ECONOMYNEXT – The International Monetary Fund intends to begin discussions with Sri Lanka on a program to support the country, spokesman Gerry Rice said as the island is facing steep currency depreciation and inflation after an unusual bout of money printing to keep interest rates low.
President Gotabaya Rajapaksa said in a national address Wednesday said that he had given the go ahead for an IMF program after meeting senior staff of the lender in Colombo.
“The authorities have also indicated that they are actively considering an IMF-supported program,” IMF spokesman Gerry Rice said.
“We will discuss with the authorities how best we can assist Sri Lanka going forward, including during the Minister of Finance’s visit in Washington in April.”
The IMF has already called for tighter monetary policy to stop liquidity injections which create forex shortages.
The IMF has analyzed Sri Lanka’s economy in a staff report which has been submitted to the board, following annual Article IV consultations. The full report has not been made public, but key conclusions, including that the debt is unsustainable is now known.
The report also warned that the economy could implode unless actions was taken to halt monetary instability, though analysts say the IMF does not make a habit of modelling disaster scenarios.
Rice said the IMF had highlighted “the urgent need of implementing a credible and coherent strategy to restore macroeconomic stability and debt sustainability, while protecting vulnerable groups through strengthened, well-targeted social safety nets.”
With the debt deemed unsustainable, re-structuring or re-profling will also be required.
Sri Lanka for sometime has not had a working exchange rate regime, with a peg having lost credibility and parallel exchange rates emerging due to money printing.
In a program a float of the currency to end dual anchor conflicts (reserves sales for imports and money printing to maintain the policy rate) is a prior action. Though the exchange rate has been allowed to fall, a clean float has not yet been established.
Analysts have said the central bank should to remove a surrender requirement that effectively imposes a strong side convertibility undertaking in the style of a peg and further weakens the rupee.
Further policy rate hikes are also needed to make the float work.
If a float is not established, economic problems that took place at 200 to the US dollar, will continue to take place at a weaker level. The currency can be appreciated if required after domestic credit slows (consumption and investments slows) and sterilizing inflows.
An IMF program typically involves a tight reserve money program to stop inflation and block the validation of domestic prices as the currency weakens.
Tax hikes and spending cuts will reduce the budget deficit and domestic credit, keeping down the corrective interest rate. Sri Lanka’s private citizens are net savers and are incapable of triggering currency pressure.
A foreign reserve target is also given and reserves for imports are generally discouraged (sometimes a so-called disorderly market conditions intervention is allowed which however can undermine the currency unless they are unsterilized).
Debt re-structuring will also reduce the corrective interest rate and the need to immediately deploy more savings for debt repayment and leave space for reasonable growth path.
India is giving a 500 million US dollar credit and a billion dollar credit for food and medicines which can be used to finance the deficit if they are not used for subsidies.
Medicine credits can be used for the health budget directly or cash collected from private sector importers can be used to finance other expenses such as the salary bill, analysts say.
Unemployed graduates had progressively bloated the public sector and have become a key consumer of the productive efforts of society.
Classical economists and analysts have called for reforms to the central bank to outlaw intermediate monetary regimes (flexible exchange rates/soft-pegs) and go for a single anchor regime made up of a fully reserve-backed hard peg or a clean floating regime with a low inflation-driven monetary base and no foreign reserves.
Such a regime will eliminate the need for IMF programs in the future. A hard peg with a low inflating reserve currency in particular will also serve as a hard budget constraint and help social unrest.
Dhammika asks Ranil to resign as FM
By Rathindra Kuruwita
Minister of Investment Promotion, Dhammika Perera, yesterday told the media, in Colombo, that Prime Minister Ranil Wickremesinghe had to resign from his post as Finance Minister.
Minister Perera said that the Prime Minister was blocking all dollar earnings, borrowings, bridging finance, available essential food credit lines and other credit lines.
“I am joining the Aragalaya from today. I have been in the government for seven days. I have seen what happens. The Prime Minister must stop his political game as the Minister of Finance,” he said.
Perera added that Wickremesinghe had no plan to boost the cash flow, about feeding people, or bringing in dollars.
The Minister of Investment Promotion said that instead of describing the people’s economic woes, the Finance Ministry had to find solutions.
“For example, the proposal to give investors 10-year multiple visas was finalised some time ago. One month has since elapsed, but the Treasury is sitting on it. This is because Ranil is in the habit of stopping projects if they bring in dollars. More than 50 people have come to get the visa by paying 100,000 USD.
About 300 more are on the list. We can bring in 30 million dollars to Sri Lanka, this month, with the help of this visa scheme. Sri Lanka’s Finance Minister is inviting disaster,” Minister Perera said.
Perera added that while Wickremesinghe could continue as the Prime Minister, but as the Finance Minister, the latter had no desire to resolve the foreign currency crisis. All of Sri Lanka’s economic woes are linked to the dollar shortage, he said.
“I challenge Ranil and his economic experts to an open media debate. Maybe he can answer my questions. I challenged him to a debate in 2019, and he ran away. I am challenging him again,” Minister Perera said.
JVP Leader accuses govt. of hatching plot against his party
By Saman Indrajith
JVP leader Anura Kumara Dissanayake yesterday said that the government was planning to suppress his party by levelling false allegations against the latter.
Addressing the media at the party headquarters, Pelawatte, Dissanayake said that the plot hatched by the government could lead to bloodshed.
“A video has been released, on social media, instructing how to make Molotov Cocktails. The voice, in the footage, instructs the viewer to make bombs in a similar manner, and tie them to their bodies and explode themselves at the President’s House. The video says that after the explosion I would be appointed the President. Anyone would know that the JVP would not do anything stupid like that. This video is another attempt by the government to justify the use of violence against its critics. There have been similar instances in the past and this country has suffered heavily as a result,” Dissanayake said.
He said that his party lawyers would submit the video to the CID and demand an investigation from the police on who had created and uploaded it to social media. “There is a massive protest to be held in Colombo centering the Galle Face Aragalaya.
“We, too, will participate in it. The government’s response to the protests is to use the police and the army. In addition there are several other developments, including the creation of a para-military force against us. Each SLPP MP is given a chance to recruit five persons, loyal to him or her, as home guards to provide security to the MP. There was a letter from the IGP to Defence Secretary warning of possible bomb attacks. Our party’s name is there in that warning. I have queried this letter in Parliament, too, yet there is no explanation yet. It is in the same context some MPs have requested for personal firearms from the Defence Ministry. Taken together, these developments could indicate the plans of government suppression and what is there in store for us. We do not think that they could fool the people with these tricks. The CID is capable of investigating and finding the sources of any video against the President, in social media, within 24 hours. So we expect the same expedient action would be taken with regard to our complaint, too,” Dissanayake said.
He said that the JVP was prepared to stabilize the country and help bring it out of the current crisis in a short period of time.
Dissanayake said the JVP does not intend to do it alone and was confident that the citizens of the country, and Lankans overseas, would extend their support to the party for this purpose.
“This crisis cannot be resolved by changing posts or individuals, and especially not through a government that has lost the trust of the people,” he added.
When inquired about Prime Minister Ranil Wickremesinghe’s statement in Parliament on his willingness to step down to allow Dissanayake to implement his economic plans, the MP said he was prepared to take up the task.
He said, however, that the President and Prime Minister must resign if he were to take up the challenge and implement JVP’s programme to save the country from the crisis.
Move to set-up smoke-free zones: PHI union says member engaged in project harassed; Ministry says action in line with establishment code
by Ifham Nizam
Public Health Inspectors’ Union has accused a section of the Health Ministry officials of working against a project to establish smoke-free zones in Sri Lanka.
The union alleged that a PHI who served the anti-tobacco campaign and went to the extent of sacrificing his personal leave for the same had been denied annual increments.
It said that the National Authority on Tobacco and Alcohol (NATA) organised a project, under the auspices of the World Health Organization (WHO), to set up at least one smoke-free zone in each Medical Officer of Health Division countrywide. The union said that it played a significant role in the project.
The union alleged that PHI T. G. S. L. Prakash, of the Principal Public Health Inspectors’ Unit of the Ministry of Health, had been invited as a resource person as he innovated a 10-step process for establishing smoke-free zones for combatting second hand smoke.
However, the Deputy Director General (Public Health Services) of the Ministry of Health Dr. S. M. Arnold had obstructed the project by blocking Prakash’s participation, the union alleged.
Responding to The Island queries, Dr. S. M. Arnold said that he acted in terms of the Establishment Code and recommendations made by the relevant committee. Dr. Arnold said that the PHI concerned applied for leave for his PhD on Elephant Ecology study overseas, and work-related to NATA did not come under their purview. Dr. Arnold pointed out that the PHI Union President was also working for NATA.
Public Health Inspectors’ Union, President. Upul Rohana has previously asked the Health Secretary to conduct an investigation into the conduct of Dr. S. M. Arnold. According to the union for more than five years, PHI Prakash has conducted various research on the establishment of smoke-free zones in collaboration with NATA and the WHO and published and presented the research results at local and international fora.
The union said that the Chairman of NATA had requested that PHI Prakash to participate in the project as the outfit could benefit from his experience and expertise he had gained overseas in tobacco prevention.
The union claimed that the PHI concerned had participated in the project utilising his personal leave. The union alleged that Dr. Arnold had said that he wouldn’t recommend the annual salary increment for the particular PHI Prakash as his attendance was unsatisfactory.
PHI Chief Rohana emphasised that the concerned Deputy Director General continued to harass the officers who volunteered for their duties, abusing the power of his positio. He said although the union had complained to the health authorities, no action has been taken in that regard so far and their union would not hesitate to resort to trade union action seeking justice.
Dhammika asks Ranil to resign as FM
JVP Leader accuses govt. of hatching plot against his party
BRICS emerging as strong rival to G7
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