International and local economic experts and corporate leaders have stressed the need for a concrete, long-term and bold reform agenda for the economy as the country braces for a critical year amidst unprecedented socio-economic challenges.
Speaking at the “Sri Lanka Economic Outlook 2022” forum organised by the Friedrich Naumann Foundation for Freedom and NextGenSL, recently, Prof. Lee. C. Buchheit, an international debt restructuring expert, Prof. H.D. Karunaratne, a prominent economist and the newly-appointed Vice Chancellor of the University of Colombo, Kasturi Chellaraja Wilson, Hemas Group CEO and Economist Deshal de Mel spoke at length about Sri Lanka’s economic trajectory for the year and the options available at present.
“Any fiscal adjustment programme initiated at this stage will be ‘distasteful’ and will involve a degree of pain. Even a home-grown adjustment programme will entail certain political problems due to the nature of reforms. The question here is whether the country’s political leaders will have the political stamina to proceed with them,” Prof. Lee C. Buchheit, an international expert with a 43-year legal career specialising in sovereign debt management, said.
Delivering the keynote speech at the event, Buchheit presented a detailed account of the global debt situation for the year 2022. He has worked on over two dozen sovereign debt restructurings and he led the legal teams advising the sovereign debtors in the two largest sovereign debt workouts in history (Greece in 2012 and Iraq in 2005-08).
“The problem Sri Lanka must ask itself at the moment is whether there is a plausible fiscal adjustment programme that can be implemented within the next two-three years. It is in this context that the option of seeking the support of the International Monetary Fund (IMF) should be assessed and analysed. The country can also proceed with borrowings from bi-lateral partners as long as the Government has a clear policy and the stamina to implement comprehensive reforms,” he added.
“Sri Lanka’s creditors — be they bilateral or commercial — will be interested in one critical question. That would be; who are we going to share the pain with? Every sovereign bond restructuring boils down to one decision — how much of the country’s pain should be borne by its citizens, and how much should be borne by the creditors,” the international expert explained.
“Commercial creditors caught up in this issue often ask themselves whether the proposed debt restructuring is necessary and whether the conditions proposed to them are proportionate to what the country actually needs.”
“This could be a challenging process as both the public and the creditors would say that they are disproportionately carrying the burden.”
“Therefore, the only entity in the world with the technical expertise and the political legitimacy to assuage such concerns and handle this process is the International Monetary Fund (IMF)”, Prof. Buchheit said.
“A number of countries in the world have embarked on debt restructuring without the IMF. But, if you ask whether the involvement of the IMF is useful, the answer would be ‘yes’,” he added.
Commenting on international credit rating agencies downgrading Sri Lanka, Prof. Buchheit said it should not be a major concern for Sri Lanka.
“This will only be a big concern if you are trying to re-access the global capital market in the near future. When the country announces the need for debt restructuring, rating agencies will downgrade the country to ‘selective default’ and this rating will remain until the restructuring is completed. Once this is done, they will upgrade the country to higher rating categories.”
“This will only be a major worry if Sri Lanka intends to issue additional International Sovereign bonds in the near future. I don’t think Sri Lanka is in a position to do so,” he said.
Speaking at the discussion, Prof. H.D. Karunaratne said the crisis in Sri Lanka had been brewing for over 70 years and opined that short-term fixes would not resolve a long-term problem.
“Sri Lanka is a country that harbours a lot of dreams. But, we are not working practically, with a rational approach, to achieve our dreams,” he said.
He added that “the large majority of Sri Lankans assume that bringing in more foreign investments alone will resolve our crisis. But, do we at least have consensus across the political spectrum on the nature of foreign investments Sri Lanka wants? The dynamics investors usually see in other countries do not work in Sri Lanka’s context. How are we going to attract high-value investments without addressing these critical issues?” Prof. Karunaratne asked.
The senior Economist also pointed out that the ever-expanding public sector was also another area of concern for Sri Lanka.
“We have nearly 1.4 million workers in the public sector and each government keeps on adding to this number. In addition, so many loss-making institutions in the public sector are being operated without any plan for restructuring. This irrational approach is one of the key contributing factors to the current situation,” he said.
“Another problem Sri Lanka must pay attention to is policy inconsistencies. For instance, in 2016, the Government announced tax concessions for electricity-based vehicles. In 2017, the Government imposed heavy taxes on the same vehicles. This is just one example as to how policy inconsistencies have contributed to the crisis we find ourselves in today,’ Karunaratne said, adding that Sri Lanka is currently paying the price for its over-reliance on gas.
Commenting on the way forward, Prof. Karunaratne said the country’s top priority should be to keep its house in order. “Whatever we do, we cannot expect satisfactory results unless we decide to keep our house in order. We can go on borrowing money from bilateral partners but what’s the point in doing so without any concrete plan to address these key areas for concern?”
The senior economist proposed to set up a Japanese-style “Economic Planning Agency” to ensure stable and consistent policies related to the country’s economy.
Hemas Group CEO, Kasturi Chellaraja Wilson said Sri Lanka should now focus on its approach to overcome the existing difficulties.
“We have faced immense difficulties ranging from accessing foreign exchange to opening Letters of Credit. But we, Sri Lankans, have faced challenges before and I am sure we will see many more challenges in the future. So, the problem is not the challenges, but the approach we adopt to overcome them,” she said opening her remarks.
“We must first come to the realization that short-term, tactical measures will no longer resolve our crisis at this point. We need long-term, concrete planning.”
“Do we have the political will to do what is right? Our politicians must decide whether they are going to play party politics or do what is right by the country. The Government, the Opposition, the public sector and the private sector must come together to lead the country out of the current crisis. That is what we want to see,” she said.
“There is no doubt about the fact that economic reforms are going to be a bitter pill to swallow. But, there is no other way out. The issue, however, is that we do not seem to have a common agenda as a country to navigate the crisis,” Wilson explained.
Economist Deshal de Mel who described this as an opportunity to come together for a bold and drastic reform agenda expressed the same sentiments.
“Whatever we do — be it debt restructuring or seeking support from bilateral or multilateral donors — we will not be able to avoid reforms. We all know that reforms are not going to be easy but I see this crisis as an opening to come together to initiate bold reforms,” de Mel said.
When asked about suggestions made by the business community and some economists to go for debt restructuring, De Mel said it could be deemed as a prudent approach. “The most important thing right now is to find a sustainable solution to the debt issue,” he added.
“Sri Lanka must find a way to build its reserves and to adjust the country’s fiscal trajectory,” De Mel stated adding that it was important to Sri Lanka to have a concrete plan to regain access to the global capital market.
BASL urges President to de-escalate tensions in different parts of country
The Bar Association of Sri Lanka has called upon President Gotabaya Rajapaksa to instruct the Defence Secretary, the Commanders of the Tri Forces and the Inspector General of Police to ensure that there is an immediate de-escalation of tensions in different parts of the country – especially at fuel stations – understanding the difficulties faced by the public.”
“Whilst keeping in mind that the police and armed forces are acting under very trying circumstances, nevertheless it is necessary to give strict instructions to the police and the forces to desist from violence in dealing with the public and to act with utmost restraint”, the BASL has said in a media statement.
“We also call upon you to ensure that steps are taken under the law to deal with errant officers who have subjected civilians to such violence.”
The BASL is of the view that it is not appropriate for service personnel to be deployed in the present manner in matters which essentially should be managed by the Sri Lanka Police.
The armed forces should also not be used to disturb or hinder peaceful protests as was seen last week in Galle.
Full text of the BASL letter to the President:
The Bar Association of Sri Lanka (BASL) expresses its gravest concerns at the current situation at fuel stations throughout the country and the reports of several incidents of conflicts between civilians and members of the police force and the armed forces at fuel stations. There has been video footage of civilians being assaulted by personnel of the armed forces and the police, the latest being of a civilian being kicked by an Army officer at a fuel station. There have also been situations of the police and Army opening fire into the air to contain the crowd.
Your Excellency is no doubt aware that thousands of desperate civilians are waiting in queues at hundreds of fuel stations in the country. The queues are kilometres long. The tension at the fuel stations have arisen from this desperation for which there is no immediate solution in sight.
The BASL wishes to warn Your Excellency of the imminent dangers this situation could give rise to. The present unrest could result in a conflagration between civilians and members of the armed forces or the police. Some years ago, confrontations between members of the public and the armed forces resulted in the deaths of civilians. Such incidents between the members of the armed forces or the police and the civilians will discredit Sri Lanka’s armed forces and the police.
We call upon Your Excellency to take all necessary steps to give instructions to the Defence Secretary, the Commanders of the Tri Forces and the Inspector General of Police to ensure that there is an immediate de-escalation of the situation in different parts of the country – especially at fuel stations – understanding the difficulties faced by public. Whilst keeping in mind that the police and armed forces are acting under very trying circumstances, nevertheless it is necessary to give strict instructions to the police and the forces to desist from violence in dealing with the public and to act with utmost restraint. We also call upon you to ensure that steps be taken under the law to deal with errant officers who have subjected civilians to such violence.
The Sri Lanka Army and other service personnel must be deployed only in very limited circumstances as contemplated in the Criminal Procedure Code. The BASL is of the view that it is not appropriate for service personnel to be deployed in the present manner in matters which essentially should be managed by the Sri Lanka Police. The Armed Forces should also not be used to disturb or hinder peaceful protests as was seen last week in Galle.
We trust that this will receive the immediate attention of the Government as to do otherwise may otherwise result in unprecedented turmoil and harm.
The BASL believes that the ultimate solution to the situation at fuel stations is to be transparent with the public and to ensure an equitable and effective system of fuel distribution throughout the country.
SC orders AG to submit report on fuel purchases and distribution
By A.J.A. Abeynayake
A three-member Supreme Court bench consisting of Justices Vijith Malalgoda, Mahinda Samayawardena and Arjuna Obeysekera yesterday ordered the Attorney General to submit a report on fuel purchases, the distribution thereof and the sectors to be provided with fuel on a priority basis.
The Supreme Court made the order after considering two fundamental rights petitions presented by the Bar Association of Sri Lanka.
The BASL has requested the Supreme Court to direct the Cabinet of Ministers to consult all stakeholders and independent experts to formulate and implement the necessary policies, and to provide concessions in relation to the prices of essential goods and services to the people including LP gas, fuel, electricity, milk powder, medicines and food.
The petitions were filed by the President of the BASL Saliya Pieris PC, Deputy President Anura Meddegoda PC, former Secretary Rajeev Amarasuriya, Treasurer Rajindh Perera and the Assistant Secretary Pasindu Silva.
A/L may be delayed by one month
Education Minister Sushil Premajayantha told Parliament yesterday that although it had been scheduled to hold the G.C.E. A/L Examination 2022 in November this year, it could be further delayed by another month.
Responding to a question by MP Shantha Bandara, the Minister said: “The examination should be held at least after three months of releasing the results of the previous A/L exam because the students who need to sit it again should have enough time to prepare,” the Minister said.
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