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RECOMMENDATIONS FOR SRI LANKA: DEBT RESTRUCTURING AND BRIDGE FINANCING FOR HUMANITARIAN PURPOSES

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Grabbing the bull by its horns: Pathfinder route for facing critical economic challenges

Study Group for Tripartite Cooperation (Japan-India-Sri Lanka)

DEBT RESTRUCTURING AND BRIDGE FINANCING FOR HUMANITARIAN PURPOSES

We view that Sri Lanka is at a critical juncture whether it can remain as a potentially growing country with the trust of international community, or otherwise.

Sri Lanka’s foreign exchange reserves are at dangerously low levels ($1.6 billion or less than one month of imports), especially given the $6.9 billion in debt service payments coming due in 20221. The acute shortage of foreign exchange is due to the COVID-19 pandemic, causing a sharp decline in tourism earnings, and reduced overseas worker’s remittances. It has also disrupted Sri Lanka’s own efforts to improve the debt sustainability.

The International Sovereign Bond payment ($500 million) on 18th January 2022 was made possible only through the very timely SWAP ($400 million) from the Reserve Bank of India and the deferral of a payment ($500 million) to India under the Asian Clearing Union (ACU). Both of these are short-term interventions. The former is a three-month facility, which can be renewed twice (i. e. nine months) before the requirement of at least a staff-level agreement with the IMF. The ACU payment has been deferred for two months (now due in March 2022). Without this much needed support from India, Sri Lanka would have defaulted on the recent ISB payment and triggered an economic and humanitarian crisis.

Meanwhile, the low level of reserves is leading to shortages of imports that are causing, on top of the COVID-19 pandemic, additional hardship to everyday Sri Lankans. People stand in long lines for cooking gas; powdered milk is unavailable; power cuts are frequent; medicines are becoming difficult to find, while the cost of staple food items are sky rocketing.

The real problem is that Sri Lanka’s external debt is unsustainable. The revenue that the government will earn, even under the most optimistic scenarios, will be insufficient to cover public expenditures and meet debt service payments over the coming years. Known external debt repayments over the next five years amount to $26 billion, or about $5 billion a year, which is over 80 percent of government revenue in 2020. Market participants recognize this. When in 2019 Sri Lanka cut taxes and experienced a drop in tax revenues, the three major rating agencies downgraded the country to C, which is near-default level. In January of this year, when the Governor of the Central Bank announced that Sri Lanka had secured the funds to meet the $500 million bond payment, S&P downgraded Sri Lanka further.

In this setting, Sri Lanka should avoid a hard default at all costs. Such abrupt actions, when the country stops paying its creditors, lead to a collapse of GDP, hyperinflation, and severe depreciation of the currency. At the same time, Sri Lanka should not continue meeting its debt-service payments in full—and starving its people of essential imports–when everybody, including market participants, knows that the country cannot sustain this strategy.

The only choice is for Sri Lanka to undertake a managed debt restructuring, whereby the country reaches an agreement with its creditors to reduce the overall debt to a sustainable level. The process begins with the appointment of financial and legal advisors. The restructuring is greatly facilitated by approaching the IMF for support on two items. First, the IMF can undertake the analysis to determine the sustainable level of debt. This analysis serves as an anchor for the negotiations with the creditors. Secondly, if Sri Lanka has a program with the IMF, that increases investors’ confidence that the new debt level is sustainable. It could also lead to additional resources from the IMF, the World Bank, Asian Development Bank and other partners.

These negotiations are likely to take about six months. In the meantime, there is urgent need for bridging finance to meet the severe shortfall in USD liquidity over this period. Failure to mobilise this bridging finance will lead to severe shortages of food, fuel and pharmaceuticals, causing a great deal of hardship and possibly social unrest, pushing individuals to leave the country through legal and illegal channels.

The table below sets out the minimum foreign exchange needs to finance debt service payments and essential imports for 2022.

With the initiation of debt restructuring negotiations, the debt servicing would be suspended, so the requirements would be $3.5 billion per semester. There is a possibility that Sri Lanka will receive a $1 billion SWAP from a national government and an additional $0.5 billion of usable reserves from a private entity but these have not been confirmed. In the absence of these inflows, there is a financing gap of $3.5 billion over the next six months, which should be filled to avert a humanitarian disaster. While the above is admittedly an estimate, the governments of Sri Lanka, Japan and India could agree on a figure that can be reviewed on a quarterly basis.

The government of Sri Lanka, along with Japan and India as major development partners, can collaborate on a program of debt restructuring and bridge financing in the following way:

1. The Government of Sri Lanka initiate a managed debt restructuring by appointing the financial and legal advisors. The Government approaches the IMF for assistance with the debt restructuring.

2. Following the initiation of the debt restructuring, the government of Sri Lanka requests the Governments of Japan and India to provide impetus to the restructuring exercise and develop programs for providing bridge financing to Sri Lanka during the negotiations. The bridging finance could take the form of humanitarian assistance through lines of credit to support essential imports (see Table). These will be one-time financial transfers, which will end with the conclusion of the debt restructuring negotiations.

3. Japan and India will encourage the international community to apply to Sri Lanka’s case the principles of G-20 Common Framework as well as the Debt Service Suspension Initiative (DSSI) for lower income countries.

This collaboration would give the Government of Sri Lanka the assurance that, when they embark on a debt restructuring exercise, the immediate needs for essential imports will be met. It will give the Governments of Japan and India the assurance that the bridge financing will be needed during the transition only, as Sri Lanka, just like other countries that have undergone the same process, will likely be able to meet its needs going forward through additional financing and lower debt service payments.

Study Group for Tripartite Cooperation (Japan-India-Sri Lanka)

Amb. Prof. Nobuhito Hobo

Professor, National Graduate Institute for Policy Studies (GRIPS) & Executive adviser, GRIPS – ALLIANCE – Japan

Prof. Shinji Asanuma

Former Professor, School of International and public Policy, Hitotsubashi University – Japan

Prof. Hirohisa Kohama

Professor Emeritus of Economics, Faculty of International Relations, University of Shizuoka – Japan

Amb. Dr. Mohan Kumar

Chairman, Research and Information System for Developing Countries (RIS) – India

Mr. Bernard Goonetilleke

Chairman, The Pathfinder Foundation – Sri Lanka

Dr. Indrajit Coomaraswamy

Distinguished Fellow, The Pathfinder Foundation – Sri Lanka

Dr. Shanta Devarajan

Professor, The Practice of international development at Georgetown University’s Edmund A. Walsh School of Foreign Service – USA



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Features

Glimmers of hope?

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The newly appointed Cabinet Ministers leaves Cass un-uplifted. She need not elaborate. She wishes fervently that Dr Harsha de Silva will leave party loyalty aside and consider the country. Usually, it’s asking politicians to cast aside self-interest, which very rarely is done in the political culture that came to be after the 1970s. Thus, it is very unusual, completely out of the ordinary to appeal to Dr Harsha to forego party loyalty and do the very needful for the country by accepting the still vacant post of Minister of Finance. We are very sorry Eran W too has kept himself away.

Some of Cassandra’s readers may ask whether she is out of her right mind to see glimmers of hope for the country. She assures them she is as sane as can be; she does cling onto these straws like the dying man does. How else exist? How else get through these dire times?

What are the straws she clings to? News items in The Island of Tuesday 24 May.

‘Sirisena leaves Paget Road mansion in accordance with SC interim injunction.’ And who was instrumental in righting this wrong? The CPA and its Executive Director Dr Pakiasothy Saravanamuttu. It is hoped that revisions to the system will come in such as giving luxury housing and other extravagant perks to ex-presidents and their widows. Sri Lanka has always lived far beyond its means in the golden handshakes to its ex- prezs and also perks given its MPs. At least luxury vehicles should not be given them. Pensions after five years in Parliament should be scrapped forthwith.

‘Letter of demand sent to IGP seeking legal action against DIG Nilantha Jayawardena.’ Here the mover is The Centre for Society and Religion and it is with regard to the Easter Sunday massacre which could have been prevented if DIG Jayawardena as Head of State Intelligence had taken necessary action once intelligence messages warned of attack on churches.

‘CIABOC to indict Johnston, Keheliya and Rohitha’. It is fervently hoped that this will not be another charge that blows away with the wind. They do not have their strongest supporter – Mahinda R to save them. We so fervently hope the two in power now will let things happened justly, according to the law of the land.

‘Foreign Secy Admiral Colombage replaced’. And by whom? A career diplomat who has every right and qualification for the post; namely Aruni Wijewardane. If this indicates a fading of the prominence given to retired armed forces personnel in public life and administration, it is an excellent sign. Admiral Colombage had tendered his resignation, noted Wednesday’s newspaper.

‘Crisis caused by decades of misuse public resources, corruption, kleptocracy – TISL’.

Everyone knew this, even the despicable thieves and kleptocrats. The glaring question is why no concerted effort was made to stop the thieving from a country drawn to bankruptcy by politicians and admin officers. There are many answers to that question. It was groups, mostly of the middle class who came out first in candle lit vigils and then at the Gotagogama Village. The aragalaya has to go down in history as the savior of our nation from a curse worse than war. The civil war was won against many odds. But trying to defeat deceit power-hunger and thieving was near impossible. These protestors stuck their necks out and managed to rid from power most of the Rajapaksa family. That was achievement enough.

Heartfelt hope of the many

The newly appointed Cabinet Ministers leaves Cass un-uplifted. She need not elaborate. She wishes fervently that Dr Harsha de Silva will leave party loyalty aside and consider the country. Usually, it’s asking politicians to cast aside self interest, which very rarely is done in the political culture that came to be after the 1970s. Thus, it is very unusual, completely out of the ordinary to appeal to Dr Harsha to forego party loyalty and do the very needful for the country by accepting the still vacant post of Minister of Finance. We are very sorry Eran W too has kept himself away. As Shamindra Ferdinando writes in the newspaper mentioned, “Well informed sources said that Premier Wickremesinghe was still making efforts to win over some more Opposition members. Sources speculated that vital finance portfolio remained vacant as the government still believed (hoped Cass says) Dr Harsha de Silva could somehow be convinced to accept that portfolio.”

Still utterly hopeless

Gas is still unavailable for people like Cass who cannot stand in queues, first to get a token and then a cylinder. Will life never return to no queues for bare essentials? A woman friend was in a petrol queue for a solid twelve hours – from 4 am to 4 pm. This is just one of million people all over the country in queues. Even a common pressure pill was not available in 20 mg per.

Cassandra considers a hope. We saw hundreds of Sri Lankans all across the globe peacefully protesting for departure of thieves from the government. The ex-PM, Mahinda Rajapaksa’s answer to this was to unleash absolute terror on all of the island. It seems to be that with Johnson a younger MP stood commandingly.

Returning from that horror thought to the protesters overseas, Cass wondered if each of them contributed one hundred dollars to their mother country, it would go a long way to soften the blows we are battered with. Of course, the absolute imperative is that of the money, not a cent goes into personal pockets. The donors must be assured it goes to safety. Is that still not possible: assuring that donations are used for the purpose they are sent for: to alleviate the situation of Sri Lankans? I suppose the memory of tsunami funds going into the Helping Hambantota Fund is still fresh in memory. So much for our beloved country.

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Ban on agrochemicals and fertilisers: Post-scenario analysis

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By Prof. Rohan Rajapakse

(Emeritus Professor of Agriculture Biology UNIVERSITY OF RUHUNA and Former Executive Director Sri Lanka Council of Agriculture Research Policy)

There are two aspects of the ban on agrochemicals. The first is the ban on chemical fertilisers, and the second is the ban on the use of pesticides. Several eminent scientists, Dr Parakrama Waidyanatha (formerly the Soil Scientist of RRI), Prof OA Ileperuma (Former Professor of Chemistry University of Peradeniya), Prof C. S. Weeraratne (former Professor of Agronomy University of Ruhuna), Prof D. M. de Costa University of Peradeniya, Prof. Buddhi Marambe (Professor in Weed Science University of Peradeniya) have effectively dealt with the repercussion of the ban on chemical fertilisers which appeared in The Island newspaper on recently.

The major points summarised by these authors are listed below.

FERTILISER ISSUE

1. These scientists, including the author, are of the view that the President’s decision to totally shift to organic agriculture from conventional could lead to widespread hunger and starvation in future, which has become a reality. Organic farming is a small phenomenon in global agriculture, comprising a mere 1.5% of total farmlands, of which 66% are pasture.

2. Conventional farming (CF) is blamed for environmental pollution; however, in organic farming, heavy metal pollution and the release of carbon dioxide and methane, two greenhouse gases from farmyard manure, are serious pollution issues with organic farming that have been identified.

3. On the other hand, the greatest benefit of organic fertilisers as against chemical fertilisers is the improvement of soil’s physical, chemical and biological properties by the former, which is important for sustained crop productivity. The best option is to use appropriate combinations of organic and chemical fertilisers, which can also provide exacting nutrient demands of crops and still is the best option!

4. Sri Lanka has achieved self-sufficiency in rice due to the efforts of the Research Officers of the Department of Agriculture, and all these efforts will be in vain if we abruptly ban the import of fertiliser. These varieties are bred primarily on their fertiliser response. While compost has some positive effects such as improving soil texture and providing some micronutrients, it cannot be used as a substitute for fertiliser needed by high yielding varieties of rice. Applying organic fertilisers alone will not help replenish the nutrients absorbed by a crop. Organic fertilisers have relatively small amounts of the nutrients that plants need. For example, compost has only 2% nitrogen (N), whereas urea has 46% N. Banning the import of inorganic fertilisers will be disastrous, as not applying adequate amounts of nutrients will cause yields to drop, making it essential to increase food imports. Sri Lankan farmers at present are at the mercy of five organizations, namely the Central Department of Agriculture, the Provincial Ministry of Agriculture, the Private sector Pesticide Companies, the Non-Government organizations and the leading farmers who are advising them. Instead, improved agricultural extension services to promote alternative non-chemical methods of pest control and especially the use of Integrated Pest Management.

Locally, pest control depends mostly on the use of synthetic pesticides; ready to use products that can be easily procured from local vendors are applied when and where required Abuse and misapplication of pesticides is a common phenomenon in Sri Lanka. Even though many farmers are aware of the detrimental aspects of pesticides they often use them due to economic gains

We will look at the post scenario of
what has happened

1. The importation of Chemical fertilisers and Pesticides was banned at the beginning of Maha season 1 on the advice of several organic manure (OM) promoters by the Ministry of agriculture.

2. The Ministry of Agriculture encouraged the farmers to use organic manure, and an island-wide programme of producing Organic manure were initiated. IT took some time for the government to realize that Sri Lanka does not have the capacity to produce such a massive amount of OM, running into 10 tons per hectare for 500000 hectares ear marked in ma ha season.

3. Hence the government approved the importation of OM from abroad, and a Company in China was given an initial contract to produce OM produced from Seaweed. However, the scientists from University of Peradeniya detected harmful microorganisms in this initial consignment, and the ship was forced to leave Sri Lankan waters at a cost of US dollar 6.7 million without unloading its poisonous cargo. No substitute fertiliser consignment was available.

4. A committee in the Ministry hastily recommended to import NANO RAJA an artificial compound from India to increase the yield by spraying on to leaves. Sri Lanka lost Rs 863 million as farmers threw all these Nano Raja bottles and can as it attracts dogs and wild boar.

Since there is no other option the Ministry promised to pay Rs 50000 per hectare for all the farmers who lost their livelihood. It is not known how much the country lost due to this illogical decision of banning fertilisers and pesticides.

Recommendations

1. Judicious use of pesticides is recommended.

2. The promotion and the use of integrated pest management techniques whenever possible

3. To minimize the usage of pesticides:

Pesticide traders would be permitted to sell pesticides only through specially trained Technical Assistants.

Issuing pesticides to the farmers for which they have to produce some kind of a written recommendation by a local authority.

Introduction of new mechanism to dispose or recycle empty pesticide and weedicide bottles in collaboration with the Environment Ministry.

Laboratory-testing of imported pesticides by the Registrar of Pesticides at the entry-point to ensure that banned chemicals were not brought into the country.

Implementation of trained core of people who can apply pesticides.

Education campaigns to train farmers, retailers, distributors, and public with the adverse effects of pesticides.

Maximum Residue Level (MRL) to reduce the consumer’s risk of exposure to unsafe levels.

Integrated pest Management and organic agriculture to be promoted.

1. To ensure the proper usage of agrochemicals by farmers

All those who advised the Minister of Agriculture and the President to shift to OM still wield authority in national food production effort. The genuine scientists who predicted the outcome are still harassed sacked from positions they held in MA and were labelled as private sector goons. The danger lies if the farmers decide not to cultivate in this Maha season due to non-availability of fertilisers and pesticides the result will be an imminent famine.

The country also should have a professional body like the Planning Commission of

India, with high calibre professionals in the Universities and the Departments and

There should be institutions and experts to advise the government on national policy matters.

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Thomians triumph in Sydney 

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Nothing is happening for us, at this end, other than queues, queues, and more queues! There’s very little to shout about were the sports and entertainment scenes are concerned. However, Down Under, the going seems good.

Sri Lankans, especially in Melbourne, Australia, have quite a lot of happenings to check out, and they all seem to be having a jolly good time!

Trevine Rodrigo,

who puts pen to paper to keep Sri Lankans informed of the events in Melbourne, was in Sydney, to taken in the scene at the Sri Lanka Schools Sevens Touch Rugby competition. And, this is Trevine’s report:

The weather Gods and S.Thomas aligned, in Sydney, to provide the unexpected at the Sri Lanka Schools Sevens Touch Rugby competition, graced by an appreciative crowd.

Inclement weather was forecast for the day, and a well drilled Dharmaraja College was expected to go back-to-back at this now emerging competition in Sydney’s Sri Lanka expatriate sporting calendar.

But the unforeseen was delivered, with sunny conditions throughout, and the Thomians provided the upset of the competition when they stunned the favourites, Dharmaraja, in the final, to grab the Peninsula Motor Group Trophy.

Still in its infancy, the Sevens Touch Competition, drawn on the lines of Rugby League rules, found new flair and more enthusiasm among its growing number of fans, through the injection of players from around Australia, opposed to the initial tournament which was restricted to mainly Sydneysiders.

A carnival like atmosphere prevailed throughout the day’s competition.

Ten teams pitted themselves in a round robin system, in two groups, and the top four sides then progressed to the semi-finals, on a knock out basis, to find the winner.

A food stall gave fans the opportunity to keep themselves fed and hydrated while the teams provided the thrills of a highly competitive and skilled tournament.

The rugby dished out was fiercely contested, with teams such as Trinity, Royal and St. Peter’s very much in the fray but failing to qualify after narrow losses on a day of unpredictability.

Issipathana and Wesley were the other semi-finalists with the Pathanians grabbing third place in the play-off before the final.

The final was a tense encounter between last year’s finalists Dharmaraja College and S.Thomas. Form suggested that the Rajans were on track for successive wins in as many attempts.  But the Thomians had other ideas.

The fluent Rajans, with deft handling skills and evasive running, looked the goods, but found the Thomian defence impregnable.  Things were tied until the final minutes when the Thomians sealed the result with an intercept try and hung on to claim the unthinkable.

It was perhaps the price for complacency on the Rajans part that cost them the game and a lesson that it is never over until the final whistle.

Peninsula Motor Group, headed by successful businessman Dilip Kumar, was the main sponsor of the event, providing playing gear to all the teams, and prize money to the winners and runners-up.

The plan for the future is to make this event more attractive and better structured, according to the organisers, headed by Deeptha Perera, whose vision was behind the success of this episode.

In a bid to increase interest, an over 40’s tournament, preceded the main event, and it was as interesting as the younger version.

Ceylon Touch Rugby, a mixed team from Melbourne, won the over 40 competition, beating Royal College in the final.

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