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Crisis cannot be tackled by fuel price increases alone: SJB prescribes IMF

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By Shamindra Ferdinando 

Samagi Jana Balavegaya (SJB) spokesperson Dr. Harsha de Silva, MP, yesterday (21) called for immediate remedial measures in the wake of Energy Minister Udaya Gammanpila’s shocking admission that the national economy was in such a bad shape it found it difficult to pay for oil imports. 

 Former UNP non-Cabinet minister de Silva said that there had not been a previous instance of a minister expressing fears of collapse of the banking system under their watch unless corrective measures were taken. The Colombo District MP recommended the government to seriously consider seeking IMF’s assistance before the situation further deteriorated . 

Noting that both the Energy Minister and the Presidential Secretariat declared that state banks could be overwhelmed by staggering Rs 737 bn loans owed by the Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB), MP de Silva emphasised that the monetary crisis could not be addressed by increasing fuel prices alone. 

COPE member MP de Silva appreciated Attorney-at-law Gammanpila for being frank in his assessment. The SJB MP explained ways and means of addressing the issues at hand when The Island asked whether the Parliament as an institution should adopt a common stand on national economy and take tangible remedial measures? 

The Island also sought the MP’s suggestions on  stabilising the economy. 

Economist de Silva said that Minister Gammanpila is on record as having said that the Central Bank in a letter dated May 31, 2021 warned the Finance Ministry of dire consequences unless remedial measures were taken. 

MP de Silva said that State Minister of Finance, Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal in a recent interview with Irida Lankadeepa confirmed Minister Gammanpila’s statement. However, it would be a grave mistake on the part of the government to believe such an extremely serious situation could be tackled by increasing fuel prices. 

The former Policy Planning Deputy Minister said the issue at hand is so serious, it could not be fixed by just increasing fuel prices. “A macro prudential analysis must be undertaken by the Central Bank without further delay. The systemic risks must be identified and assessed. The vulnerability of the banking system must be immediately addressed beyond the mere inability of the CPC to make good on their payments,” MP de Silva said. 

MP de Silva underscored the desperate situation the state banks were experiencing. The MP said that state banks were entering into dollar swaps at massive discounts. For instance, buying dollars today at Rs 199.99 with settlement in a year at Rs 181.99. “Consider the risk these state banks are running. Can they get dollars at Rs 181.99 in a year’s time or will the dollar cost Rs 210 or even higher? Whose money is at risk? Another glaring example is the plan to borrow USD 1 billion from ‘unsolicited’ bidders. This is unbelievable. Are we going to integrate our banking system with money laundering operators to allow them to clean black money? What will happen to our credibility in the longer run? These are all serious matters that need immediate attention.” 

Responding to another query, MP de Silva asserted that the best option available to the SLPP government was to restructure the country’s debt. “If we, do it now, we should be able to come out of the crisis with only a re-profiling exercise, meaning a delay in our payments to the bond holders instead of asking them to take a haircut, meaning to agree to a reduction in principle,” he said. 

The SJB heavyweight asked would working with the IMF acceptable than seeking deals with those hoping to clean their dirty money. The current crisis should be tackled by working with the IMF whatever the political agenda the SLPP hoped to pursue, the government had no option but to seek IMF assistance or face a catastrophe. MP de Silva said that he suggested six months ago that Sri Lanka had no option but to undertake a restructuring process with the IMF. Although the government had ignored warnings and declared it would never go to the IMF, the crisis triggered by the fuel price hike exposed the government. “Unfortunately for the people of Sri Lanka the more these people continue this delay in restructuring the greater the pain will be when it finally is thrust upon us. We need a soft landing. Not a hard landing,” Dr. de Silva said. 

 The former minister said that this would be raised in parliament. Referring to a media briefing called by Minister Gammanpila early this month whereas announced plans for a new oil refinery at Sapugaskanda, MP de Silva said that the PHU leader said that cash-strapped debt-ridden government lacked the wherewithal to make an investment therefore needed external financing amounting to USD 3 bn. The former Minister said that Minister Bandula Gunawardena and State Minister Dr. Nalaka Godahewa, too, acknowledged the severe financial difficulties with the latter explaining how the raging Covid-19 pandemic worsened the situation.



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Pakistan’s ex-president, Pervez Musharraf dies aged 79

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(picture BBC)

BBC reported that Pakistan’s former president General Pervez Musharraf, who seized power in a coup in 1999, has died aged 79.

The former leader – who was president between 2001 and 2008 – died after a long illness, a statement from the country’s army said.

He had survived numerous assassination attempts, and found himself on the front line of the struggle between militant Islamists and the West.

He supported the US “war on terror” after 9/11 despite domestic opposition.

In 2008 he suffered defeat in the polls and left the country six months later.

When he returned in 2013 to try to contest the election, he was arrested and barred from standing. He was charged with high treason and was sentenced to death in absentia only for the decision to be overturned less than a month later.

He left Pakistan for Dubai in 2016 to seek medical treatment and had been living in exile in the country ever since.

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The 75th Anniversary of National Independence celebrated under the patronage of President, PM

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(picture Presidents Media)

The 75th National Independence Day celebration was held under the theme “Namo Namo Mata – A Step towards the Century”, under the patronage of President Ranil Wickremesinghe and Prime Minister Dinesh Gunawardena on Saturday morning (04) at Galle Face Green.

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Lanka sovereign bond holders write to the IMF

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ECONOMYNEXT –Sri Lanka’s bondholders have written to the International Monetary Fund expressing their willingness to engage in debt re-structuring talks but also raising matters related to the domestic debt re-structuring and economic assumptions and forecasts.

The group, styling itself as the “Ad Hoc Group of Sri Lanka Bondholders (the Bondholder Group) has written last week to the IMF Managing Director from New York said inter alia that the Bondholder Group through its Steering Committee stands ready to engage quickly and effectively with the Sri Lankan authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow the country to re-gain access to the international capital markets during the IMF Programme period.

The letter concluded with the paragraph: Recognizing the important commitments made by India in the India Letter, the Sri Lankan authorities will apply the principle of comparable treatment in respect of the debt relief requested and obtained from all their remaining official bilateral creditors.

Following is the text of the letter:

NEW YORK, Feb. 3, 2023

Dear Managing Director Georgieva,The Ad Hoc Group of Sri Lanka Bondholders (the “Bondholder Group”) acknowledges the Sri Lankan authorities’ engagement with their official creditors towards a resolution of the current crisis and restoration of debt sustainability.

The Bondholder Group further acknowledges that such engagement has recently resulted in the Government of India (in its letter to the IMF, dated January 16, 2023 (the “India Letter”)) delivering letters of financing assurances, committing to support Sri Lanka and contribute to its efforts to restore debt sustainability by providing debt relief and financing consistent with the IMF Extended Fund Facility Arrangement (the “IMF Programme”) and the IMF Programme targets indicated in the India Letter.

Similarly, the Bondholder Group through its Steering Committee stands ready to engage quickly and effectively with the Sri Lankan authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow the country to re-gain access to the international capital markets during the IMF Programme period.

Based on the limited information available to us at this time, including information contained in the India Letter, we understand that the IMF Programme’s debt sustainability targets are identified as

(i) reducing the ratio of public debt to GDP to 95% by 2032,

(ii) limiting the central government’s annual gross financing needs to GDP ratio to 13% in the period between 2027 and 2032, and central government annual foreign currency debt service at 4.5% of GDP in every year between 2027 and 2032 and

(iii) closing of the external financing gap.

The Bondholder Group hereby confirms it is prepared to engage, through its Steering Committee, with the Sri Lankan authorities in restructuring negotiations consistent with the parameters of an IMF Programme and the targets specified therein (the “IMF Programme Targets”), which the Bondholder Group understands to be the targets identified in the India Letter; it being recognized that these negotiations will necessarily be further informed by the receipt of the forthcoming DSA.

We would note that the finalization of an agreement will also be subject to the satisfaction of the following conditions:

The central government’s domestic debt – defined as debt governed by local law – is reorganized in a manner that both ensures debt sustainability and safeguards financial stability.

Assuming that annual gross financing needs should not exceed 13% of GDP in the period between 2027 and 2032, whilst allowing for central government annual foreign currency debt service to reach 4.5% of GDP in every year between 2027 and 2032, domestic gross financing should therefore be limited at 8.5% of GDP for the period 2027-2032.

While we recognize that the determination of the economic assumptions underpinning the IMF Programme Targets is ultimately the responsibility of the IMF and that the overall design of the IMF Programme is one that is negotiated between the IMF and Sri Lanka, it is nevertheless important that the Bondholder Group has the opportunity to express its views on both the economic assumptions underpinning these IMF Programme Targets and the adequacy and feasibility of the adjustment efforts contemplated under the IMF Programme.

When considering any restructuring proposal that is made to the Bondholder Group, it is the Bondholder Group’s intention to take into consideration the extent to which the economic assumptions and the adjustment efforts are consistent with these views.

Recognizing the important commitments made by India in the India Letter, the Sri Lankan authorities will apply the principle of comparable treatment in respect of the debt relief requested and obtained from all their remaining official bilateral creditors.

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