Features
Economic crisis and possible way out
By Dr. Wijeyadasa Rajapakshe,
President’s Counsel, Member of Parliament
Sri Lanka has been positioned in the third place of the weekly global inflation dashboard by John Hopkins University (US), above Turkey, Sudan and Venezuela as at 21st April 2022. As measured by the US university, inflation is as high as 119% a year. It surged to 30% in April. As for food items and medicine, the inflation is over 50%. Our total public debt has increased up to 100 % of the GDP whereas it remained as 25% in the year 1960. Our per capita income was USD 200 in 1960, but now it has reached closer to middle income country. Devaluation has caused an abysmal gap between the rupee and dollar.
Sri Lankan debt was 86.8% of the GDP in 2019, but now it has reached approximately 109% (2021). External debt has increased to US $ 51 billion. External debt as of export earning has risen to 350% in 2019. During the last two years, the value of imports has been 100% more than that of exports. Now, we are facing a massive debt and fiscal crisis and experiencing diminished liquidity and insolvency. In March, the rupee depreciated by over 40%. Foreign exchange reserves virtually remain at zero. Projected debt service stands at USD 8 billion per annum from 2022 -2026. The economy cannot take this kind of pressure.
The Sri Lankan economic crisis is not limited to the economic front; it began as a result of a political crisis, which had been simmering for the last one and a half decade. The outlook shows that the monetary authorities are struggling to stabilise the economy without much support from the citizenry due the mounting anger against corrupt rulers and officials of the Central Bank and the Treasury. A family oligarchy has made the public resentful. It is important to identify the reasons which led to the current economic crisis:
1. Sri Lanka’s foreign debt has risen up to USD 51 billion including USD 3.38 billion from China and it amounts to 10% of total debt liabilities. The amount spent by Chinese lenders on BRI (Belt and Road Initiative) projects is USD 11 billion. Borrowing at commercial lending rate from China for projects is not sustainable as most of the projects are white elephants, e. g. the Hambantota Port, the Mattala Airport, and the Lotus Tower.
2. Shady deals of the government in obtaining foreign loans for projects such as expressways and awarding contracts.
3.Imprudent and immature monetary policy adopted by the Governors of the Central Bank during the last 15 years and most of the transactions are ostensibly corrupt and disadvantageous to the country, e. g. sovereign bond issues, hedging deal, the purchase of Greek bonds, etc. Maladministration and dishonest conduct of the Central Bank have led to devaluation of the rupee. The appointment of unqualified henchmen as Governors was the reason.
4. Tax concessions to high-income earners in 2020 amounting to Rs. 600-650 billion per annum at a loss of revenue equivalent to USD 7 billion during the last two years at the then exchange rates.
5. The ill-conceived, irresponsible decision to ban agrochemicals has caused an approximately 40-50% drop in the national agricultural output, especially paddy harvest.
6. Appointment of mediocre MPs as minister to handle vital sectors such as Finance, Power and Energy, Education, Health, Highway, etc.
Similarly, appointments of unqualified and dishonest henchmen to the institutions vital to the economic development had aggravated the present crisis.
7. Failure of monetary authorities to seek IMF assistance immediately after realising that the economy was heading for crisis in early 2021.
8.Excessive money printing
9.Disorganised and unproductive public service, which has become a burden on the economy
The economy has to be revived to meet the basic needs of the populace. The government has sought assistance from friendly countries, mainly India and China, but geo-political conflicts have become obstacles to a certain extent although substantial assistance has been given. Now, the government has finally sought the assistance of the IMF, which has already supported Sri Lanka 16 times earlier.
Although we have secured IMF assistance and many other monetary agencies, our agricultural and industrial sectors have been gradually dwarfed by the ever-expanding service sector. The contribution of different sectors to the GDP is as follows:
Agriculture 8.3%
Industries 26.2%
Services 59.6%
Due to its heavy dependence on the service sector, the economy is susceptible to adverse global situations.
Corruption prevalent among politicians and bureaucrats has plunged the country into chaos. Reforms and strategies that we are in need of urgently are short-term and long-term.
Short-term measures
1.Political stability is the key factor to resolve both the prevailing social uprising and the economic crisis. Fiscal discipline. Unless the government can convince the general public that it is free of corruption and engages in transactions in a transparent manner, it may not be able to achieve political stability.
2. Increase of interest rates. (Already done)
3. The immediate steps to have a moratorium on debt, and a debt restructuring programme with the assistance of the IMF shall be the prioritised task of the authorities. International Sovereign Bonds is the major share of debt which amounts to 36% of the total and ADB multilateral debt is the second highest, amounting to 14%.
Management of debt liabilities both foreign and domestic shall include the following:
a) Moratorium on debt service (Already done).
b) Renegotiate and restructure loan and interest components.
c) Renewal and extension of SWAP arrangements,
d) Setting off part of the loans obtained at commercial interest rates for projects that do not make a significant contribution to the economy.
4. Complete ban on import of non-essential items for a limited period. Although authorities have announced such a policy, it is apparent that the importers having close links with the powerful politicians do display such items for sale.
5. Reducing the deficit of the balance of trade is extremely urgent. Laws alone will not help tackle this problem; generous support from businesses and expatriates is called for.
6. The eradication of money transfer schemes such as hawala and undial which have been adopted by the importers as well as the exporters to bypass the established banking system, the result being that the Banks do not receive dollars and the rupee depreciates.
7. Sri Lankan migrants also resorted to such informal methods of money transactions instead of sending their remittances through banks. Some of such intermediaries are directly linked to drug dealers engaged in money laundering.
8. Monetary authorities also should draw their attention to the fact that some migrants do not send their remittances to the country in protest against the current rulers, who are corrupt. Although the country was receiving around USD 600 million monthly from expatriates earlier, it now receives only about USD 250 million a month. This needs to be addressed as an extremely urgent matter to resolve the deficit of the balance of trade.
9. Immediate tax reform measures to be taken to impose direct taxes on high income earners as was the case before 2019.
10. Delay the capital expenditure on projects, more prudently by presenting a new budget to tackle the economic crisis.
Long-term measures
1. Encourage export-oriented products by extending tax concessions and providing infrastructure facilities.
2. Value addition to exports
3. Adoption of a national policy to take measures to increase the agriculture sector contribution to GDP from 8.3% up to 14% and industrial sector contribution from 26.2% to 34% (approximately) in five years.
4. Restructuring of major loss-making State institutions.
a) Ceylon Electricity Board has recorded a loss of Rs. 308 billion up to 2020.
b) Sri Lankan Airline has recorded a loss of Rs. 374 billion up to Feb. 2021.
c) Sri Lanka Railway Dept has recorded a loss of Rs. 331 billion up to 2020.
5. Restructuring of the public sector to ensure its sustainability and contribution to the national economy.
6. The establishment of development banks for sustainable development of agriculture and industrial sectors. At the commencement of the state-owned Bank of Ceylon and People’s Bank, the state was aiming to achieve the goals of industrial and agricultural sectors and it attained its goals, but after the introduction of liberal economy, those two banks also started making profits, forgetting the purpose for which they were established.
7. The curtailment of the budget deficit. Budget deficit increased up to 11.1% in 2020, whereas it was 5.5% in 2017, which is indicative of weak financing management.
8. The adoption of stringent procedure as regards appointments to all state-run institutions and to ensure that appointees have met the minimum qualifications stipulated.
9. Either amending the Assets and Liabilities Declaration Act or enacting a new law to ensure that transactions of politicians, official and government contractors are monitored to ensure their transparency.
10. Making anti-bribery laws applicable to the private sector as well.
1. 11. Restructuring of the Sri Lanka Customs. It is apparent that a substantial amount due to the treasury from the Custom is not credited due to variety of reasons.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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