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Domestic Debt Restructuring fiasco

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By sumanasiri liyanage

Addressing a meeting of company directors, President Ranil Wickremesinghe said: “I hope that by September [2023] Sri Lanka will be able to shed its bankruptcy status”. What does this statement of the president really mean? Does it give the impression that Sri Lanka is back on the right path under the direction of his regime? Or, does it simply imply that Sri Lanka will re-start the repayment of foreign loans that were put on hold (so-called debt standstill) in July 2022? The commencement of the repayment of foreign loans would definitely exert pressure once again on the economy if there is no substantial haircut by foreign creditors. At the moment, total public debt/ GDP ratio is about 130 percent. By 2027- 2032 it is expected to decrease\ to 95 percent of GDP. This is in itself a formidable task in the context of the shrinkage of the GDP the growth rate which is minus 11 percent in the first half of 2023. Hence, the government has to plan to reduce not only the public debt/ GDP ratio but also the nominal value of public debt that stands today at 83 billion US dollars. Foreign currency debt service payments were around 6 and 7 billion US dollars in 2020 and 2021 respectively. Because of debt standstill, it reached 2013 level in 2022.

It is in this context, that the International Monetary Fund (IMF) proposed to restructure public debt as a pre-condition to offer financial assistance to debt-ridden Sri Lanka. The restructuring may be done either through a ‘haircut’ or lengthening the maturity time or reducing the rate of interest or a combination of these three. The IMF initially asked only for restructuring of foreign debt; there was no mention about the domestic debt restructuring (DDR). Nonetheless, the international sovereign bond (ISBs) holders insist that domestic debt restructuring is imperative for them to consider restructuring of the ISBs held by Sri Lanka. Hence, the government added domestic debt restructuring that was eventually called domestic debt optimisation (DDO) into its arsenal and the President also as a Minister of Finance picked this opportunity to increase his dictatorial powers making him the sole authority and decision-maker on DDO. Hundred and twenty-two members of the Parliament last Saturday voted for doing away with parliamentary power over public finance.

According Prof. Howard Nicholas, the government’s capitulation before the international sovereign bond holders is totally unwarranted. ISBs were purchased with the presumption that there was some degree of probability that the Sri Lankan government would default. In order to offset this risk, Sri Lankan government had agreed to pay an interest rate substantially higher than that of the rupee denominated bonds, 6 percent vis-à-vis 4 percent. In a such a situation the demand by the ISB holders is unjust and immoral. Hence, according to Prof Nicholas, two kinds of investors should not be treated in the same terms. As a tame and subservient slave, now the government and the CBSL are exploring ways and means of reducing the government financial needs (GFN).

The Misuse and Mismanagement of the EPF

The government and the CBSL have been making contradictory statements with reference to the DDO process. This is visible especially with regard to the restructuring of superannuation funds, particularly, the EPF the largest fund of Sri Lanka with more than three trillion rupees. The CBSL proposed and 122 members of the Parliament affirmed that amount that equals to 0.5 percent of the GDP should be taken away from the EPF in their attempt to reduce GFN from 34.6 percent of the GDP in 2022 to 13 percent of the GDP in 2032. CBSL loudly states that there will not be a ‘haircut’. Let us look at this argument. The expected contribution from EPF to debt restructuring would be US 377.5 million dollars (Rs. 113 billion) that is 3.3 percent of the total present nominal value of the EPF. Of course, this does not imply that this massive fund exceeding three trillion rupees will dry off in thirty odd years. That would not happen because every year there will be addition to the fund that exceeds at the moment its total yearly payment out of the fund.

The government has proposed myriad of methods to extract Rs 113 billion from the fund. First, the Treasury proposed to change the portfolio of the fund in favour of long-term bonds. Hence, the fund should convert its Treasury Bills into Treasury Bonds. The conversion of short-term debt instruments to long-term debt instrument would reduce the total payment of the debtor, i. e, the Government of Sri Lanka. Short-term debt instruments have higher turnover than the long-term debt instruments.

Marx in the second volume of his magnum opus discussed at length the turnover of capital and how it affected the surplus value generation. The same argument may be used to explain the reduction of interest payment when capital with less turn-over exceeds capital with high turn-over. The reduction of interest payment would occur even if there was no reduction of the rate of interest on treasury instruments in the fund portfolio. Secondly, the government would impose prohibitive tax if superannuation funds refuse to convert TB into T Bonds. Those funds would be subject to pay 30 percent instead of present rate 14 percent. This would be a heavy burden for small superannuation funds.

Macro-Economic Impact

In the discussion of DDO, one of the neglected aspects was its macro-economic implications. For an economy to run smoothly, it requires a certain proportion of liquid assets. Notwithstanding his trivia, once again, the second volume of capital throws some light in understanding these possible adverse macro outcomes.

Marx notes that only part of the industrial capital is actively engaged in the production process. It is required if the production process to go on without interruption. Thus, Marx highlights the importance of the role of money capital, capital in its liquid form. In capitalist system, this is equally true for individuals, banks and companies. Hence, it is imperative to maintain a proper balance between liquid and illiquid assets. The disturbance of this balance would affect adversely the operations of the economy.

It is also interesting to note that contrary to the orthodox theory, the amount of liquid assets including money supply are endogenously determined by the level of economic activity of the country. If, the economic agents have unnecessary liquid assets, they tend to convert it into more illiquid assets. On the other hand, if there is no adequate supply of liquid assets, economic agents like banks would create more money or issue commercial bills. Moreover, CBSL would buy government securities like Treasury Bonds in open market operations releasing more money to the economy.

There are multiple factors that determine the ratio between liquid/ illiquid assets. As I do not have in my possession exact data on this ratio in Sri Lanka, I propose to use the data given by the Governor of the CBSL in his presentation as a proxy. The total of the Treasury papers in the local currency market is Rs. 12.8 trillion. Out of which Rs. 4.1 trillion are Treasury Bills while Rs. 8.7 trillion are Treasury Bonds. Approximately, the ratio is 32: 68. Using this as a proxy, we may say that the economy in order to run properly and smoothly, this ratio, 32: 68 should be maintained. The way in which DDO is planned disturbs this ratio in favour of Treasury Bonds, relatively an illiquid asset. How would economy respond to it?

Artificial reduction of liquid assets under the guise of DDO would definitely generate pressure on the short end of the capital market. The economy would respond to it by increasing money supply by the banking system since money supply is endogenously determined. Last Thursday, the CBSL reduced it policy interest rate assuming that the market would respond positively. Nonetheless, in an environment in which market seeks more liquid funds to offset the reduction, Treasury Bills would, other things being equal, drive up interest rates. Anticipating John Maynard Keynes, Marx argues that the demand for and supply of money is the key determinant of the rate of interest. Hence, would the money market follow the CBSL lead and reduce its interest rate? Sometimes, laws of the market are more powerful than the dictatorial powers of politicians.

Ernest Mandel, writing an excellent introduction to Marx’s volume two of Capital feared that the volume two “does not contain much material for agitation”. Alas! Mandel was wrong. The DDO of the Sri Lankan government and the proposed reform for superannuation funds contain adequate material for agitation by the individual account holders of those superannuation funds.

(The writer is a retired teacher of political economy. E-mail: sumane_l@yahoo.com)



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Sustaining good governance requires good systems

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A prominent feature of the first year of the NPP government is that it has not engaged in the institutional reforms which was expected of it. This observation comes in the context of the extraordinary mandate with which the government was elected and the high expectations that accompanied its rise to power. When in opposition and in its election manifesto, the JVP and NPP took a prominent role in advocating good governance systems for the country. They insisted on constitutional reform that included the abolition of the executive presidency and the concentration of power it epitomises, the strengthening of independent institutions that overlook key state institutions such as the judiciary, public service and police, and the reform or repeal of repressive laws such as the PTA and the Online Safety Act.

The transformation of a political party that averaged between three to five percent of the popular vote into one that currently forms the government with a two thirds majority in parliament is a testament to the faith that the general population placed in the JVP/ NPP combine. This faith was the outcome of more than three decades of disciplined conduct in the aftermath of the bitter experience of the 1988 to 1990 period of JVP insurrection. The manner in which the handful of JVP parliamentarians engaged in debate with well researched critiques of government policy and actions, and their service in times of disaster such as the tsunami of 2004 won them the trust of the people. This faith was bolstered by the Aragalaya movement which galvanized the citizens against the ruling elites of the past.

In this context, the long delay to repeal the Prevention of Terrorism Act which has earned notoriety for its abuse especially against ethnic and religious minorities, has been a disappointment to those who value human rights. So has been the delay in appointing an Auditor General, so important in ensuring accountability for the money expended by the state. The PTA has a long history of being used without restraint against those deemed to be anti-state which, ironically enough, included the JVP in the period 1988 to 1990. The draft Protection of the State from Terrorism Act (PSTA), published in December 2025, is the latest attempt to repeal and replace the PTA. Unfortunately, the PSTA largely replicates the structure, logic and dangers of previous failed counter terrorism bills, including the Counter Terrorism Act of 2018 and the Anti Terrorism Act proposed in 2023.

Misguided Assumption

Despite its stated commitment to rule of law and fundamental rights, the draft PTSA reproduces many of the core defects of the PTA. In a preliminary statement, the Centre for Policy Alternatives has observed among other things that “if there is a Detention Order made against the person, then in combination, the period of remand and detention can extend up to two years. This means that a person can languish in detention for up to two years without being charged with a crime. Such a long period again raises questions of the power of the State to target individuals, exacerbated by Sri Lanka’s history of long periods of remand and detention, which has contributed to abuse and violence.” Human Rights lawyer Ermiza Tegal has warned against the broad definition of terrorism under the proposed law: “The definition empowers state officials to term acts of dissent and civil disobedience as ‘terrorism’ and will lawfully permit disproportionate and excessive responses.”  The legitimate and peaceful protests against abuse of power by the authorities cannot be classified as acts of terror.

The willingness to retain such powers reflects the surmise that the government feels that keeping in place the structures that come from the past is to their benefit, as they can utilise those powers in a crisis. Due to the strict discipline that exists within the JVP/NPP at this time there may be an assumption that those the party appoints will not abuse their trust. However, the country’s experience with draconian laws designed for exceptional circumstances demonstrates that they tend to become tools of routine governance. On the plus side, the government has given two months for public comment which will become meaningful if the inputs from civil society actors are taken into consideration.

Worldwide experience has repeatedly demonstrated that integrity at the level of individual leaders, while necessary, is not sufficient to guarantee good governance over time. This is where the absence of institutional reform becomes significant. The aftermath of Cyclone Ditwah in particular has necessitated massive procurements of emergency relief which have to be disbursed at maximum speed. There are also significant amounts of foreign aid flowing into the country to help it deal with the relief and recovery phase. There are protocols in place that need to be followed and monitored so that a fiasco like the disappearance of tsunami aid in 2004 does not recur. To the government’s credit there are no such allegations at the present time. But precautions need to be in place, and those precautions depend less on trust in individuals than on the strength and independence of oversight institutions.

Inappropriate Appointments

It is in this context that the government’s efforts to appoint its own preferred nominees to the Auditor General’s Department has also come as a disappointment to civil society groups. The unsuitability of the latest presidential nominee has given rise to the surmise that this nomination was a time buying exercise to make an acting appointment. For the fourth time, the Constitutional Council refused to accept the president’s nominee. The term of the three independent civil society members of the Constitutional Council ends in January which would give the government the opportunity to appoint three new members of its choice and get its way in the future.

The failure to appoint a permanent Auditor General has created an institutional vacuum at a critical moment. The Auditor General acts as a watchdog, ensuring effective service delivery promoting integrity in public administration and providing an independent review of the performance and accountability. Transparency International has observed “The sequence of events following the retirement of the previous Auditor General points to a broader political inertia and a governance failure. Despite the clear constitutional importance of the role, the appointment process has remained protracted and opaque, raising serious questions about political will and commitment to accountability.”

It would appear that the government leadership takes the position they have been given the mandate to govern the country which requires implementation by those they have confidence in. This may explain their approach to the appointment (or non-appointment) at this time of the Auditor General. Yet this approach carries risks. Institutions are designed to function beyond the lifespan of any one government and to protect the public interest even when those in power are tempted to act otherwise. The challenge and opportunity for the NPP government is to safeguard independent institutions and enact just laws, so that the promise of system change endures beyond personalities and political cycles.

by Jehan Perera

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General education reforms: What about language and ethnicity?

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A new batch arrived at our Faculty again. Students representing almost all districts of the country remind me once again of the wonderful opportunity we have for promoting social and ethnic cohesion at our universities. Sadly, however, many students do not interact with each other during the first few semesters, not only because they do not speak each other’s language(s), but also because of the fear and distrust that still prevails among communities in our society.

General education reform presents an opportunity to explore ways to promote social and ethnic cohesion. A school curriculum could foster shared values, empathy, and critical thinking, through social studies and civics education, implement inclusive language policies, and raise critical awareness about our collective histories. Yet, the government’s new policy document, Transforming General Education in Sri Lanka 2025, leaves us little to look forward to in this regard.

The policy document points to several “salient” features within it, including: 1) a school credit system to quantify learning; 2) module-based formative and summative assessments to replace end-of-term tests; 3) skills assessment in Grade 9 consisting of a ‘literacy and numeracy test’ and a ‘career interest test’; 4) a comprehensive GPA-based reporting system spanning the various phases of education; 5) blended learning that combines online with classroom teaching; 6) learning units to guide students to select their preferred career pathways; 7) technology modules; 8) innovation labs; and 9) Early Childhood Education (ECE). Notably, social and ethnic cohesion does not appear in this list. Here, I explore how the proposed curriculum reforms align (or do not align) with the NPP’s pledge to inculcate “[s]afety, mutual understanding, trust and rights of all ethnicities and religious groups” (p.127), in their 2024 Election Manifesto.

Language/ethnicity in the present curriculum

The civil war ended over 15 years ago, but our general education system has done little to bring ethnic communities together. In fact, most students still cannot speak in the “second national language” (SNL) and textbooks continue to reinforce negative stereotyping of ethnic minorities, while leaving out crucial elements of our post-independence history.

Although SNL has been a compulsory subject since the 1990s, the hours dedicated to SNL are few, curricula poorly developed, and trained teachers few (Perera, 2025). Perhaps due to unconscious bias and for ideological reasons, SNL is not valued by parents and school communities more broadly. Most students, who enter our Faculty, only have basic reading/writing skills in SNL, apart from the few Muslim and Tamil students who schooled outside the North and the East; they pick up SNL by virtue of their environment, not the school curriculum.

Regardless of ethnic background, most undergraduates seem to be ignorant about crucial aspects of our country’s history of ethnic conflict. The Grade 11 history textbook, which contains the only chapter on the post-independence period, does not mention the civil war or the events that led up to it. While the textbook valourises ‘Sinhala Only’ as an anti-colonial policy (p.11), the material covering the period thereafter fails to mention the anti-Tamil riots, rise of rebel groups, escalation of civil war, and JVP insurrections. The words “Tamil” and “Muslim” appear most frequently in the chapter, ‘National Renaissance,’ which cursorily mentions “Sinhalese-Muslim riots” vis-à-vis the Temperance Movement (p.57). The disenfranchisement of the Malaiyaha Tamils and their history are completely left out.

Given the horrifying experiences of war and exclusion experienced by many of our peoples since independence, and because most students still learn in mono-ethnic schools having little interaction with the ‘Other’, it is not surprising that our undergraduates find it difficult to mix across language and ethnic communities. This environment also creates fertile ground for polarizing discourses that further divide and segregate students once they enter university.

More of the same?

How does Transforming General Education seek to address these problems? The introduction begins on a positive note: “The proposed reforms will create citizens with a critical consciousness who will respect and appreciate the diversity they see around them, along the lines of ethnicity, religion, gender, disability, and other areas of difference” (p.1). Although National Education Goal no. 8 somewhat problematically aims to “Develop a patriotic Sri Lankan citizen fostering national cohesion, national integrity, and national unity while respecting cultural diversity (p. 2), the curriculum reforms aim to embed values of “equity, inclusivity, and social justice” (p. 9) through education. Such buzzwords appear through the introduction, but are not reflected in the reforms.

Learning SNL is promoted under Language and Literacy (Learning Area no. 1) as “a critical means of reconciliation and co-existence”, but the number of hours assigned to SNL are minimal. For instance, at primary level (Grades 1 to 5), only 0.3 to 1 hour is allocated to SNL per week. Meanwhile, at junior secondary level (Grades 6 to 9), out of 35 credits (30 credits across 15 essential subjects that include SNL, history and civics; 3 credits of further learning modules; and 2 credits of transversal skills modules (p. 13, pp.18-19), SNL receives 1 credit (10 hours) per term. Like other essential subjects, SNL is to be assessed through formative and summative assessments within modules. As details of the Grade 9 skills assessment are not provided in the document, it is unclear whether SNL assessments will be included in the ‘Literacy and numeracy test’. At senior secondary level – phase 1 (Grades 10-11 – O/L equivalent), SNL is listed as an elective.

Refreshingly, the policy document does acknowledge the detrimental effects of funding cuts in the humanities and social sciences, and highlights their importance for creating knowledge that could help to “eradicate socioeconomic divisions and inequalities” (p.5-6). It goes on to point to the salience of the Humanities and Social Sciences Education under Learning Area no. 6 (p.12):

“Humanities and Social Sciences education is vital for students to develop as well as critique various forms of identities so that they have an awareness of their role in their immediate communities and nation. Such awareness will allow them to contribute towards the strengthening of democracy and intercommunal dialogue, which is necessary for peace and reconciliation. Furthermore, a strong grounding in the Humanities and Social Sciences will lead to equity and social justice concerning caste, disability, gender, and other features of social stratification.”

Sadly, the seemingly progressive philosophy guiding has not moulded the new curriculum. Subjects that could potentially address social/ethnic cohesion, such as environmental studies, history and civics, are not listed as learning areas at the primary level. History is allocated 20 hours (2 credits) across four years at junior secondary level (Grades 6 to 9), while only 10 hours (1 credit) are allocated to civics. Meanwhile, at the O/L, students will learn 5 compulsory subjects (Mother Tongue, English, Mathematics, Science, and Religion and Value Education), and 2 electives—SNL, history and civics are bunched together with the likes of entrepreneurship here. Unlike the compulsory subjects, which are allocated 140 hours (14 credits or 70 hours each) across two years, those who opt for history or civics as electives would only have 20 hours (2 credits) of learning in each. A further 14 credits per term are for further learning modules, which will allow students to explore their interests before committing to a A/L stream or career path.

With the distribution of credits across a large number of subjects, and the few credits available for SNL, history and civics, social/ethnic cohesion will likely remain on the back burner. It appears to be neglected at primary level, is dealt sparingly at junior secondary level, and relegated to electives in senior years. This means that students will be able to progress through their entire school years, like we did, with very basic competencies in SNL and little understanding of history.

Going forward

Whether the students who experience this curriculum will be able to “resist and respond to hegemonic, divisive forces that pose a threat to social harmony and multicultural coexistence” (p.9) as anticipated in the policy, is questionable. Education policymakers and others must call for more attention to social and ethnic cohesion in the curriculum. However, changes to the curriculum would only be meaningful if accompanied by constitutional reform, abolition of policies, such as the Prevention of Terrorism Act (and its proxies), and other political changes.

For now, our school system remains divided by ethnicity and religion. Research from conflict-ridden societies suggests that lack of intercultural exposure in mono-ethnic schools leads to ignorance, prejudice, and polarized positions on politics and national identity. While such problems must be addressed in broader education reform efforts that also safeguard minority identities, the new curriculum revision presents an opportune moment to move this agenda forward.

(Ramya Kumar is attached to the Department of Community and Family Medicine, Faculty of Medicine, University of Jaffna).

Kuppi is a politics and pedagogy happening on the margins of the lecture hall that parodies, subverts, and simultaneously reaffirms social hierarchies.

by Ramya Kumar

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Features

Top 10 Most Popular Festive Songs

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Certain songs become ever-present every December, and with Christmas just two days away, I thought of highlighting the Top 10 Most Popular Festive Songs.

The famous festive songs usually feature timeless classics like ‘White Christmas,’ ‘Silent Night,’ and ‘Jingle Bells,’ alongside modern staples like Mariah Carey’s ‘All I Want for Christmas Is You,’ Wham’s ‘Last Christmas,’ and Brenda Lee’s ‘Rockin’ Around the Christmas Tree.’

The following renowned Christmas songs are celebrated for their lasting impact and festive spirit:

*  ‘White Christmas’ — Bing Crosby

The most famous holiday song ever recorded, with estimated worldwide sales exceeding 50 million copies. It remains the best-selling single of all time.

*  ‘All I Want for Christmas Is You’ — Mariah Carey

A modern anthem that dominates global charts every December. As of late 2025, it holds an 18x Platinum certification in the US and is often ranked as the No. 1 popular holiday track.

Mariah Carey: ‘All I Want for Christmas Is You’

*  ‘Silent Night’ — Traditional

Widely considered the quintessential Christmas carol, it is valued for its peaceful melody and has been recorded by hundreds of artistes, most famously by Bing Crosby.

*  ‘Jingle Bells’ — Traditional

One of the most universally recognised and widely sung songs globally, making it a staple for children and festive gatherings.

*  ‘Rockin’ Around the Christmas Tree’ — Brenda Lee

Recorded when Lee was just 13, this rock ‘n’ roll favourite has seen a massive resurgence in the 2020s, often rivaling Mariah Carey for the top spot on the Billboard Hot 100.

*  ‘Last Christmas’ — Wham!

A bittersweet ’80s pop classic that has spent decades in the top 10 during the holiday season. It recently achieved 7x Platinum status in the UK.

*  ‘Jingle Bell Rock’ — Bobby Helms

A festive rockabilly standard released in 1957 that remains a staple of holiday radio and playlists.

*  ‘The Christmas Song (Chestnuts Roasting on an Open Fire)’— Nat King Cole

Known for its smooth, warm vocals, this track is frequently cited as the ultimate Christmas jazz standard.

Wham! ‘Last Christmas’

*  ‘It’s the Most Wonderful Time of the Year’ — Andy Williams

Released in 1963, this high-energy big band track is famous for capturing the “hectic merriment” of the season.

*  ‘Rudolph the Red-Nosed Reindeer’ — Gene Autry

A beloved narrative song that has sold approximately 25 million copies worldwide, cementing the character’s place in Christmas folklore.

Other perennial favourites often in the mix:

*  ‘Feliz Navidad’ – José Feliciano

*  ‘A Holly Jolly Christmas’ – Burl Ives

*  ‘Let It Snow! Let It Snow! Let It Snow!’ – Frank Sinatra

Let me also add that this Thursday’s ‘SceneAround’ feature (25th December) will be a Christmas edition, highlighting special Christmas and New Year messages put together by well-known personalities for readers of The Island.

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