Sri Lanka ratings upgrade depending on debt restructuring parameters and reforms programme

by Sanath Nanayakkare

Sri Lanka can reasonably expect a much desired ratings upgrade after the government of Sri Lanka has announced its debt restructuring plans and its sustained commitment to the economic reforms programme, Bingumal Thewarathanthri, Chief Executive Officer, Standard Chartered Bank said recently. He made this remark while addressing a Central Bank hosted webinar titled,”What is next for Sri Lanka in the wake of the IMF Programme?”

Keynote Speaker at the webinar was Dr. Indrajit Coomaraswamy, Former Governor, Central Bank of Sri Lanka. Deshal De Mel, Economic Advisor, Ministry of Finance and Murtaza Jafferjee, Managing Director, JB Securities were the other panelists.

The CEO of Standard Chartered Bank said that Sri Lanka is still not out of the woods and everybody needs to be very clear on that. Getting this EFF done in a six months was outstanding work compared to countries like Zambia and Surinam. But we should not overcelebrate it. Although it is commendable, we can’t be complacent because we can’t forget what we went through last year,” he said.

“There are guidelines on fiscal reforms in the IMF framework with specific targets in terms of debt to GDP ratio as well as a surplus in the primary account by 2025, among other things. Now, a lot of people are talking about a ratings upgrade for Sri Lanka by the global ratings agencies. But we have to wait until the government announces the debt restructuring parameters. After that, there will be some clarity and hopefully there will be an upgrade. However, to what level it would be upgraded, we don’t know. Further, it substantially depends on how Sri Lanka commits itself to the economic reforms programme going forward. The IMF is asking us to do something that we have been talking about in terms of our public sector workforce.

We have to re-purpose and re-size its 1.7 million people without asking them to leave their jobs. If you re-purpose at least half a million government sector workers into different things, the country will get productivity from them. Re- purpose and re-size, that’s the way to go. I am not a big fan of trying to save money from the government’s salary bill which is more than Rs. 1.2 trillion. We need to look at paying the right people better. I don’t need to tell you how doctors and professionals in various industries are getting paid.. We can’t retain talent at that level and we are losing over 50 doctors per month as we speak. That’s a thing we must fix. The IMF would give us broad guideline, but we have to fix things at the ground level appropriately.”

“We might receive some financing from the ADB and the World Bank. But real capital can come through FDIs. They are rare these days because the global markets are struggling, and so, capital is rare. So If you expect FDIs to flow into Sri lanka, first we need to understand why investors should come to Sri Lanka. Our investment policy is not very stable because it changes with change of government. So is our tax structure. Therefore, I think our investment policies have to be documented at constitutional level.

They should be made constitutional laws which can’t be changed without a proper mandate. We need to clearly understand what will take our GDP to the next level. You would have seen the predictions by the authorities as well as from the IMF, I think we are forecasting 2.5% growth and I think that is below Sri Lanka’s potential. Sri Lanka should be firing about mid-single digit growth in our view compared with other emerging markets. Sri Lanka has that potential. It is very important for us to understand the strategic pillars to take the economy to that level and ensure that the platform is well-documented. Basically there needs to be a legal framework around it so that changes of governments cannot change the investment policies,” he said.