are taking to address it. Some have ridiculed this.
“However, many others are also grateful that we are telling them the whole truth and they have come forward to present various proposals that would perhaps help us overcome these issues.
“No matter which of these two groups you belong to, I call on you to come together as one country and join in the nation’s rebuilding process to see it through these dark times. Let us all embark on this journey together. Only by doing this will we be able to ensure the country’s recovery,” he said.
The country is on the verge of collapse, he warned.
“We are now facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has faced a complete collapse. That is the most serious issue before us today. These issues can only be resolved through the reviving of the Sri Lankan economy. In order to do this, we must first resolve the foreign reserves crisis,” he said.
It is no easy task to revive a country with a completely collapsed economy, especially one that is dangerously low on foreign reserves, a situation that could’ve been avoided, he said.
“We are now seeing signs of a possible fall into the very bottom. However, we must come out of this situation. If not, we will be unable to seek solutions to any other issue in the country,” he said.
Even India, which has helped Sri Lanka with assistance of up to 4 billion US dollars on a credit line cannot keep giving Sri Lanka loans, said Wickremesinghe, which is why going to the IMF is a must.
“As I have mentioned before, the situation we face today is in no way normal. I have repeatedly stated that Sri Lanka has not faced a crisis of this magnitude in its recent past.
“Once we have established a firm economic foundation you can hand over power to any political party as per your wish at an election and elect 225 suitable representatives to parliament. The responsibility and power to do so lie with you, the citizens of this country. You will be then given the opportunity to reject those you believe were responsible for the predicament Sri Lanka is facing today. In turn, the new government will be given the mandate to bring those responsible before justice. But all this can only be achieved following the revival of the country,” he said.
The Prime Minister also warned of further difficulties ahead, asking the hapless public to brace themselves.
“I call on the country’s citizens to contribute to the efforts to rebuild the country from the abyss it has fallen into today.
“So let us all first work together to come out of this situation. There will be difficulties. There will be hardships. But even while facing these difficulties and hardships each of us has things, however small, that we can do to contribute to this effort. I call on all Sri Lankans to bear these difficulties and hardships for a short period of time and contribute to the nation-building effort,” he said.
However, people will experience a gradual decrease in hardships, said Wickremesinghe. Power cut hours have been reduced, and 100,,000 metric tons of LP gas are to be imported with a 70 million US dollar loan from the World Bank and 20 million US dollars of Sri Lanka’s own reserves.
Currently, Sri Lanka is in need of 550 million US dollars to meet its monthly fuel needs but securing this has been hard, so the government will try and import the maximum fuel stocks possible based on the country’s dollar income, he said, warning that resolving the fuel shortages will take more time. Wickremesinghe asked that the people economise their usage of fuel.
Regarding school education, which has all but fallen by the wayside due to the fuel crisis and due to the COVID-19 pandemic prior to that, Wickremesinghe said authorities are formulating a plan to give priority to school buses and school vans when providing fuel.
“We will ensure that a conducive environment for the continuous study is created for the children of this country,” he said.
Sri Lanka needs to go forward step by step, said Wickremesinghe.
“The world will only assist us if they sense a strong urge and dedication on our part to come out of this crisis. Therefore we can either show them our aspiration as a nation to rebuild our country. If not we can display our indifference and disinterest, by committing various acts of sabotage. Your struggle must be one for rebuilding and uplifting our country. It should not be to destroy our country. Therefore I urge you to carefully consider and be vigilant in your actions at all times,” he said.
Wickremesinghe also urged political parties to set aside traditional party politics in the face of the worst economic crisis the country has faced since Independence.
“Today there is a collective protest by citizens against the whole parliament. At such a time a host of economic and political reforms affecting the country’s future have been proposed in parliament. If one has a true love for one’s country, what must be done now is to extend one’s support to introduce these reforms and to point out any shortcomings.
“Therefore I call on everyone to step away from traditional politics and to think afresh for the sake of our country. I also invite them to join the parliamentary meetings being held to expedite these necessary economic and political reforms,” he said.
It is the aspiration of the people that these reforms are expedited and implemented, said Wickremesinghe.
“If we can set aside our differences for a short while and only think of our country at this juncture I believe we will be able to safeguard our motherland from this impending disaster,” he said. (Colombo/Jun22/2022)