A special meeting of the ruling party group chaired by President Gotabhaya Rajapaksa was held yesterday afternoon. The protest that took place in Mirihana last night and the incidents related to it were discussed at length here.
Although the ruling party has about 150 seats in parliament, it is reported that only about 75 members have participated in the discussion. The 11-party group also boycotted the discussion.
At this meeting, a group of ruling party MPs has requested the President to immediately impose a nationwide curfew and take action to control the situation. Otherwise, the people will surround the houses of the parliamentarians all over the country and try to create conflicts, the MPs have pointed out.
However, the President has not agreed to that. He has asked the MPs what action will be taken if they try to take to the streets and protest despite the curfew. The President has stated that the imposition of a curfew is not a solution and the only solution is to resolve the dollar crisis as soon as possible.
It is reported that a group of carpenters who were protesting in the Moratuwa area yesterday (01) surrounded the house of Moratuwa Mayor Samanlal Fernando and pelted the house with stones.
Moratuwa carpenters surrounded the Moratuwa Municipal Council yesterday morning, sparking an altercation between protesters and the mayor.
Later in the afternoon, protesters surrounded the mayor’s house and pelted him with stones.
The mayor was not at home at the time and it was reported that there was a heated argument between his two sons who were in the house and the protesters.
The riot police unit was also called in to control the situation.
SLFP’s senior vice president Prof. Rohana Lakshman Piyadasa says that the Central Committee of the Sri Lanka Freedom Party (SLFP) has handed over the final decision on whether to remain in the current government or not to the party leader Maithripala Sirisena. Accordingly, the decision will be announced within a week.
Prof. Rohana Lakshman Piyadasa stated this while expressing his views to the media after a meeting of the Central Committee of the SLFP held last night (01).
Sri Lanka’s deficit in the trade account widened to US dollars 859 million in January 2022, compared to the deficit of US dollars 655 million recorded in January 2021, with higher increase in imports.
However, the trade deficit in January 2022 narrowed compared to the deficit of US dollars 1,085 million recorded in December 2021.
The major contributory factors of the trade deficit are the ratio of the price of exports to the price of imports which deteriorated by 18.7 per cent in January 2022, compared to January 2021, with prices of imports having increased while prices of exports declining, Central Bank said.
Sr Lanka’s Import expenditure continued to expand, in spite of high earnings from exports exceeding US$ 1.0 billion for the eighth consecutive month, thereby widening the deficit in the trade account in January 2022, compared to January 2021, Central Bank announced Thursday 01
Earnings from exports in January 2022 grew by 17.5 per cent over January 2021 to reach US dollars 1,101 million, recording the highest level of exports in the month of January. While increases in earnings were observed across all main categories, industrial exports mainly contributed to the expansion.
Expenditure on merchandise imports increased by 23.1 per cent to US dollars 1,959 million in January 2022, compared to US dollars 1,592 million recorded in January 2021, although it decreased compared to December 2021. Increases in expenditure were observed across all main categories, while intermediate goods imports mainly contributed to the expansion.
Tourist arrivals showed a notable recovery in January 2022 over the same month in the previous year, while moderation of workers’ remittances was observed in January 2022.
Meanwhile, Sri Lanka successfully settled the International Sovereign Bond (ISB) of US dollars 500 million in January 2022.
The financial account of the balance of payments strengthened during the month with the receipt of the SAARCFINANCE swap facility from the Reserve Bank of India.
The weighted average spot exchange rate, which remained in Rs. 200-203 range in January, adjusted upwards with greater flexibility allowed in the exchange rate with effect from 07.03.2022
Sri Lankan businesses are in a recovery path although it has to break barricades created by the government’s policy blunders and stupid decisions leading to keep the country without electricity for 13 hours making the economic machinery standstill.
The country’s business confidence which showed some recovery last month has been nullified due poor crisis management of the government and its failure to solve burning problems of the people.
It has even failed to provide basic needs like fuel for transport and electricity, gas for cooking and even food for the people to eat due to present rulers arrogance and policy blunders, economic analysts and civil society activists claimed.
The Colombo Stock Market Trading is now in shambles as a result of tense situation in the country with hundreds and thousands of young people took to the streets in Mirihana near the President’s residence demanding the government to step down. . .
The Colombo Stock Exchange (CSE) cut daily trading to two hours from the usual four-and-a-half because of the power cuts for the rest of this week at the request of brokers, the bourse said in a statement.
But shares slid after the market opened on Thursday and the CSE halted trading for 30 minutes – the third suspension in two days – after an index tracking leading companies dropped by more than 5%.
“Concerns on the macro side, together with news of shorter trading hours plus increased power cuts is driving negative sentiment,” said an analyst at a brokerage firm.
The CSE halted trading twice on Wednesday as worries deepened over the economy and the power cuts.
The crisis is a result of badly timed tax cuts and the impact of the coronavirus pandemic coupled with historically weak government finances, leading to foreign exchange reserves dropping by 70% in the last two years.
The devaluation of the Sri Lankan Rupee, the prospect of some form of debt restructuring and consequently, an easing of the economic restrictions have so far failed to stop Sri Lanka Inc’s move towards a grinding halt several eminent economists said.
However NielsenIQ Business Confidence Index (BCI) registered a notable gain of eight basis points in March – to 132.
This outcome represents an 11 month high and sees the index edge towards where it stood before last April’s third wave of the virus, following which Sri Lanka imposed lockdowns and ‘travel restrictions.’
The barometer of biz confidence is six notches higher than a year ago (as well as its all-time average of 126) and 22 points above its 12 month average of 110.
So for the fourth month in succession, the BCI has headed north – despite the perilous state of the economy, the protracted forex crisis, ongoing shortages of essentials and to cap it all, a power crisis that has left the island in the dark for several hours on end.
NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya explains: “With the COVID-19 counts waning and fear surrounding the virus abating, business seems to have started to pick up – and there’s hope on the horizon once again.”
Despite the rise in inflation and shortage of essential goods, businesses are reporting an improvement in sales volumes over the last three to 12 months, and they’re “optimistic about a better tomorrow,” she adds.
The countless downside risks that hover over the economy and political landscape at this juncture continue to cast a shadow over the BCI’s resurgence in recent months – even though the business community seems to be taking a long-term view of what the future holds.
Worse still, the increasingly ferocious headwinds in the northern hemisphere, from the direction of war ravaged Ukraine, make for a doom and gloom scenario for the rest of the world.
So the most obvious near-term sensitivities at the time of going to press include the price of oil, the value of the Sri Lankan Rupee, ongoing power and forex crises, and the prospect of political upheaval.
Miyanadeniya meanwhile, also believes that with the “Sri Lankan Rupee being floated, brutal power cuts, rampant shortages of diesel and other necessities hindering businesses,” it will be very difficult for the index to continue to improve drastically.
The China – Sri Lanka Association for Trade & Economic Cooperation (CSLATE) signed three MOUs with the CZK International Investment Group, the Hunan Construction Engineering Group and the China Light Industry Jewelry Center. Present at the signing ceremony at the Sri Lanka Embassy in Beijing were the Ambassador of Sri Lanka to China Dr Palitha Kohona and officials from the Embassy, the President of the CSLATE, Chiranjaya Udumullage and the officials of CSLATE, Vice Chairman of CZK International Investment Group Liu Yafei and Deputy Director of China Light Industry Jewelry Center Lin Xudong,.
The Embassy of Sri Lanka in China has taken a range of initiatives this year to develop the economic, cultural and trade cooperation with China in conjunction with the commemoration of the 65th Anniversary of Establishing Bilateral Relations and the 70th Anniversary of the Rubber-Rice Pact.
Ambassador Dr Palitha Kohona stressed the importance of an attractive National Pavilion of Sri Lanka at the China International Import Expo (CIIE) 2022, active collaboration with CSLATE on trade promotional events including Ceylon tea, coconut products and other Sri Lankan products and establishing standards acceptable to the Chinese authorities and consumers for Sri Lankan Gems imported to China. He invited the Chinese trade to formulate these standards.
MOUs between CSLATE and CZK Industry Group Co. Ltd, Gems Trading Platform and an gem import cooperation, were signed. The signing of the MoUs was witnessed by the Ambassador Kohona, and officials of the Embassy.
The President of the Asian Infrastructure Investment Bank (AIIB) Jin Liqun, encouraged Sri Lanka to consult the IMF on the current economic challenges confronting Sri Lanka during his meeting with the Ambassador of Sri Lanka to China, Dr.Palitha Kohona. He also explained that the AIIB was ready to support Renewable Energy projects which would help Sri Lanka to achieve its target of obtaining 70% of its energy needs from Renewable Energy by 2030.
Island nation needs an urgent IMF bailout to avoid bankruptcy in the coming months
When Sri Lanka President Gotabaya Rajapaksa campaigned for the presidential election in 2019, he advanced a vision of political stability and economic progress after years of chaos and decline.
Three years later, Sri Lanka’s economy has hit rock bottom, with protests spreading across the country over electricity outages, food and medicine shortages and soaring prices. The shortages are becoming so acute that some believe they could spiral into a humanitarian crisis.
Reports said the Ceylon Petroleum Corp. requested the public not to queue for diesel on Wednesday and Thursday after the state-run refiner failed to unload a shipment of 37,500 metric tonnes of the fuel. Wire agencies interviewed doctors and health workers who spoke of dire shortages of imported vital drugs and diagnostic chemicals.
Sri Lanka’s trade deficit doubled to US$1.1 billion in December. It reportedly had about $2.3 billion of foreign-exchange reserves last month and faces a $1 billion bond repayment in July.
Authorities have devalued the local currency, curbed imports and raised fuel prices and interest rates in a bid to control the situation, so far to no avail. Stock trading was briefly halted for the second straight day Wednesday after a key index plunged 5%.
Part of the crisis has been driven by the Covid-19 pandemic and the ongoing Russia-Ukraine war, which among other things has drastically driven up global oil prices. But the real story of Sri Lanka’s descent into chaos starts with the rise of President Gotabaya and his populist, strong-man rule in 2019.
This rule was facilitated by hard-line Sinhala Buddhist nationalist forces, including those dominated by former military men such as Viyathmaga. These organizations projected themselves as agents of transformation and their model of centralized governance was presented as what was needed after three disastrous years of the coalition government of the United National Party and the Sri Lanka Freedom Party.
To dramatically alter Sri Lanka’s fortunes, a new policy vision prepared in part by Viyathmaga, “Vistas of Prosperity and Splendor”, was issued to guide Sri Lanka’s path to glory.
Apart from other issues – including the existing constitution – plaguing Sri Lanka, this vision identified that “the prevailing tax system has contributed to the collapse of the domestic economy.”
President Gotabaya Rajapaksa addresses the nation after being sworn in on November 18, 2019. Photo: AFP
Accordingly, the Gotabaya government introduced, soon after coming into power, massive tax cuts that reduced its revenue by a whopping 28%, Sri Lanka central bank data shows. This was a major turn away from the path of fiscal consolidation undertaken by the previous government.
Moreover, this decision ran counter to the International Monetary Fund’s 2019 review of the Sri Lankan economy, which it said needed “sustained efforts to mobilize revenues will be needed in 2020 … to protect the economy against shocks, allowing for exchange rate flexibility in the event of market pressures.”
As a result, Colombo was left with what the IMF called in early 2020 a “weak revenue performance and expenditures overrun”, pushing the island nation down an unstable fiscal path. This was followed by a formal closure of the IMF’s program in the country.
In early 2020, the revenue shortage was further exacerbated by the Covid-19 pandemic, which stripped Sri Lanka of a critical source of foreign currency: tourism. With the pandemic and subsequent lockdowns being a global phenomenon, worker remittances, traditionally a key source of foreign exchange for Sri Lanka, fell hugely by almost 23%.
In April-May 2020, Sri Lanka’s sovereign ratings were downgraded to B-negative. Among the reasons cited for the downgrade was the Gotabaya regime’s decision to introduce tax cuts that exacerbated already rising public and external debt challenges.
Crucially, this downgrade also locked Sri Lanka out of international financial markets. In December 2021, the rating was further downgraded to “CC”, deepening market perceptions of the nation’s financial straits.
While Sri Lanka’s access to foreign exchange was curtailed, Colombo continued to settle its debt repayments using existing foreign-exchange reserves throughout this period.
Even though in the following months Sri Lanka’s reserves continued to fall – dipping from $7.6 billion in 2019 to $2.3 billion in October 2021) – Colombo did not consider going to the IMF for an emergency bailout that ultranationalists – including the Rajapaksa family itself – think would compromise Sri Lanka’s sovereignty.
Instead, Sri Lanka opted for currency swap deals with China and India, which, apart from temporarily bolstering the reserve position, did nothing to consolidate Colombo’s failing fiscal position.
As a result, in early 2022, Sri Lanka’s actual useable reserves fell below US$1 billion, prompting Colombo to simultaneously approach India and the IMF for urgent help.
Sri Lanka is running out of money. Photo: AFP
New Delhi, seeing in Sri Lanka’s acute economic crisis an opportunity to consolidate its own geopolitical foothold vis-a-vis China, has agreed to open a $1 billion credit line to help Colombo buy essential goods, including oil and medicine. Colombo is also already in fresh talks with India for yet another loan of $1.5 billion. This is apart from the ongoing talks with the IMF for a bailout package.
This has all been necessitated by the fact that there is no way Colombo can avoid going bankrupt without securing a bailout. There is simply no way for Colombo to repay the $6.9 billion owed in 2022 with less than $1 billion currently in reserves and the economy still staggering. The IMF, the bogeyman of Sri Lankan nationals, is now the only source of sufficient funds to avoid bankruptcy.
Gotabaya’s government, meanwhile, is in denial. The president addressed his nation in the third week of March outlining how the crisis was not his doing while confirming his government’s decision to accept the IMF’s bailout conditions to be formally discussed in April.
“Subsequent to my discussions with the International Monetary Fund, I have decided to work with them after examining the advantages and disadvantages,” Rajapaksa told his beleaguered nation in a somber address. As several analysts have pointed out, the speech aimed to ease investors’ growing concerns that Sri Lanka will be bankrupt in a month or so.
Sri Lanka, very much like the heavily indebted Argentina, is also seeking to go to the World Bank after securing an IMF bailout package to provide for what Sri Lankan officials are calling “budgetary support.”
A World Bank statement released to the media said that the Bank is not currently in talks with Colombo, but that they are “engaging with the authorities to identify a comprehensive structural reform program needed to ensure sustainable growth, and around which such support may be possible in the future.”
Most analysts believe that Colombo will be able to secure an IMF bailout, but its road to recovery is going to be long and difficult insomuch as it would depend upon how robust Sri Lanka is in implementing the IMF’s recommended structural reforms.
These will include cutting government expenditures and subsidies, privatizing state-owned enterprises, stopping money printing, floating the exchange rate and laying off public sector workers, among other tough measures.
While these reforms, if implemented, will take time to bear fruit, industries like tourism are unlikely to flourish amidst the worst power cuts and oil and medicine supply shortages in recent memory. Meanwhile, the ruling Sri Lanka Podujana Peramuna (SLPP) will have to ensure it does not internally disintegrate amid the inevitable backlash against the IMF and World Bank’s recommended reforms.
If the SLPP government is able to survive, one thing that it can and must do immediately is to drastically cut its expenses and take the opposition parties on board to minimize the political fallout. Reports indicate that the SLPP is moving in this direction. It has decided after the opposition demanded to table the IMF report in the parliament for debate.
Sinhalese nationalism is one core of Sri Lanka’s economic crisis. Image: Facebook
What this means in practical terms is shifting from an exclusionary and ultranationalist set-up to a more inclusive dispensation.
Whereas the recent exit of hardcore nationalist ministers like Udaya Gammanpila indicates a probable restructuring of the government, Gotabaya’s recent – and first-ever – meeting with the Tamil National Alliance also indicates a shift towards a more inclusive approach to stabilize its own regime and discourage the opposition from launching agitation.
While this may be merely symbolic, there is no denying that the way out of the crisis involves both political and economic restructuring.
The High Commission of India has strongly denied the ‘blatantly false and completely baseless’ reports in a section of media that India is dispatching its military personnel to Sri Lanka.
The Indian High Commission also condemned such irresponsible reporting and expects the concerned to desist from spreading rumours.
The High Level Road has been blocked due to a demonstration raised by students of the Sri Jayawardenapura University, in the continuation of protests against the government.
There is a heavy traffic congestion in the area at present, reports said.
The protesters claim that all parties, including the general public and university students, have severely been affected due to the current situation of the country.
The anti-government protests fanning flames across the island are seemingly growing and the assault on those who had participated in the demonstrations in Mirihana two nights ago has severely been criticised.
Our correspondents said that security has been tightened for the Madiwela MP quarters and that additional security has been deployed following reports on future protests being organised at the site.
