Business

IMF or no IMF, Sri Lanka needs Economic Analysis and Plan going forward: Verité Research

Published

5 years ago

2021/08/12

BY SANATH NANAYAKKARE

Whatever Sri Lanka decides about dealing with its debt and paying its way through the world, the country needs to formulate a very good economic analysis and a publicly-backed plan that will establishc credibility of the world in its economy going forward, Dr. Nishan De Mel, Executive Director of Verité Research said recently.

He made this remark at a virtual forum conducted by Advocata Institute on ‘How to Resolve Sri Lanka’s Debt Crisis Without Seeking Assistance from the International monetary Fund (IMF)’.

Further speaking he said:

“Such an analysis needs to be thorough and well-structured with the focus on the real economic activity and the financial conditions in the economy. That would be the first step to build credibility of the world about the Sri Lankan economy. It is actually credibility that we lack rather than foreign reserves. If we can build that credibility about us in the countries that we deal with, we may not need assistance from the IMF to resolve our liquidity issue. When such a favourable environment is created and other countries repose their trust in Sri Lanka’s economy, its sovereign credit ratings would see an upgrade and Sri Lanka would be able to raise funds at the international capital market at reasonable interest rates, The skill we need for this is to present an analysis and a plan and then demonstrate our commitment to stick to it. Our concern is whether the government has such a plan and if it does have one, why it is not publicized”.

“I am not recommending that Sri Lanka should or shouldn’t go to IMF. The central question is not that. The central question is whether we can present and adopt an analytical approach to building credibility in the relevant parties about our economy. On the other hand, in the event we decide to go to the IMF at some point, we will still have to have an analysis and a plan.”

Responding to a question on whether Sri Lanka could boost its reserves by building global confidence in that manner, he replied,” When we have a very good policy document, we will need to demonstrate that we are serious about implementing it. Not only IMF, no country would support us without a well-crafted policy document and a frank commitment to actually implement it”

“We started raising funds from the international capital market via international sovereign bonds (ISBs) in 2007-2008. Those loans boosted our reserves. Then we started repayments from 2012. Before that we had not taken that type of loans from the international capital market. As those sovereign bonds increased, our reserves also increased. Before that we had taken concessional loans from foreign countries and lending institutions at low interest rates.”

“Thus we took loans from the international capital market and repaid them maintaining our foreign reserves at stable levels. Such a situation remained in the past 3-5 years. However, that equilibrium unsettled when Sri Lanka substantially reduced its taxes in the fourth quarter of 2019. Due to this substantial change, government taxes fell by about 25%. With Covid the decline was even deeper. Even without Covid, there was the 25% decline in taxes. Our global lenders were stunned by this development as it would further increase the budget deficit making our loan repayments unsustainable. I think that they had some anxiety about it”.

“This tax subsidy was given without an analysis as to whether it would help increase the country’s GDP, government’s income or how it would affect debt dynamics etc. We think that there should have been a rationale for it, but we didn’t see any such thing from the government. At that time, Sri Lanka was on an IMF programme and they probably thought that their facility’s last tranche could not be completed as the economy would not be managed sustainably. Thus the IMF got out of the picture. Then the rating agencies downgraded Sri Lanka according to their analyses. This had an impact on us. In 2019 December, the third downgrade of Sri Lanka took place. Earlier also we had been downgraded in two instances. But the latest rating made it impossible for us to raise funds in the international capital market. This situation complicated the debt- dynamics balance which had been maintained earlier. What has happened now is; we service our loans from the reserves and we can’t refill it like before. This is how this issue actually cropped up in the first place although it is said that it happened due to Covid. Actually Covid exacerbated it as there has been no Tourism receipts. But we have been able to offset that with import restrictions that have been in place. If we didn’t have to service our foreign loans from the reserves, there would not be a crisis at this point. The fact that funds can’t be added to the reserves can be shown as the cause for the current debt crisis.”

“When there is a substantial tax policy change, can we just make an oral statement and justify it? Don’t we need an analysis as to which tax should be reduced and which one shouldn’t, in order to sustainably manage our economy? Here the reality is; when there is no analysis, there is no credibility.”

“The collapse of confidence is the main reason for our economic problem and the decline in reserves. Government says that it won’t borrow from the international capital market and that there is no need to do so. This is heard as a decision made by the government. But it is not a decision. It is a Hobson’s choice. Even if we really want to borrow, we can’t borrow at reasonable interest rates. That’s the issue.”

“Confidence could collapse not only in the absence of an economic analysis. We have gone back on our pledges made to international bodies a number of times. Sad to say that this has become a tradition. So, if we had managed the economy well in the past year, we would have been able to raise loans without help from the IMF. Now we should manage our economy well, before our reserves hit near zero levels or zero.”

“The Central Bank had a medium term debt management strategy for 10 years, and they had published a written document about it three years ago. But now it has been changed and a new strategy is not in place as yet. In the absence of one, you can’t build confidence by making oral statements. People need to have an awareness not only on inflows but also on outflows.”

“Reserves won’t hit zero this year. In 2021, reserves may reach zero sooner or at a later stage. Even if we manage to protract it. it will spill over into the next year and the next year. It will only aggravate. It won’t be resolved. The speed of going towards zero reserves could be faster or slower, but it won’t deviate from where it’s heading. International parties analyse Sri Lanka and they have not changed their analyses. But the government has often changed its policy. For example, the foreign exchange policy was changed many times. This shows that the economy is not moving as the government expects it to. Verité Research has done an economic analysis on Sri Lanka considering its economic activities, GDP, inflows, debt obligations etc. Our predictions have remained valid but the government is not taking them into account. That’s the problem.”

“The government has presented its expectations, not a plan. The difference between a gamble and a plan is analysis. Expectations are not considered as an analysis”.

“If reserves come to zero at one point, we will have to tell our creditors that we will pay only the interest and pay the principal later. We need to sort things out before we face a disorderly default. Such a situation will affect the economy even more. Our banks, our private sector won’t be able to deal with their parties in the international arena. So we need to negotiate well before such an eventuality happens and resolve the crisis in an orderly manner.”

When asked, in such a scenario could Sri Lanka negotiate with the creditors on its own, he said,” We may need help from the IMF to talk to the creditors being these are bond sales involving hundreds of people. The IMF has a service for this sort of structural help – not reserves help – in order to negotiate with creditors and arrive at an agreement. In the event of making an orderly default, help of the IMF would be needed,” Dr. Nishan De Mel said.

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Business

Vehicle permit revival threatens governance credibility – Advocata

Published

7 hours ago

2026/02/14

Thilina Walpola

Advocata warns revival of vehicle permits threatens governance credibility, public trust and economic reform and strongly cautions against government consideration to allow vehicle imports for high-ranking government officials who received permits upon retirement.

According to statements in Parliament, 1,900 permits have already been issued under this concessional scheme for senior officials, with 563 permits issued in 2025 alone. Meanwhile, ordinary citizens endure an extended vehicle import ban and some of the highest effective taxes on personal transport vehicles in the world.

During the presentation of the 2026 Budget Proposal, President Anura Kumara Dissanayake declared: “There will be no permits. The permit culture must end in Sri Lanka!”

Advocata welcomed this commitment, recognising permit culture as a relic of a feudal system, not a feature of a modern economy. It is a system that has, for decades, rewarded privilege over performance, entrenched inequality, and undermined the credibility of the state. The President’s affirmation offered renewed hope that Sri Lanka was finally moving toward transparent and equitable reform.

To now entertain exemptions for a select group sends a dangerous signal about reform credibility. Even policies publicly acknowledged as corrosive have the potential to quietly return.

The Normalisation of State Sanctioned Privilege

Vehicle permits are not compensation. They are discretionary privileges, operating as hidden transfers of public wealth to a privileged few, while the broader population absorbs higher taxes and reduced services. Worse still, they place retirement benefits at the mercy of political discretion, turning professional civil servants into political dependents rather than accountable public servants.

Therefore, it is precisely the high-ranking officials that must lead by example.

In December 2010, Transparency International Sri Lanka revealed that the majority of 65 newly elected Parliamentarians, including 2 Cabinet Ministers, sold their duty free vehicle permits for as much as Rs. 17 million each, when adjusted for inflation using Department of Census and Statistics figures, that windfall is equivalent to which adjusted for inflation sits at approximately Rs. 48 million today.

In December 2012, in an event the Sunday Times classified as a “Christmas Bonanza for MPs,” the Government granted permission for MPs to openly sell their duty free permits. At the time, they sold for Rs. 20 million each, which adjusted for inflation sits at approximately Rs. 50 million today.

In October 2016, Nagananda Kodituwakku, an attorney-at-law and rights activist, wrote to the Commissioner General of Motor Traffic, naming 75 MPs who imported luxury vehicles, including BMWs, Mercedes-Benz, Land Cruisers and even a Hummer. The total tax waived per MP ranged from Rs.30 million to Rs. 44.7 million. In today’s terms, this range approximately translates to between a staggering Rs. 66 million and Rs. 98.5 million.

History demonstrates the scale of abuse enabled by this system.

Toward integrity in Governance

As Advocata has previously highlighted, Sri Lanka’s cascading tax structure drives effective import duties on most passenger vehicles into the 125–250 percent range. Every duty-free permit therefore represents a direct fiscal loss; revenue that must be recovered through higher taxes elsewhere or reduced public services for everyone else. Since 2020 alone, more than 25,000 duty-free permits have been issued to government employees, including during the height of the economic crisis.

Making exceptions now would set a dangerous precedent. It signals to every remaining permit holder that persistence will be rewarded, inevitably triggering lobbying pressure and further demands for carveouts. This is how temporary “concessions” become permanent entitlements. Once reopened, the system cannot be credibly contained.

From an economic and governance perspective, reintroducing selective exemptions would undermine public confidence in fiscal consolidation, weaken the credibility of reform commitments, and damage investor perceptions of Sri Lankan regulatory stability and policy consistency.

The appropriate solution lies in transparent, on-budget salary structures, subject to Parliamentary oversight. Crucially, they must compensate public servants fairly without undermining fiscal discipline or institutional integrity, avoiding the distortions created by discretionary privilege schemes.

Advocata calls on the government to take the following actions:

Abandon plans to allow vehicle imports under existing duty free permits.

Commit to permanently ending vehicle permit schemes, replacing them with clear and transparent salary frameworks subject to Parliamentary oversight.

Legislate a prohibition on duty-free vehicle permits for public sector officials, safeguarding against future reversals and ensuring consistent policy application.

Sri Lanka cannot rebuild trust while preserving elite carve-outs. Reform commitments retain credibility only when they are applied consistently — without selective exemptions. Advocata spokespersons are available for live and pre-recorded broadcast interviews via 0755477522

Business

Sri Lanka gears up for global cycling adventure

Published

7 hours ago

2026/02/14

Thilina Walpola

The dignitaries gracing the launch event.

The vibrant island of Sri Lanka is set to welcome cycling enthusiasts from around the globe with the much-anticipated Trek4 Sri Lanka Cycle Ride, an event that promises adventure, breathtaking views, and a celebration of local culture.

Trek4 Ceylon officially announced its annual tour of Sri Lanka at a press conference held at Cinnamon Grand Colombo, unveiling the 2026 five day charity ride dedicated to restoring St. Luke’s Methodist Mission Hospital in Puttur. The trek began from Cinnamon Grand Colombo February 10th and will end in Jaffna on 14th February covering over 560 kilometers across Sri Lanka. The ride will cover some of the most picturesque routes across the island, from the stunning beaches up to Jaffna. Over 50 riders from 11 countries take part in the trek including United Kingdom, Australia and United States of America.

Andrew Patrick, British High Commissioner to Sri Lanka expressed strong support for the Trek4 initiative. He stated, “This cycle trek not only promotes cycling and sustainable tourism but also emphasizes our mission to help local communities thrive. By participating in this event, cyclists will contribute directly to the local economy and foster community development. It’s a fantastic opportunity to explore the beauty of Sri Lanka while making a positive impact.”

Speaking at the gathering Australian High Commissioner Matthew Duckworth said “Cycling in Australia is a deeply ingrained cultural phenomenon, with Australians being world-renowned for their participation in both competitive road cycling and extensive off-road trekking. It was an honor to attend the send-off gathering for the Trek4 cycle ride in Sri Lanka at Westminster House. This initiative not only promotes fitness and camaraderie but also strengthens the bonds between our nations. I am excited to see the positive impact it will have on both participants and the communities they engage with along the way. “

By Claude Gunasekera

Business

Anticipated uptick in banking and financial sector shares

Published

7 hours ago

2026/02/14

Thilina Walpola

Both CSE indices showed high performance yesterday because most stock investors anticipate an upwards trend in the banking and financial sector in the coming months, market analysts said.Amid those developments both indices moved upwards with a high turnover level. The All Share Price Index went up by 37.33 points, while the S and P SL20 rose by 24.17 points.

Turnover stood at Rs 8.5 billion with 17 crossings. Top seven crossings were as follows: Tokyo Cement 11.5 million shares crossed to the tune of Rs 1.19 billion; its shares traded at Rs 104, TJ Lanka 18 million shares crossed for Rs 671 million; its shares traded at Rs 37.50, Sampath Bank 2.35 million shares crossed for Rs 366 million; its shares sold at Rs 156, Tokyo Cement 1.95 million shares crossed for Rs 168 million; its shares sold at Rs 86.20, Colombo Dockyards 1 million shares crossed for Rs 156 million; its shares traded at Rs 156 and HNB 313,000 shares crossed for Rs 136.8 million; its shares sold at Rs 437 and Digital Mobility Solutions 500,000 shares crossed for Rs 79.5 million; its shares traded at Rs 159.

In the retail market, top seven companies that mainly contributed to the turnover were; Tokyo Cement Rs 866 million (8.3 million shares traded), Tokyo Cement (Non-Voting) Rs 746 million (8.6 million shares traded), Colombo Dockyard Rs 410 million (2.6 million shares traded), TJ Lanka Rs Rs 331 million (8.9 million shares traded), Softlogic Capital Rs 305 million (40 million shares traded), Janashakthi Insurance Rs 227 million (1.5 million shares traded) and HNB Rs 152 million (350,000 shares traded). During the day 57.32 million shares volumes changed hands in 36500 transactions.

It is said that construction related companies, especially Tokyo Cement, performed well while the banking and financial sector performed well too, especially Sampath Bank and HNB.

Yesterday the rupee was quoted at Rs 309.20/23 to the US dollar in the spot market, from Rs 309.30/37 the previous day, dealers said, while bond yields were broadly steady.

By Hiran H Senewiratne