Business

‘You have my sympathy’, Sharmini Coorey tells Sri Lanka’s economic policymakers

Published

2 years ago

2023/11/6

Thilina Walpola

Dr. Sharmini Coorey

‘Sri Lanka cannot afford yet another replay of the old script’

‘People would know good governance when they see it’

by Sanath Nanayakkare

Dr. Sharmini Coorey last week expressed her understanding and sympathy with the Sri Lankan economic policymakers and the Central Bank of Sri Lanka (CBSL) for getting the blame from the general public as they were taking ‘corrective’ measures to rescue a faltering economy, without which it could ‘give way’ to another economic collapse in the years to come.

Dr. Coorey, Member of the Presidential Advisory Group on Multilateral Engagement and Debt Sustainability advising the government of Sri Lanka and a former Department Director of the International Monetary Fund (IMF) made this remark while delivering the 73rd Anniversary Oration of Central Bank of Sri Lanka (CBSL) on 01st November 2023 at the CBSL Head Office in Colombo.

Her oration was centred on the theme “The Way Forward: Price Stability and Prosperity Need Good Governance.

Addressing the policymaking and financial community in the audience she first recognised the talented and hardworking leaders and members of the CBSL staff and those on the policymaking front for taking on a ‘very challenging’ year and a half since April 2022 where they took ‘bold’ decisions in terms of technical work to stabilise the economy out of the deepest economic crisis that Sri Lanka has ever suffered.

Addressing the audience she said: “It is perhaps easy to take for granted the progress made so far. But let’s not forget that barely 20 months ago, Sri Lanka’s inflation was unanchored, the exchange rate was depreciating uncontrollably, foreign reserves were depleted and the economy was collapsing with shortages of food, fuel and essential medicine. However, you have been able to bring the inflation down from almost 74% in September 2022 to less than 2% a year later beating the projections. To accomplish this, financial stability was all the more important given the deep economic contraction together with the preceding pandemic which had dented financial sector balance sheets. The monetary policy was also responsive in lowering the policy rates as clear evidence was emerging that monthly inflation was stabilizing.”

“Let me say, based on my years of experience at the IMF working with countries around the world – often during economic stress – these are, by any standards, impressive accomplishments. Without skilled leadership and decision making the situation would have been a lot worse.”

“Deep monetary policy decisions were successful also because of the support from the government’s fiscal policy and the leeway given to the CBSL to conduct monetary policy according to its best judgment. Tax cuts from the previous government had reduced Sri Lanka’s tax ratio from 11% of GDP in 2019 to a mere 7.5% of GDP in 2020/21- one of the lowest in the world – lower even than very poor countries like Central African Republics. With interest rates taking up 73% of our revenue and the overall fiscal deficit of 12% of GDP in 2021, the fiscal position was not simply sustainable. The government took necessary steps to increase tax rates, tax collection and implement cost-recovery pricing in energy. Efforts were made to generate the needed improvements in the primary fiscal balance in line with the IMF-supported programme.”

“These were difficult decisions. They were politically unpopular, but were necessary. Unfortunately, the shift thus taken cannot turn around the economy quickly. So, people tend to blame the corrective approach to policymaking when the policymakers are doing the right thing rather than the reckless policies of the past that were fundamentally flawed. Such is the unenviable position of the policymakers who stepped into rescue their country from the crisis. So you have my sympathy.”

“So what now? Even though significant progress has been achieved, we are in a low level of equilibrium with our economic performance below potential. This crisis is not yet over. The only way out is to grow at a rate of about 5 or 6% a year in a sustainable and inclusive way. Without such work, we cannot escape our high debt burden even after a successful debt restructuring. And because the debt burden lies with the public sector, it will need to contract not just this year but also in the decade ahead. So growth will need to come from the private sector and be export-oriented given our foreign exchange need. There is simply no other option.”

“Much remains to be done to get the economy on a dynamic growth trajectory. It shouldn’t be taken for granted that having achieved your inflation target, it will stay within CBSL’s target of 5% or that the progressive fiscal endeavor would continue. Our post-independence economic history is full of stopgap policies and brief victories of stability that were not sustained. We cannot afford yet another replay of that familiar script. Why not? Well, this time it is really different for three reasons.”

According to the IMF even if we successfully restructure our debt and adhere to the tight policies that would generate a primary fiscal surplus of 2.2% of GDP , from 2025 until at least 2032, our public debt would decline to only about 95% of GDP by 2032 from about 130% of GDP now. By 2032, government debt to GDP would average 65%. Looking at our neighbours, this number is 55% in India, 40% in Indonesia and 54% in Thailand. So, unless we bring debt to GDP ratio to about 60-80% of GDP, the baseline debt ratio will be much higher. Sri Lanka will be at a higher risk of debt distress even after a successful debt restructuring. If we become complacent and go back to our past ways, we could easily go back to a crisis where we are unable to pay our debts. In such a context, the adjustments next time would be far more painful because we would already have restructured our domestic and external debt.

More people are now in poverty according to World Bank estimates and have little cushion against it. The UNDP has estimated that over a half the population grapples with multidimensional vulnerability. The World Food Programme has estimated that 31% of children aged under 5 are malnourished. Many people grapple with basic needs such as healthcare. Progressive education has been severely hampered as a result of the pandemic and the economic crisis. So, the impact of another debt default would entail adjustments that would be disastrous and would lead to social unrest.

Sri Lanka has suffered from a damaging outflow of professionals who are the backbone of economic recovery and growth. These professionals are leaving not merely because of taxes as is often said. They have lost hope because of the corruption Sri Lanka has been mired in for decades. They don’t see a future in a country where they don’t see the culprits are punished. We have also been vulnerable to many exogenous shocks like wars, higher world interest rates, poor agricultural harvests and natural disasters. We are on a knife-edge and there is no room for policy reversals.

“But, with the focus on progressive efforts, we can shift to a path of sustained growth and inclusive prosperity. What is the way forward? How can we avoid stop gap policies? For this we need, fiscal discipline, an open trade regime that encourages exports, protective markets, modernized labour laws and adequate infrastructure. I believe our fundamental problem is our poor governance. Unless we address that issue head on, we can’t overcome our economic problems and prosper. So, when we discuss economic policies, we need to primarily focus on the governance around those policies. What do we mean by good governance? There is no standard definition. But people know good governance when they see it.”

“My point today is not just about economic policies, for instance, whether interest rates or taxes or a particular SOE should be privatized or not. It is about ensuring policymaking and implementation more accountable, transparent and getting them to adhere to the rule of law and so on, which will improve the results of the economic policies. Good policymaking needs to be backed by strong institutions. It requires sustained social pressure to take on the vested interests that are served by poor governance. We need to ensure that policies serve the interests of not just a small group but an inclusive society,” Dr. Sharmini Coorey said.

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Business

Cabinet nod for the removal of Cess tax imposed on imported good

Published

4 hours ago

2026/03/4

Priyan

The Cabinet of Ministers has approved the joint resolution furnished by the President in his capacity as the Minister of Finance, Planning, and Economic Development and the Minister of Industries and Entrepreneurship Development to phase the removal of Cess tax imposed on imported goods under 2,634 combined classification codes identified over 4 years [from 2026 to 2029\.

Business

War in Middle East sends shockwaves through Sri Lanka’s export sector

Published

17 hours ago

2026/03/4

Sahan Weerasooriya

Indhra Kaushal Rajapaksa

Sri Lanka’s export sector is bracing for fresh turbulence as the escalating conflict involving Iran and parts of the Middle East begins to send shockwaves through global trade, shipping and energy markets.

Though geographically distant from the conflict zone, Sri Lanka’s exporters are far from insulated. Industry leaders warn that higher freight costs, rising oil prices and increased trade risks could erode margins and disrupt key markets if hostilities intensify.

President of the National Chamber of Exporters of Sri Lanka, Indhra Kaushal Rajapaksa told The Island Financial Review that the situation is being closely monitored, as the export community is already feeling the early tremors of global instability.

“Sri Lanka may not be directly involved in the conflict, but we are deeply integrated into global supply chains. Any disruption in the Middle East immediately translates into higher costs and operational uncertainty for our exporters,” Rajapaksa said.

A major concern is the vulnerability of critical maritime corridors such as the Strait of Hormuz and the Red Sea, through which a significant share of global trade and oil shipments pass. Shipping lines have begun rerouting vessels and imposing emergency risk surcharges amid mounting security threats, while insurers are reassessing risk exposure in the region.

“Freight costs had only recently begun stabilising after the pandemic-era disruptions. Now, with vessels avoiding high-risk zones and insurers raising premiums, exporters are once again facing unpredictable shipping expenses,” he noted.

For time-sensitive exports such as apparel and perishables, delays could undermine Sri Lanka’s hard-earned reputation for reliability in competitive markets.

Exporters fear that prolonged instability could trigger sustained freight rate hikes similar to those witnessed during previous global disruptions.

The conflict has also driven global oil prices upward on fears of supply disruptions and shipping bottlenecks. Given that the Middle East accounts for a substantial share of global crude oil output, even perceived threats to supply have immediate price implications.

For Sri Lankan exporters, higher oil prices translate directly into increased fuel, electricity and transportation costs. Manufacturing sectors such as apparel, rubber products, plastics and food processing are particularly vulnerable, as energy forms a core input cost across operations.

“Energy is a fundamental cost component in nearly all export industries. When global oil prices rise, the impact cascades through logistics, production and even raw material pricing,” Rajapaksa explained, warning that sustained high energy costs could squeeze already thin margins.

Beyond cost pressures, the Middle East remains a crucial destination for Sri Lankan exports, especially tea and food products. Around 25 percent of Sri Lanka’s tea exports are shipped to Middle Eastern markets, making the region strategically important for the plantation sector.

“The Middle East is not just a transit route; it is a major market. If economic activity slows in those countries, or if banking and payment channels become complicated due to the conflict, our exporters will face direct consequences,” he cautioned.

War conditions also elevate trade finance and insurance risks. Cargo insurance premiums are climbing, and banks may adopt a more cautious stance toward trade credit involving affected regions.

Exporters could face payment delays, tighter financing conditions and higher compliance requirements, raising the overall cost and complexity of doing business.

This comes at a sensitive time for Sri Lanka’s economy, which is navigating recovery. Higher global oil prices would widen the import bill, potentially exerting pressure on the rupee and fuelling domestic inflation. While currency depreciation can sometimes enhance export competitiveness, rising input costs may offset any exchange rate advantage.

Despite the challenges, he pointed to potential opportunities if Sri Lanka responds strategically. As global buyers seek to diversify supply chains away from unstable regions, Sri Lanka could position itself as a reliable sourcing hub for apparel, rubber-based products, processed foods and value-added agricultural goods.

“In every global disruption there are risks, but there are also opportunities. If Sri Lanka strengthens trade facilitation, improves logistics efficiency and ensures policy consistency, we can attract buyers looking for stable alternatives,” he said.

He stressed that resilience and preparedness would be critical in the weeks ahead, as exporters closely watch developments in the Middle East and global energy markets, aware that distant conflicts can swiftly reshape local economic realities.

By Ifham Nizam

Business

Ranil says Iran leadership eviction methodology unacceptable

Published

17 hours ago

2026/03/4

Sahan Weerasooriya

UNP leader Ranil Wickremesinghe

Ranil Wickremesinghe on Monday criticised the methodology adopted by U.S. President Donald Trump in dealing with Iran, stating that externally driven attempts to dismantle the leadership of another sovereign nation are unacceptable and fraught with dangerous global consequences.

Addressing a group of social media activists at the United National Party (UNP) office on Flower Road, Colombo, Wickremesinghe said that while geopolitical tensions in the Middle East were deepening, the principle of state sovereignty must not be undermined under any circumstances.

Referring to recent escalations between Washington and Tehran and remarks attributed to President Trump concerning Iran’s Supreme Leader Ali Khamenei, Wickremesinghe said:

“President Trump has alleged that Khamenei’s government was responsible for the deaths of hundreds of people in Iran and that action was taken to remove that leadership. However, the methodology used for dismantling the leadership of another administration in such a manner is not acceptable.”

He added that President Trump appeared to be seeking to engage in global affairs “as he likes,” warning that such actions carried far-reaching implications beyond the immediate theatre of conflict.

“What has happened following the Iran strikes is an issue with deep implications,” Wickremesinghe said, noting that the balance of power in sensitive regions must not be disturbed recklessly. Drawing a regional parallel, he observed that control of strategic sea lanes such as the Indian Ocean could not be handed over to a single dominant power.

On the economic fallout, Wickremesinghe sought to allay fears of a severe energy crisis in Sri Lanka. “Amid supply constraints because of Iran, it won’t be a big issue as other oil-producing countries will offer sufficient supplies,” he said. However, he expressed concern over the government’s overall economic management. “I don’t see this ballooning into a significant issue, but my concern is whether the government can manage the economy as it is.”

As he made these comments, the Sri Lankan government has yet to formally articulate its position on the escalating Middle East crisis, and Foreign Minister Vijitha Herath has not publicly clarified the government’s official stance.

Responding to a question on whether he was prepared to assume responsibility for governance again, Wickremesinghe said the present administration must be allowed to discharge its mandate. “Let the government go ahead and address the issues. We shouldn’t let them escape the responsibility they have taken upon themselves,” he said.

Commenting on the 90-day detention of former defence intelligence chief Suresh Saleh in connection with investigations into the 2019 Easter Sunday attacks, Wickremesinghe described the matter as a “closed case.” He pointed out that foreign intelligence agencies, including the Federal Bureau of Investigation (FBI), had already submitted their findings.

“Foreign intelligence bodies such as the FBI have submitted their reports and conclusions. The government’s probe direction is not in line with that. Pursuing the case afresh in this manner is a waste of public money,” he said.

Wickremesinghe’s remarks are particularly noteworthy given the long-standing perception of the UNP as broadly aligned with Western policy positions. During President Trump’s first term, when the U.S. administration threatened to suspend funding to the World Health Organization (WHO) at the height of the COVID-19 pandemic, Wickremesinghe publicly appealed to President Trump to reconsider this move , stating that developing countries such as Sri Lanka would face severe repercussions if global health funding were curtailed.

His latest comments therefore signal a clear defence of diplomatic norms and national sovereignty at a time of rising geopolitical volatility, while underscoring his view that global power rivalries must not override established principles of international conduct.

by Sanath Nanayakkare