Keerthi: IMF conditions painful but necessary

Country paying heavy price for delaying decision

By Shamindra Ferdinando

Former Governor of Uva, Southern and Central Provinces Rajith Keerthi Tennakoon yesterday (16) said that those who objected to the government seeking IMF’s assistance had ruined the economy.

President Gotabaya Rajapaksa had, in his address to the nation on Wednesday, expressed his willingness to seek IMF assistance, Tennakoon said.

Tennakoon, one-time Executive Director of polls monitoring body CaFFE told The Island that in fact Sri Lanka had been engaged in discussions with the IMF since February 2019 in the run-up to the presidential election.

But the talks had suffered a setback following the change of government following the 2019 presidential election, Tennakoon said, adding that one of conditions was the enactment of Monetary Law Act to bring about discipline the financial sector and stability, Tennakoon said.

According to him, one of the key conditions had been to remove Secretary to the Finance Ministry from the five-member Monetary Board. The IMF believed far reaching changes were necessary to restore financial discipline, particularly uncontrolled printing of notes that had caused inflation.

Tennakoon said that Finance Minister Basil Rajapaksa favoured IMF’s intervention. As soon as he succeeded Mahinda Rajapaksa as the Finance Minister in July last year, Sri Lanka sought the IMF intervention. Much respected former Governor of the Central Bank and head of a Sri Lanka overseas mission arranged the IMF’s intervention, Tennakoon said.

Responding to queries, Tennakoon said that the government would be asked by the IMF to implement the late Mangala Samamaweera’s formula that helped Treasury to collect well over Rs 1,900 bn in 2019 and the current dispensation lost well over Rs. 500 bn due to a controversial decision to do away with a range of taxes, including PAYE (Pay As You Earn), NBT (Nation Building Tax), Withholding tax, Capital Gain tax imposed on the Colombo Stock Exchange, Bank Debit tax and unprecedented reduction of VAT (Value Added Tax).

Tennakoon said that the 15% VAT and the 2% NBT which amounted to 17% imposed on all goods and services were unified and reduced to 8%, effective from the first of December 2019.

He said that the decision was taken at the first cabinet meeting of the incumbent government held on Nov 27, 2019.

Sri Lanka would be also asked to introduce pricing mechanisms for electricity and fuel if the government wanted IMF’s assistance, Tennakoon said. Interest rates, too, shouldn’t be subjected to political whims and fancies, Tennakoon said, adding that the IMF conditions would cause tremendous pressure on the government though it was in such a desperate situation it couldn’t take a tough stand.

As many as 40 loss-making state enterprises including national carrier SriLankan were likely to be identified for privatization or re-structuring, Tennakoon said, urging political parties not to sabotage current efforts at reaching consensus on national economy.

The one-time favourite of former President Sirisena emphasised that the government should without delay inquire into the circumstances leading to the Central Bank suddenly floating rupee over a week ago. It would be pertinent to ask whether the Central Bank has sought Cabinet approval before the announcement was made, Tennakoon said, alleging the country suffered due to the Finance Ministry and the Central Bank pulling in different directions.

The civil society activist alleged that for want of a cohesive action plan, the government inadvertently caused serious mistakes though nothing could be as bad as handling of the national economy.

Tennakoon said that the IMF’s role undermined Pohottuwa policies but the ruling party couldn’t do anything about it. Commenting on social media reports of CBSL Governor Cabraal being asked to step down immediately, Tennakoon said that no one could force him to do so. Cabraal could continue till July 4, 2022 as he was in the process of completing the period allocated for his predecessor, Tennkoon said, adding that though the President could replace Cabraal after July 4 it wouldn’t help to address the crisis.