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Sri Lanka’s Dangerous Domestic Debt Restructuring

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by JAYATI GHOSH and KANCHANA N. RUWANPURA

More than a year after the mass protest movement known as the Aragalaya ousted SriLanka’s President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, Sri Lankans have once again taken to the streets. The impetus for the resurgence of public discontent is the recent bailout agreement between the International Monetary Fund and President Ranil Wickremesinghe’s government.

The deal, which aims to address the country’s ongoing balance-of-payments crisis, offers Sri Lanka less than $ 3 billion over four years – a tiny fraction of what the country needs to meet its debt-servicing requirements and just one-sixth of its foreign-exchange earnings, which amounted to roughly $18 billion in 2022. In exchange for this emergency loan, the IMF imposed a series of conditions that have significantly exacerbated Sri Lanka’s wage and cost-of-living crises.

The mandated shift to market exchange rates, in particular, immediately led to a sharp currency devaluation, causing imported fuel and food prices to skyrocket and contributing to a 165% increase in electricity tariffs between June 2022 and February 2023. As fiscal restraints were imposed, the economy continued to spiral down, with GDP shrinking by 7.8% in 2022 and 11.5% in the first quarter of 2023. This has had an adverse impact on employment, livelihoods, and the viability of small and medium-size enterprises. Consequently, real wages fell by30-50% in 2022 and have remained stagnant.

Despite paying lip service to the importance of combating corruption and curbing illicit financial flows, the IMF plan falls short of tackling these issues effectively. Although it includes a modest increase in corporate income taxes, it neglects the possibility of imposing wealth taxes. Moreover, its focus on highly regressive measures, such as nearly doubling the value-added tax to 15%, means that the bulk of additional revenues will be generated through indirect taxes that disproportionately affect ordinary people.

The current wave of protests is partly a reaction to the government’s decision to comply with the IMF’s demand to restructure both external and domestic debt. Instead of focusing on lowering the external debt to a sustainable level, however, the agreement aims to bring down total debt, thereby reducing the haircut imposed on foreign creditors to just 30%.This has exacerbated the crisis and is difficult to justify.

In countries that do not issue global reserve currencies, there is a clear distinction between domestic and external debt. Governments can and do service domestic debt using their own currencies, the supply of which is controlled by their central banks. By contrast, foreign currency-denominated debt necessitates either foreign-exchange earnings or new borrowing.|

Sri Lanka’s crisis is largely the result of the country’s inability to service its external debt due to insufficient foreign-currency reserves. Since 2016, the government has preferred to take on new international loans, primarily from private lenders, to repay its foreign creditors, including bilateral and multilateral lenders. In early 2022, the government chose to default on its foreign loans rather than explore alternative solutions. But restructuring domestic debt in an economy already in decline is both painful and unnecessary.

Sri Lanka’s domestic debt is held by various entities, including the central bank, commercial banks, and pension funds. Given that the country’s banking system is already severely weakened, pension funds will almost certainly bear the brunt of the expected adjustment. This will have a significant impact on the retirement savings of workers who have already been hit by massive price increases. By reducing the interest rates on sovereign bonds held by Sri Lanka’s largest pension funds from more than 20% to 12%, and then to 9% from 2025 until maturity, the government aims to reduce its interest burden by 0.5 percentage points of GDP annually.

Recent estimates by Ahilan Kadirgamar suggest that this will result in a 30% decline in the value of retirement funds a decade from now. Moreover, these pension funds, often holding the only financial assets of working people, will be subject to a 30% tax on their returns – higher than the tax rate applied to many in the corporate sector. Many workers whose life savings are invested in these retirement funds earn wage incomes well below the minimum taxable rate. This includes workers who face numerous intersecting deprivations stemming from gender and ethnic discrimination, such as women employed in the garment industry and tea-plantation workers, especially those from minority Tamil groups. These groups have already experienced an alarming decline in living standards.

Nearly 56% of Sri Lanka’s 22.2 million people are now grappling with multidimensional vulnerabilities, with women and girls being the hardest hit. Official estimates suggest that roughly 43% of children under the age of five suffer from malnutrition, as do a growing number of pregnant and lactating women. By targeting the meager pension funds of Sri Lanka’s wage workers, the government’s domestic debt restructuring plan is likely to exacerbate existing class, gender, and ethnic inequalities. With their hard-earned savings eroded, poverty-level workers will be pushed further into destitution.

Meanwhile, the adjustment process relies heavily on the unpaid labor of women who continue to provide care in the face of austerity and diminishing social services. The plight of working-class Sri Lankan women underscores the clearly gendered effects of the county’s debt crises and the government’s approach to tackling them. A genuine resolution to Sri Lanka’s prolonged economic crisis would require a dramatic change in strategy. To bring about a robust economic recovery, the government and the IMF must focus on improving the lives of working people rather than imposing on them the burden of adjustment.

(Jayati Ghosh, Professor of Economics at the University of Massachusetts Amherst, is a member of the Club of Rome’s Transformational Economics Commission.

Kanchana N. Ruwanpura

, Professor of Development Geography at the University of Gothenburg, is a member of the coordinating collective of the virtual and voluntary initiative Institute of Political Economy in Sri Lanka)



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From a ‘Clash of Civilizations’ to a ‘Dialogue among Civilizations’

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A meeting of BRICS leaders

As the world continues to reel from the ‘aftershocks’ as it were of the October 7th Gaza Strip-centred savagery, what it should guard against most is a mood of pessimism and hopelessness. Hopefully, the international community would pull itself together before long and give of its best to further the cause of a political solution in the Middle East.

It is plain to see that what needs to be done most urgently at present is the prolongation of the current ceasefire, besides facilitating a steady exchange of hostages but given the present state of hostilities between the warring sides this would not prove an easy challenge.

Considering that there are no iron-clad guarantees by either side that there would be a longstanding ceasefire followed by a cessation of hostilities, what we have at present in the Middle East is a highly fraught ‘breather’ from the fighting. There are no easy answers to the currently compounded Middle East conflict but the external backers of the warring sides could alleviate the present suffering of the peoples concerned to a degree by bringing steady pressure on the principal antagonists to drastically scale down their hostilities.

If they mean well by the communities concerned, these external backers, such as the US, as regards Israel, and those major Middle Eastern states backing Hamas and other militant groups, would set about creating a conducive climate for a negotiated settlement to the conflict.

De-escalating the supply of lethal military hardware to the warring sides is a vital first step towards this end. External military backing is a key element in the prolongation of the war and a decrease in such support would go some distance in curtailing the agony of the peoples concerned. The onus is on these external parties to prove their good intentions, if they have any.

Meanwhile, major states of the South in increasing numbers are making their voices heard on the principal issues to the conflict. One such grouping is BRICS, which is now featuring among its prospective membership, countries such as Egypt, Ethiopia, Argentina, Saudi Arabia, the UAE and Iran. That is, in the foreseeable future BRICS would emerge as a greatly expanded global grouping, which would come to be seen as principally representative of the South.

Since the majority of countries within the BRICS fold are emerging economies, the bloc could be expected to wield tremendous economic and military clout in the present world order. With China and Russia counting among the foremost powers in the grouping, BRICS would be in a position to project itself as an effective counterweight to the West and the G7 bloc.

However, the major challenge before the likes of BRICS is to prove that they will be a boon and not a bane to the poorer countries of the South. They would be challenged to earnestly champion the cause of a just and equitable world political and economic order. Would BRICS, for instance, be equal to such challenges? Hopefully, the commentator would be able to answer this question in the affirmative, going ahead.

The current issues in the Middle East pose a major challenge to BRICS. One of the foremost tasks for BRICS in relation to the Middle East is the formulation of a policy position that is equitable and fair to all the parties to the conflict. The wellbeing of both the Palestinians and the Israelis needs to be staunchly championed.

Thus, BRICS is challenged to be even-handed in its managing of Middle Eastern questions. If the grouping does not do this, it risks turning the Gaza bloodletting, for example, into yet another proxy war front between the East and West.

Nothing constructive would be achieved by BRICS, in that the wellbeing of the peoples concerned would not be served and proxy wars have unerringly been destructive rather constructive in any way. The South could do without any more of these proxy wars and BRICS would need to prove its skeptics wrong on this score.

Accordingly, formations, such as BRICS, that are genuine counterweights to the West are most welcome but their presence in the world system should prove to be of a positive rather than of a negative nature. They need to keep the West in check in the UN system, for example, but they should steer clear of committing the West’s excesses and irregularities.

More specifically, the expanding BRICS should be in a position to curtail the proliferation of identity politics in the present world order. The West has, thus far, failed to achieve this. The seismic convulsions in the Gaza re-establish the pervasive and pernicious presence of identity politics in the world’s war zones, so much so, one could say that US political scientist Samuel Huntingdon is being proved absolutely right in his theorization that world politics over the past 30 years has been essentially a ‘Clash of Civilizations’.

After all, current developments in the Middle East could be construed by the more simple-minded observer as a pitting of Islam against Judaism, although there are many more convoluted strands to the Middle East conflict than a violent clash of these religious identities. More so why the influence of identity politics needs to blunted and eliminated by the right-thinking.

One way in which this could be achieved is the through the steady espousal and practise of former Iranian President Mohammad Khatami’s ‘Dialogue of Civilizations’ theory. While the existence of a ‘Clash of Civilizations’ cannot be denied on account of the pervasive presence of identity politics the world over, the negative effects of this brand of politics could be neutralized through the initiation and speeding-up of a robust dialogue among civilizations or identity groups.

Such an exchange of views or dialogue could prove instrumental in facilitating mutual understanding among cultural and civilizational groups. The consequence could be a reduction in tensions among mutually hostile social groups. Needless to say, the Middle East is rife with destructive politics of this kind.

Accordingly, there needs to be a paradigm shift in the way cultural groups interact with each other. The commonalities among these groups could be enhanced through a constant dialogue process and the Middle East of today opens out these possibilities.

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Their love story in song…

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The duo in the company of Dinesh Hemantha and Jananga

It’s certainly encouraging to see Sri Lankan artistes now trying to be creative…where songs are concerned.

Over the past few weeks, we have seen some interesting originals surfacing, with legendary singer/entertainer Sohan Weerasinghe’s ‘Sansare,’ taking the spotlight.

Rubeena Shabnam, Sri Lankan based in Qatar, and Yohan Dole, living in Australia, have teamed up to produce a song about their love life.

‘Adare Sulagin’ is the title of the song and it’s the couple’s very first duet.

Says Rubeena: “This song is all about our love story and is a symbol of our love. It feels like a dream singing with my fiancé.”

Elaborating further, especially as to how they fell in love, Rubeena went on to say that they met via social media, through a common friend of theirs.

The song and video was done in Sri Lanka.

Rubeena and Yohan with lyricist Jananga Vishawajith

“We both travelled to Sri Lanka, in August this year, where we recorded the song and did the video, as well.

‘Adare Sulagin’ was composed by Dinesh Hemantha (DH Wave Studio, in Galle), while the lyrics were penned by Jananga Vishwajith, and the video was handled by Pathmila Ravishan.

It is Dinesh Hemantha’s second composition for Rubeena – the first being ‘Surali.’

“It was an amazing project and it was done beautifully. Talking about the music video, we decided to keep it more simple, and natural, so we decided to capture it at the studio. It was a lot of fun working with them.”

‘Adare Sulagin,’ says Rubeena, is for social media only. “We have not given it for release to any radio or TV station in Sri Lanka.”

However, you could check it out on YouTube: Adare Sulagin – Rubeena Shabnam, ft. Yohan Dole.

Rubeena lives and works in Qatar and she has been in the music industry for almost five years. She has done a few originals but this one, with Yohan, is very special to her, she says.

Yohan Dole resides in Australia and is a guitarist and vocalist.

He has a band called Rhythmix, in Australia, where they play at various events.

He has been doing music for quite a while now but doing an original song was one of his dreams, he says

Rubeena and Yohan plan to get married, in December, and do more music together, in different genres.

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Mathematics examinations or mathematics curriculum?

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Some people say that it is not necessary for a Grade 10 student to buy an ordinary scientific calculator because they have smartphones with built-in calculators. If not, it is easy to install a calculator app on mobile phones. A smartphone should not be used as a calculator during a mathematics test or a mathematics exam because it can be used for cheating. In the UK and other developed countries students have to keep their smartphones in their school bags or in their lockers outside the classroom during mathematics tests and exams. 

by Anton Peiris
anton25ps@gmail.com

R. N.A. De Silva has, in a recent article, provided some useful tips to students as regards preparation for mathematics examinations. Trained teachers and graduates with professional qualifications are familiar with this topic.  All mathematics teachers have a duty to help the students with revision.

The more important task is to salvage the Sri Lankan O/Level mathematics students from the abyss that they have fallen into, viz. the implications and the retarding effect of the use of obsolete Log Tables. The Minister of Education, Senior Ministry Officials and the NIA are oblivious to the important and interesting things that have happened in Grades 10 and 11 mathematics in the UK, other parts of Europe, Japan, Canada, China and elsewhere. They have been like frogs in a well for almost half a century. Here are two important facts:

1. O/Level mathematics students in Sri Lanka are 46 years behind their counterparts in the UK and in other developed countries. Ordinary Scientific calculators were introduced to the O/Level mathematics classrooms in the UK way back in 1977. Prior to that those students used Slide Rules to facilitate their mathematical calculations. Ordinary scientific calculators give the values of Sine, Cos, Tan and their Inverses, Log, LN, exponential powers, square roots, squares, reciprocals, factorials, etc., at the press of a button, in addition to performing arithmetic functions. There is no memory to store mathematical formulae, etc. It is an invaluable tool for solving sophisticated and interesting mathematical problems and also problems in ordinary statistics. It has paved the way for achieving high standards in O/Level Mathematics in those countries.

Just compare the maths questions in the Cambridge IGCSE or the London O/Level Maths Exam with the questions in the Sri Lankan O/Level maths exam and you will see how far our students have fallen behind.

The Cambridge O/Level examination was replaced by the GCSE and the IGCSE (International General Certificate of Secondary Education) a few decades ago.

I am not referring to Programmable Calculators and Graphic Display Calculators (GDC), meaning devices with a small screen that can display graphs, perform statistical calculations like the Z- Score for large samples, show Matrix calculations, provide solutions to algebraic equations, etc., at the press of a few buttons. GDC is a compulsory item for A/Level mathematics students in the UK and in all developed countries.

Some teachers say that by using ordinary scientific calculators in Grades 10 and 11, students will not acquire the ability to carry out mental arithmetic calculations. This is not true because

(i). Calculators are introduced in Grade 10. Maths teachers have five years of Primary School and three years of Middle school (Grades 7, 8 and 9) i.e. a total of eight years to inculcate sufficient mental arithmetic skills in their students before the calculators are introduced in Grade 10!

(ii). In the IGCSE and in the London O/Level Mathematics Exams calculators are not allowed for Paper 1. Preparation for Paper 1 requires the acquisition of mental arithmetic skills, e.g., one lesson per week in class in Grades 10 and 11 in which calculators are not allowed. Sri Lanka could follow suit.

Some people say that it is not necessary for a Grade 10 student to buy an ordinary scientific calculator because they have smartphones with built-in calculators. If not, it is easy to install a calculator app on mobile phones. A smartphone should not be used as a calculator during a mathematics test or a mathematics exam because it can be used for cheating. In the UK and other developed countries students have to keep their smartphones in their school bags or in their lockers outside the classroom during mathematics tests and exams.

An ordinary scientific calculator costs less than 10 % of the price of a smartphone.

Sri Lankan students in International Schools sit the IGCSE or the London O/Level mathematics exams where ordinary scientific calculators are allowed. These students have made big strides in learning mathematics by using the calculators. Only the rich can send their children to International Schools in Sri Lanka. Millions of poor Sri Lankan students do not have calculators.

Our Minister of Education has announced that the government was planning to transform the country’s education system by introducing ‘’STEAM’ (Science, Technology, Engineering, Arts and Mathematics). Maintaining high standards in O/Level Mathematics is the key to a successful implementation of STEAM programme. Unfortunately, the Education Minister and top education official are not aware of the fact that the only way to improve the standard of O/Level Mathematics is to do what the developed countries have done, i. e., revamping the O/Level mathematics syllabus and to introducing the ordinary scientific calculator in Grades 10 & 11. If they do it, it will be an important piece of curriculum development.

Bear in mind that the UK and other developed countries have taken another important step during the last 20 years; they have introduced the Graphic Display Calculator (GDC) to the O/Level Mathematics class and by providing a Core Exam and an Extended Exam. In the Cambridge IGCSE Mathematics Exams, Papers 1, 3, and 5 constitute the Core Exam. Papers 2 ,4 and 6 constitute the Extended Exam. Calculators are not allowed in Papers 1 and 2.

The Core Exam is a boon to students who have very little or no mathematical ability. More on this in my next article.

By using Log Tables, our Sri Lankan O/Level students have to spend a lot of time to solve an IGCSE (Extended Syllabus) exam problem or a London O/Level mathematics exam problem because the use of Log Tables takes a long time  to work out the Squares, Square Roots, exponential powers, reciprocals , LN , factorials, etc., and that is tedious work while their counterparts in developed countries do that in a few seconds by pressing a couple of buttons in an ordinary scientific calculator.

The Calculator has given them more motivation to learn mathematics.

O/Level students in the UK have graduated from the ordinary scientific calculator to the Graphic Display Calculator (GDC) thereby improving their ability to solve more sophisticated, more important and more interesting problems in mathematics, statistics and physics. Sri Lankan O/Level students are compelled to use obsolete Log Tables.

Hats off to that Minister of Education who introduced the ordinary scientific calculator to the Sri Lankan A/ Level Mathematics classroom and to the A/Level Mathematics Exam a few years ago. That was a small step in the right direction. Minister Susil Premjayantha, please revamp the O/Level mathematics syllabus and introduce the ordinary scientific calculator to Grades 10 and 11 now. That will ensure a big boost for your STEAM programme and yield benefits for the Sri Lankan economy.

(To be continued. Topic 2:  The necessity for introducing an O/Level Mathematics Core Exam and an Extended Exam. The writer has taught O/Level and A/Level Mathematics and Physics for 45 years in Asia, Africa and Europe and is an Emeritus Coordinator for International Baccalaureate, Geneva.)

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