The International Monetary Fund hopes to complete rescue talks with Sri Lanka “as quickly as possible,” Managing Director Kristalina Georgieva said on Wednesday, hours before the crisis-hit South Asian nation elected a new president.
Speaking with Nikkei Asia in Tokyo, Georgieva said the fund was “very deeply concerned about the well-being of the people in Sri Lanka,” which has been gripped by severe shortages of fuel, food and other essentials after its foreign reserves dried up.
Frustrated citizens have turned their anger on the government, clouding the outlook for debt restructuring and driving once-powerful President Gotabaya Rajapaksa to go into exile and resign last week. On Wednesday, the Sri Lankan parliament elected Ranil Wickremesinghe as his replacement.
Georgieva vowed that “the moment there is a government that we can continue our discussions with, our team will be there.” She added that she was “very hopeful that based on the good technical work we have already done, and the fact that this technical team of Sri Lanka is there, we can complete program negotiations as quickly as possible.”
Wickremesinghe is no stranger to the IMF, as a finance minister and six-time prime minister who has had a hand in negotiations. But he is deeply unpopular with the public.
Georgieva said that the IMF would work with any Sri Lankan administration “as long as the next leader enjoys support and has the longevity to lead the country.”
Sri Lanka is not the only South Asian country facing serious economic pressure. Others include Pakistan, with which the IMF recently reached a staff-level agreement to extend about $1.2 billion in aid, and the Maldives, whose debt-to-gross domestic product ratio stood 123.4% last year according to the IMF’s estimate.
The managing director, who was stopping in the Japanese capital after attending the Group of 20 finance ministers meeting in Indonesia last week, went on to say: “Countries that are faced with severe problems of bad management need to understand that, in this context, markets are jittery. Sentiment is such that there is more anxiety.
In the case of Sri Lanka, which “pre-emptively” defaulted on its foreign debt for the first time earlier this year after COVID-19 devastated its core tourism sector, the government was due to submit a debt restructuring plan to the IMF by next month.
“What we would need for the program is financial assurances that will be sustainable, not immediately, but that we have a credible plan to get to that point,” Georgieva said. She added that the incoming government has “a very important role to play, reaching out to both bilateral creditors and private-sector creditors.”
Sri Lanka’s large creditors include Japan, China and India. Georgieva said that she has discussed the situation with the countries during her Asia trip, and was encouraged because “there is an understanding that protracted negotiations are simply not viable, that there has to be decisive action as early as the weeks after a [new] government is in place.”
More broadly, on the global economy, Georgieva said that the IMF will further lower its projection for global GDP growth when it releases its latest World Economic Outlook on July 26.
This will mark the third downgrade this year alone. In April, the IMF lowered the outlook for 2022 to 3.6% from 4.4% in January.
IMF hopes to complete Sri Lanka aid talks ‘as quickly as possible’
How Basil got Ranil 134 votes…
Many sources said that Ranil Wickramasinghe will win the election for the presidency, but no one thought that he would win with such a large number of votes. By last night, there were rumors that he would get 120 votes. But he finally managed to record an excellent victory by getting 134 votes.
We have received a record of how those 134 votes were received.
Accordingly,
Sri Lanka Podujana Peramuna – 101
Sri Lanka Freedom Party MPs – 7
Samagi Jana Balavegaya – 8
EPDP – 2
Ceylon Labor Congress – 2
People’s United Front – 3
Muslim MPs – 3
Members of Vasudeva Nanayakkara’s party – 1
Pillaiyan – 1
Arvind Kumar – 1
C. V. Wigneswaran – 1
Tamil National Alliance – 2
A.L.M. Ataullah – 1
National Freedom Front – 1
have expressed their support to Ranil Wickramasinghe.
As soon as it was announced that Dallas Alahapperuma and Sajith Premadasa would contest together, many people thought that in that situation, the votes of the Sri Lanka Podujana Peramuna would be divided into two and an advantageous situation would arise for Dallas Alahapperuma.
But the operation to get high support of up to 134 MPs while preserving Pohottu votes was mainly carried out under the initiative of Basil Rajapaksa, National Organizer of Sri Lanka Podujana Peramuna. It can be considered as an example of his organizational ability. Also, it can be said that in the new government, people representing 14 different parties have joined the new government and it shows the characteristics of an all-party government.
Sri Lanka crisis: Is India gaining over China in island nation?
During the ongoing anti-government protests in Sri Lanka, protesters shouted slogans targeting former president Gotabaya Rajapaksa and his family. But they also raised chants against India.
Slogans like – “Don’t sell the country to India and the US”; “India: Sri Lanka is not another state”; and “India don’t exploit Sri Lanka’s situation” – could be widely heard during the demonstrations.
But while anti-Indian sentiments like these still persist, how Sri Lankans view India might be changing as the country grapples with political and economic chaos.
Sri Lanka is in the midst of a deep and unprecedented economic crisis that has sparked massive protests, and forced its president to quit after fleeing the country.
Over the years, Sri Lanka has built up a huge amount of debt – to the point that it is now struggling to buy essentials such as food, fuel and medicine.
Protesters blame Mr Rajapaksa and his family, who fled to Singapore last week, for the situation. The parliament has begun the process of electing a new president and MPs are expected to vote on Wednesday.
Some sections of the Sri Lankan polity have always viewed with suspicion the presence of its bigger and powerful neighbour, India. I have seen several anti-India protests in Sri Lanka over the years by majority Sinhala nationalists and Left-wing parties.
But when Sri Lanka suddenly found itself in a deep economic mess a few months back, it turned to India and the Bharatiya Janata Party (BJP) government in Delhi responded with financial help.
The hard choices Sri Lankans must make now
‘I’ve spent 10 days in Sri Lanka petrol queue’
This was not the first time though – in fact, no other country or institution has helped Sri Lanka as much as India in the past year.
Experts say that Sri Lanka’s desperate financial need, in a way, has helped Delhi regain its influence in the island-nation of 22 million people after China made inroads by offering loans and other forms of financial aid for infrastructure projects in the past 15 years.
“India has played a very crucial role, especially at this critical juncture. We have gone through an immense crisis as a country, and India has come forward and supported us,” Sajith Premadasa, Sri Lanka’s main opposition leader, told the BBC.
India and Sri Lanka share close cultural, religious and economic ties in a relationship that goes back centuries.
Delhi has been a major trade partner for Colombo, which imports lots of products, especially food items, from India. The island nation’s minority Tamil population shares close cultural and ethnic links with people in the south Indian state of Tamil Nadu.
Colombo moved away from the Indian sphere of influence starting 2005, after Mahinda Rajapaksa was elected president. The gradual shift was consolidated during his second term, which saw several agreements with China on infrastructure projects, such as a port in the southern town of Hambantota.
Figures show that China has loaned more than $5bn to Sri Lanka so far, about 10% of Sri Lanka’s total external debt.
But despite Sri Lanka seeking additional loans to tackle its current problems – a crippling shortage of fuel and soaring food prices – Beijing is yet to commit on any new loans.
India, on the other hand, has provided around $3.5bn as credit and currency swap. As part of the credit line, it has dispatched several shipments of much-needed fuel, food and fertilisers to Sri Lanka in recent months.
In addition to the loans by Delhi, the government of Tamil Nadu, led by Chief Minister MK Stalin of the DMK party, has also sent shipments of food and medicine to Sri Lanka. Political parties in Tamil Nadu on Tuesday had asked Delhi to convene a meeting to discuss the evolving situation in the neighbouring country.
Experts say that India’s multi-billion-dollar financial assistance has led to a shift in public perception among Sri Lankans.
“India has provided timely help by sending us fuel and food. Without Indian assistance it would have been difficult for Sri Lanka,” Tyronne Sebastian, a private sector employee says.
Melanie Gunathilake, a social activist, says she is grateful to the people of India for “the amazing show of solidarity and support”.
But experts say that India’s decision to offer assistance to Sri Lanka also has strategic significance – one that gives Delhi leverage over its neighbour.
After the initial credit line by India was announced, both countries in January agreed to jointly operate 61 giant oil tanks built during World War II in the north-eastern Trincomalee harbour. For over 30 years, India has been trying to access the British-era facility which will enable it to store strategic oil reserves.
Similarly, in September, the Indian conglomerate Adani group was given a majority stake in a contract to build and operate the Western Container Terminal at the strategic Colombo port.
“I don’t think any country will help us without wanting something in return for themselves. India will, of course, be looking after their interest,” Harini Amarasuriya, an MP from the Left-wing National People’s Power Alliance, told the BBC.
Ms Amarasuriya says that just like India, Sri Lanka too needs to make decisions that are in its best interests, and that it remains to be seen whether the country would have to give up control of its economic and strategic locations.
Experts say that the question of Sri Lanka’s Tamil minorities and their demand for rights would also continue to impact diplomatic negotiations with India.
Bilateral relations soured after many Sri Lankan Tamil rebel groups took refuge in India in the 1980s. Colombo accused Delhi of providing arms and training to the militants, who were fighting for a separate homeland for the Tamils in Sri Lanka.
The civil war ended with the defeat of the rebels in May 2009, and India stood with the Sri Lankan government during the war.
Sri Lanka is, however, yet to fully implement the 1987 India-Sri Lanka Peace Accord which promised new laws to devolve powers to all provinces, including where the Tamils were in a majority.
“In the past there was always a worry that there was a direct intervention by India in political terms,” Ms Amarasuriya says.
The current economic crisis, however, is expected to override political concerns between the two nations for now.
Already, several Sri Lankans, particularly from the Tamil-dominated north, have sought refuge in Tamil Nadu due to the economic crisis and their numbers could increase if the economic situation worsens in the island nation.
Sri Lanka’s minority Tamil and Muslim communities have always looked up to India as and when they faced problems and wanted equal rights.
Despite the past irritants, many from the majority Sinhalese community also appreciate India’s help in recent months.
“The Lanka-Indian Oil Corporation is still providing some supply that keeps us going,” says IT professional Mohammed Suffiyan.
“If not for India, our fuel stations across the country would have shut down completely.”
BBC News
India expresses concern over Sri Lanka crisis spillovers: FM Jaishankar
The Indian government told an all-party meeting on Tuesday that India is naturally worried over the Sri Lankan crisis and there are “very strong” lessons of fiscal prudence, responsible governance and not having “a culture of freebies” to be drawn from it.
At the meeting attended by the representatives of 28 Indian political parties, including those from the Congress, the Left parties and the DMK, External Affairs Minister of India S. Jaishankar, however, dismissed suggestions about such a situation arising in India.
“The ball is in the court of Sri Lanka and the International Monetary Fund (IMF), and they are holding discussions. They need an agreement, then we (India) will see what supportive role we can play,” Jaishankar said after the meeting.
He also said Sri Lanka is still in a “very delicate and fragile condition”.Two presentations were made at the meeting — one by Foreign Secretary Vinay Mohan Kwatra on the Sri Lankan crisis and its political implications and another by Economic Affairs Secretary Ajay Seth on the fiscal health of all the Indian states.
“We do not think that a Sri Lanka-like situation can arise in India. But there was a logic to what we were trying to do, we were trying to highlight the importance of fiscal prudence. So it was not that we highlighted one or two states, we had almost every state. There was no political intent in this,” Jaishankar said about the presentation on the states’ fiscal health.
“It was a data-based presentation of a comparative situation in India so that every political party and leader leaves with a good and clear message,” he said.
Jaishankar concluded the meeting emphasising on the lessons that need to be drawn from the Sri Lankan crisis and said the big lessons to be learnt from it are fiscal prudence and good governance.
“Fortunately, in the leadership of Prime Minister Narendra Modi, we have both in ample amounts,” he said.
When reporters asked him about the lessons that are to be learnt from the neighboring country, Jaishankar said, “Lessons of Sri Lanka are very very strong. They are of fiscal prudence, responsible governance and that there should not be a culture of freebies.”
“The reason we took the initiative to request you all to join an all-party meeting was…this is a very serious crisis and what we are seeing in Sri Lanka is in many ways an unprecedented situation,” Jaishankar said in his initial remarks at the meeting.
“It is a matter which pertains to a very close neighbour and given the near proximity, we naturally worry about the consequences, the spillover it has for us,” he added.
Later, talking to reporters, Jaishankar said longstanding issues such as those related to fishermen also came up during the meeting.
He said the leaders were also informed that the support that India has extended to Sri Lanka since January amounts to USD 3.8 billion.
“No country has given this level of support to Sri Lanka and the initiative that we are taking to help them facilitate their engagement with others such as the IMF,” he said.
From the government’s side, eight ministers attended the meeting, including Parliamentary Affairs Minister Pralhad Joshi and Minister of Fisheries Parshottam Rupala.
Jaishankar also said there have been some “misinformed comparisons” in the context of Sri Lanka, wherein some people have asked whether “such a situation can happen in India”.
“So what we have done is we have asked the finance ministry to make a presentation and brought out a state-wise revenue-to-expenses comparison…unpaid dues of discoms,” he said.
The external affairs minister asserted that it was a very open discussion with the leaders of all political parties speaking their mind.
In the presentation on the situation in Sri Lanka, the government talked about the origin of the crisis, including political turbulence, the economic scenario, unsustainable debt and a decline in foreign reserves.
It also cited data to say that India’s lending to Sri Lanka was USD 859.3 million, amounting to 2 per cent of the island nation’s debt stock as on April 2021. China accounted for 10 per cent at nearly USD 3.4 billion.
Sri Lanka is facing its worst economic crisis in seven decades, with a severe foreign exchange shortage hampering the import of essentials, including food, fuel and medicines.
The economic downturn has also sparked a political crisis in the island nation after a popular uprising against the government. Acting president Ranil Wickremesinghe has declared a state of emergency in the country.
CPC to dispense fuel limitedly from July 21 till QR Code Enforce
Until the national fuel pass is implemented, the Ceylon Petroleum Corporation has decided to dispense limited volumes of fuel from Ceypetco filling stations to vehicles starting from July 21, based on the last digit of the vehicle number plate.
According to the Ministry of Energy, Ceypetco filling stations will only pump fuel worth Rs. 1,500 for motorcycles at a single time.
For three-wheelers, the limit has been set at Rs. 2,000 worth of fuel.
The maximum amount of fuel allowed to be dispensed to other vehicles stands at Rs. 7,000.
The decision was taken at a meeting, chaired by Power & Energy Minister Kanchana Wijesekara, held earlier today to discuss the resumption of fuel distribution from July 21.
Fuel pumping at 1236 Ceylon Petroleum Corporation fuel filling stations countrywide will begin on Thursday 21 using the new app with QR code and the last number on the vehicle number plates, a high ranking CPC official said.
Over 1 million motorists have already registered with the new system which will take several days for the proper operation of the system in a streamlined manner , he revealed.
The pump attendants at the CPC filling stations countrywide are being provided training to operate this QR code from the CPC officials. Measures will be taken to provide smart phones to filling stations,he said that the present problem is the shortage in the market.
The secretary of fuel distributors association Shelton Fernando said that at present smart phones are banned at petrol sheds and threads danger in searching QR codes by pump attendants near the fuel pumps.
The implementation of this system hurriedly will create problems for pump attendants he pointed out.
Fuel Station Owners’ Association (FSOA) Chairman Kumara Rajapaksa urged the public not to wait in queues as arrangements have been made supply fuel in accordance with the newly introduced ration system.
Under the QR code system, fuel will be issued for motorists sufficient for two days and the Cpc will make arrangements to supply adequate fuel quantity fuel filling stations.They can pump fuel any petrol shed presenting the QR code he added. .
The pump operators at the CPC filling stations across the country are currently undergoing training to operate this QR code from the CPC officials., he said.
It was decided that the dates for fuel distribution based on the last digit of the vehicle number plate will be as follows:
Number plates ending with 0, 1, 2 – Tuesday & Saturday
Number plates ending with 3, 4, 5 – Thursday & Sunday
Number plates ending with 6, 7, 8, 9 – Monday, Wednesday & Friday
Further, the officials also agreed to test the National Fuel Pass system as a three-day pilot project at selected filling stations in Colombo District from the 21st July to dispense a weekly quota of fuel according to the last digit of the number plate using QR codes.
This program will be implemented island-wide from Monday (July 25).
Thereby, technological assistance pertaining to the National Fuel Pass system will be provided to filling station employees and the general public, through the members of security forces, the National Youth Corps and the National Youth Services Council.
Meanwhile, it was decided to dispense fuel to vehicles according to the number plate’s last digit and remove the other vehicles parked in queues.
A revolt that could turn into a revolution
Without a new social contract, there could be unrestrained conflict with the working people in Sri Lanka
The great revolt of the masses has overthrown an authoritarian president in Sri Lanka, but it has not abolished the executive presidency. Indeed, on July 18, within days of assuming office as acting President, Ranil Wickremesinghe declared an Emergency, to supposedly ensure the safety of parliamentarians who are to vote for a President on July 20.
A new social contract
Such executive overreach has been the bane of problems in Sri Lanka. There has been no moment in the last four decades more opportune than this to rid the country of this undemocratic institution. Then why are the liberal reformers and lawmakers so reluctant to move on abolishing the executive presidency? It is because the office of the executive president is being projected as the custodian of law, order and property in these tumultuous times. Sri Lanka is in a great moment of revolt, but it is far from a revolution, for a revolution would entail changing our fundamental social relations including property relations. Nevertheless, a radical consciousness is emerging among the masses, who are protesting on the streets and occupying the highest offices of the state.
Such power of the people has unnerved the liberal quarters and international actors who are quick to warn of anarchy, lawlessness and destruction of property. Indeed, the people’s struggle could escalate to occupying private property and demands for redistribution. However, through the many months of the crisis, the government and the Opposition in Parliament have avoided discussing redistribution. They cannot even stomach higher direct taxes, let alone a wealth tax. Instead, their energies go into begging international donors for funds and pushing the country into further debt.
It is these dynamics that are at play when the entrenched liberal political establishment, determined to preserve the neoliberal economic status quo, begins retreating into the constitutionality of the political process. Haven’t the very foundations of our political system been shaken by the greatest protests in Sri Lankan history? This is a moment when the social contract between state and society must be reconstructed. Without a new social contract, there is likely to be a no-holds-barred conflict with the working people.
Factors for political survival
At every moment in the last four months, parliamentary manoeuvres have undermined the protests and attempted to deflect people’s opposition. But those manoeuvres — whether it was the resignation of Cabinet Ministers in April, the appointment of Mr. Wickremesinghe as Prime Minister in May, or the attempts to pass a watered-down Amendment on the Executive Presidency in June — have eventually been confronted by the people’s movement. Similar dynamics are going to be at play when Parliament seeks to elect a President to complete the term of Gotabaya Rajapaksa. This time around, it is Mr. Wickremesinghe who has come to symbolise order and preservation of the status quo. His self-interest and the interests of some powerful political and global actors coincide in making him the front-runner for the post of interim President, who will be elected by Parliament. After all, it is clear that in a presidential election requiring the support of a popular majority, he would not stand a chance. He could not even win his seat in Parliament in the last election and only came into Parliament on the sole seat of his United National Party that suffered a terrible defeat.
Mr. Wickremesinghe lacks the social and political base to lead the country. He has no political credibility to speak of, or moral authority, after openly backing the country’s most discredited regime. However, his political survival depends on the support of three significant constituencies. First, the Rajapaksas and their party, the Sri Lanka Podujana Peramuna (SLPP), whose social base has been wiped out with mass opposition to their rule. The party is now in desperate need of someone at the helm of state power to protect it. Second, the top brass of the military, whose commander-in-chief and so-called war hero has fled the country, while international sanctions unnerve some in the military leadership. Third, international actors who would like to see their geopolitical interests served in Sri Lanka. Therein lies the great danger for the country.
What was considered a ‘political deal’ between the Rajapaksas and Mr. Wickremesinghe when he was appointed Prime Minister has now come into the open with the SLPP supporting his candidacy. Mr. Wickremesinghe will defend the Rajapaksas and further their interests, as he is dependent on their political base, corrupting politics to the hilt.
Next, he needs the military to suppress the protests as much as the military needs him to protect them. This quid pro quo creates the danger of authoritarian rule through further militarisation. As acting President last week, Mr. Wickremesinghe issued a gazette notification to include more subjects under the purview of the Ministry of Defence, including the Board of Investment, necessary for his authoritarian neoliberal project. Such militarisation will mount under his presidency, in addition to neoliberal policies of dispossession.
And as for international actors, a Wickremesinghe presidency with authoritarian stability will converge with their interests. A leader without a social and political base dependent on them will not just sing but also dance to their tunes, and sell the strategic assets of the country for a song.
First as tragedy, then as farce
In The 18th Brumaire of Louis Bonaparte, Karl Marx wrote these opening lines about the failed French revolution of 1848: “Hegel remarks somewhere that all facts and personages of great importance in world history occur, as it were, twice. He forgot to add: the first time as tragedy, the second time as farce.” Marx was referring to the tragedy of Napoleon’s adventurous capture of state power and then the farce of his nephew Louis Bonaparte’s claim to be a similar leader many decades later. In Sri Lanka, J.R. Jayewardene’s ascendance to power in 1977, the creation of the executive presidency, the initiation of neoliberal policies, his alignment with the U.S. amidst the Cold War, and the repression of organised labour and the Tamil minority culminating in the civil war, was a devastating tragedy. Now, Mr. Wickremesinghe , Jayewardene’s nephew, has grand ambitions of capturing the presidency, repressing the people’s movement and taking forward the neoliberal project. It is a farce from every angle. Mr. Wickremesinghe has neither the social nor political base of Jayewardene. The people’s movement has become far more politically conscious with the nationwide protests. And the global neoliberal project itself is in crisis now.
Even if Mr. Wickremesinghe were to be elected, his tenure will remain contested, and may last only till the next wave of protests. But it would polarise society, generate a xenophobic backlash against the external actors who back him and ravage the economic lives of people.
Through the manoeuvres of those in power, the people are being pushed to continue on the path from revolt to revolution. If state power is brought to serve a class project in the figure of Mr. Wickremesinghe, the political crisis will aggravate. Who is ready for this wager?
Ahilan Kadirgamar is a political economist and Senior Lecturer, University of Jaffna, Sri Lanka
TheHindu
Finance Ministry prunes ministries and department spending
In a fresh fiscal policy stance of austerity measures, the Finance Ministry has cut down non-essential capital expenditure in ministries, departments and state institutions in a bid to save money during this economic crisis, a Ministry circular revealed.
Treasury Secretary Mahinda Siriwardene in a circular to government departments, provincial councils and statutory boards has ordered to cut controllable expenditure by at least 30 per cent with suggestions to curb spending, ranging from development projects, advertisement and publicity to overtime allowance.
It has also been directed to suspend all new projects and those that have been started and stalled due to lack of raw materials.
“Improving the government revenue is essential to control present financial crisis situation,” Mr. Siriwardene said adding that public expenditure will have to be controlled to save cash inflows for the most essential services for a certain period.
This austerity move comes close on the heels of Treasury findings that Sri Lanka spends too much on defense and spends its budget inefficiently. In fact, the government spends more on defense today than it did at the war’s peak – a finding that stands even when adjusting for inflation.
According to the Ministry analysis, it estimated that the government could gain a paradigm improvement in the level and quality of its security while cutting defense expenditure from 2.1 per cent of the gross domestic product (GDP) to below 1.5 per cent.
In the most efficient scenario, the government could significantly improve its security services while reducing defense spending to 0.7 per cent of GDP amounting to annual savings of Rs.466,62 billion.
The Ministry has recommended cutting Rs.5 billion from the allocation of Rs.12 billion made from 2022 budget for the ongoing construction work of the Sri Lanka’s Pentagon-styled Defense Headquarters building complex at Akuregoda, Battaramulla.
In addition, necessary action will be taken to totally slash the sum of Rs. 111.6 million set apart for modern technology and infrastructure facilities to strengthen national security.
It has also recommended cutting down Rs 20 million out of Rs 50 million allocated for infrastructure facilities at Kotelawala Defense University and Rs 40 million from the allocation of Rs. 50 million to its teaching Hospital at Werahera Boralesgamuwa.
Financial allocations allocated to Health and Education will not be slashed, a senior Treasury official said adding that with the proposed interim budget 2022, it is just about cutting down expenditure, to the bone where possible and transferring it to welfare of the poor and vulnerable people in the country.
SOEs face fresh operational and financial challenges amidst political turmoil
Sri Lanka’s State Owned Enterprises (SOEs) are encountering significant operational and financial challenges for its survival in unprecedented political turmoil amidst the weakest state of the economy at present, recent report of the Finance Ministry revealed.
The lack of foreign exchange liquidity has adversely affected the supply chain management of many key SOEs, particularly in the energy and transportation sectors. The negative impacts of this have been experienced across the entire economy.
During the first four months of 2022, the key 52 SOEs reported a significant loss of Rs. 859 billion which is a significant deterioration compared to the loss of Rs. 13 billion in the corresponding period in 2021.
The key driver of the loss is the foreign exchange loss of CPC due to the depreciation of the currency. The exchange loss of Ceylon Petroleum Corporation (CPC) stood at Rs. 549 billion in the first four months of 2022, the report disclosed.
The primary concern is the legacy debt of CPC that is predominantly in foreign currency, resulting in frequent foreign exchange losses for the entity which in turn results in additional fiscal stress for the government and financial stress for the state owned banks.
As a result, the CPC has negative equity of Rs. 986 billion as at end April 2022. The Ceylon Electricity Board (CEB) has also not revised electricity tariffs for close to 8 years, contributing to an accumulated loss of Rs. 236 billion.
The rising cost of fuel and coal in the global market coupled with the depreciation of the currency has contributed to a spike in the CEB’s operating cost, which calls for an urgent adjustment of pricing for this sector.
It is important to address the financial position of these two key energies related SOEs in order to ensure a stable and sustainable supply of energy to support economic activity across the board, the Finance Ministry report suggested.
As a result, the CPC has negative equity of Rs. 986 billion as at end April 2022. The Ceylon Electricity Board (CEB) has also not revised electricity tariffs for close to 8 years, contributing to an accumulated loss of Rs. 236 billion.
Sri Lankan Airlines (SLA) is another SOE that has significant fiscal implications with losses for 2021/22 reaching Rs. 171 billion, creating a going concern issue for the entity, the report added.
Solutions to the foreign exchange crisis
Given that fuel supplies will run out, the Government has closed schools, extended power cuts, and restricted fuel issues. Through this the Government is desperately trying to stretch out the remaining fuel supplies for a few more days until the supplies come next week and thereby ensure the country will not shut down totally and industries operate.
The export industries have devised a scheme to keep their diesel supply going by paying in USD. Ironically people have to stay in queues for more than 48 hours to get fuel. This has affected the transportation of goods and essentials, people are finding it near impossible to go to work. According to sources, shipment of diesel and petroleum is due on 13 and 14 July, as the Government admitted Sri Lanka is running short of USD to pay for the shipments. The usable reserves are estimated to have grown to around $ 200-300 million. The Government needs around $ 400 million to import oil and gas for a month. The Government, according to the Prime Minister, is already about $ 750 million in debt to several fuel suppliers. So what can the Government do in the short term to improve the forex liquidity?
Solutions
The country, according to the Prime Minister, is fully focused on obtaining assistance from the IMF, WB, ADB and friendly foreign governments and restructuring the debt. The Central Bank is also meanwhile looking to make the exporters bring back all the earnings to the country as well as imposing a proper system of checks to ensure this is done. Analysts say around 20% of the foreign exchange does not return to the country for surrender. There is no real data to back this argument until the Central Bank and Treasury up their game. Until this is resolved there will never be a solution to the forex crisis in the near term. This has nothing to do with the Havala system or Undial that moves millions of $ around monthly.
The Government according to experts has several options in the short to medium term to manage the forex liquidity:
A. Goods exports
1) Make mandatory export bills on DA/DP terms and retain the open account ban on exports.
2) Exporters be allowed to both surrender the export proceeds in part or in full and retain USD for imports of export inputs only, including emoluments of expatriate staff.
3) Aviation fuel and other goods supplied for payment in USD should be subjected to full surrender into LKR
4) Disallow banks and financial institutions from lending LKR to exporters, even on the collateral of their holdings of USD balances – both resident and non-resident.
5) Disallow exporters from purchasing USD for LKR from banks to pay for USD imports, charges and other USD outflows, when it is below their USD holdings anywhere in the banking system
B. Services exports
1) Allow open account exports for services only or import bills
2) Services exporters be allowed to both surrender the exports proceeds in part or in full and retain USD for imports of export inputs only, including emoluments of expatriate staff,
3)Give a Foreign Exchange Earnings Certificate (FEEC) in LKR up to (say) 25% of the surrendered USD and valid for 12 months, which can be used for specific LKR payments via the banking system – machinery Capex, IT software/hardware, settlement of LKR debts from the banking system, etc.
4) Export of services for payment in USD should be subjected to full surrender into LKR, subject to retention for specific import content like expat USD emoluments, import of input goods
5) Disallow banks and financial institutions from lending LKR to service exporters, even on the collateral of their holdings of USD balances – both resident and non-resident.
6) Disallow service exporters from purchasing USD for LKR from Banks to pay for USD imports, charges and other USD outflows, when it is below their USD holdings anywhere in the banking system
C. Worker remittances
1) Give a Foreign Exchange Earnings Certificate in LKR up to (say) 35% of the surrendered USD and valid for 12 months, which can be used for specific LKR payments via the banking system – motor vehicle purchases, IT software/hardware, settlement of LKR debts from the banking system, etc.
D. Prioritise imports with limited forex
1) Food imports where local substitutes are unavailable
2) Fuel imports transportation/aviation and power generation – aviation fuel should be sold in USD and the proceeds subject to full surrender into LKR
3) Medicines and hospital supplies
4) Energy imports like LP gas and Coal
E. Multilateral, bilateral and commercial/bond market borrowings
1) Interest payments, preferably restructured debt or otherwise
2) Capital repayments, preferably restructured debt or otherwise
F. Import control measures
1) Increase duty and tariff charges on non-essential items to discourage imports. This will also help increase government revenue.
2) Obtain data of goods imported from Jan. to May 2022 against Jan. to May 2021 to identify access quantities of commodities imported and being held as excess stocks. (This data can be obtained from Sri Lanka Customs). Impose higher duty/tariff charges for these items to restrict imports
3) Reporting of unpaid import bills on DA terms is sent by banks to the Imports Controller when bills are outstanding for more than six months. Majority of these payments could still go through Undiyal (Hawala) and six months may be too late to take action. Reduce the same to two months, so that the import controller can act on unpaid bills without delay.
4) Prevent smuggling of goods into the country (hand carrying of items, etc. for commercial purposes) with tighter Customs controls.
Expatriates
5) Lift the restrictions made on outward remittances pertaining to PFCAs held by residents, to encourage more inflows without the fear of funds getting blocked.
6) Permit Dual Citizenship holders and PR Holders to obtain LKR facilities from LCBs for any purpose and with mandatory repayment of these loans through inward remittances.
G. Find innovative ways to bring the USD in the grey market into the banking system.
H. Negotiate a trade finance arrangement with a multilateral partner for opening of and confirming LCs.
Conclusion
Prime Minister Wickremesinghe has warned citizens that “the next couple of months will be the most difficult ones of our lives”. This situation could lead to a major drop in business revenue and loss of hundreds and thousands of jobs. Therefore a PPP crisis management team needs to be established soon to lead the recovery for the next six months with clear goals. The policy of printing money to pay salaries and pensions to public servants and meet the other expenses needs to be gradually reduced, because this will result in hyperinflation followed by a massive increase in the price of goods. However tough, the interest rates need to move down to support business recovery. Therefore unless Sri Lanka sorts out its financial metrics soon and minimises the political drama, the public will have a steep price to pay in the next 12 months for the years of mismanagement of our leaders.
(With contributions from D. Soosaipillai and M. Cooray.)
DAILY FT
RW to be sworn in as the 8th Executive President tomorrow
Ranil Wickramasinghe, who was elected as the 8th Executive President of Sri Lanka, is scheduled to take oath tomorrow (21).
It will be done from the Parliament complex.
Ranil Wickramasinghe acted as the Acting President after the resignation of Gotabaya Rajapaksa from the office of President and the selection of the successor President was done today (20) by secret ballot in the Parliament.
Accordingly, Wickramasinghe got 134 votes, while Dallas Alahapperuma and Anura Dissanayake, who ran for the presidency, got 82 votes and 03 votes respectively.
Opposition leader Sajith Premadasa, who was going to stand for candidacy, withdrew from the party in support of Dallas Alahapperuma.
However, even though there was public opposition to Ranil Wickramasinghe outside the Parliament, it was not reflected in the Parliament and he was elected as the 8th Executive President.