Sri Lanka had been ‘hiding its bankruptcy’ before it was officially announced: CBSL Governor

By Sanath Nanayakkare

The Governor of the Central Bank, Dr. Nandalal Weerasinghe said on Tuesday that Sri Lanka had been hiding its bankruptcy which had actually occurred months before it was officially announced.

He said so during a multi-TV channel programme where several key political and public officials responsible for the country’s economy were quizzed by journalists.

“At present, we are taking necessary measures to resurrect such an economy plagued by bankruptcy,” he recalled in response to a query about the economic crisis.

“The first quarter of Sri Lanka had had a negative contraction. One of the short-term measures we had to take was to obtain foreign fund assistance to finance the budget deficit while at the same time increasing our foreign earnings to reduce our dependency on foreign loans. That was the only solution we could take in the short-term,” he said.

When asked whether there wasn’t any other source to increase state revenue other than imposing higher taxes on the people, the Governor said, “Definitely there is one. The loss-making state owned enterprises (SOEs) gobble a huge share of the government’s tax revenue. Although we have identified them as national resources, in real terms, they are not.

‘These SOEs which are widely believed as national assets have become liabilities that burn up government’s tax revenue. SriLankan Airlines carries with it a debt of about USD one billion and that’s why no investors are coming to partner with SriLankan Airlines. Some people identify it as trying to sell the national career. But truly speaking, it is a liability rather than an asset. The government has a lot of assets which should be used productively. Take Sri Lanka Telecom for an example. It had been a fully government-owned entity. It was opened to other investors and today SLT is of great importance to various stakeholders and the entire country. If it was not opened for diversified investments, you wouldn’t have an effective telecommunication service in the country today. It provides its offering competitively in the market in line with international standards. If it didn’t have such a diversified investor profile, SLT would not have been productive and the devices you use and the bills you get today from service providers would be 10 times as high. It provides value to the country and SLT’s asset value has increased. The government of Sri Lanka is still the primary shareholder of SLT and it is not a liability. Likewise if we open our electricity supply, SriLankan Airlnes, Ceylon Petroleum Corporation etc, we could reap its benefits. Another example is the Sri Lanka Ports Authority which does not receive financial allocations from the government but operates on its own revenue and resources. If we could open the loss-making entities to such an investment and operational model, there will be no need to collect and waste tax payers’ money on them.”

“For investors to come to Sri Lanka, there needs to be political stability, macro-economic stability and ease of doing business. Vietnam has all these attractions for investors and even some Chinese businesses are relocating in Vietnam due to these reasons. Sri Lanka also has that opportunity. We have to make necessary reforms for that. We will have to move forward through a competitive, open economy to conquer the world. Being a small country, we can’t progress only with internal competition and internal trade. Only when we are globally competitive in price and quality can we capture a share of the internal market. For that we need to open the country for investment,” he said.

According to the Department of Census and Statistics, the year on year GDP growth rate for the first quarter of 2022 had been estimated as negative 1.6 percent which indicated a considerable contraction of the economy compared to the first quarter of 2021. Within the first quarter of 2022, the economic growth rate had slowed down compared to the first quarter of 2021 due to adverse effects of factors including inflation, foreign exchange devaluation and US dollar deficit in the country.