By Lankathilaka
On Friday, it was 1000 days since the Easter Sunday attacks of 2019 and Colombo Archbishop Cardinal Malcolm Ranjith’s statement at a special service to mark the day in the Thewatte church is being seen as one of the most revealing about the incident to date. The Cardinal said that the attacks were a ploy to win the election. The presidential election later that same year and the general election the following year in 2021 resulted in Gotabaya Rajapakse’s ascent to the presidency and his political party the Sri Lanka PoduJana Peramuna (SLPP) forming today’s government. The modus operandi surrounding the discovery of a hand grenade in the All Saints Church in Borella last Wednesday resonates with that of the Easter bombings which killed and injured nearly 900 people. The Borella episode was not a chilling reminder. For 1000 days now the families of the victims of the Easter attacks and its survivors have continued their crusade for justice to find out the perpetrators of the attacks which so far, has remained elusive.
Soon after the Borella incident, the police media spokesman SSP Nihal Thalduwa who only last week had a public humiliation after he was caught lying about non- existent police powers to arrest people who insulted the President on social media, claimed the hand grenade was found after a tip off. It was diffused by the Special Task Force. Thalduwa, who has lost credibility after his misleading statement to the public, said that three suspects who had been arrested had been produced in court. Among them is a church helper who had reportedly found the explosive device. The latest update is that four people including a 13 –year old child who is alleged to have helped to place the device have been arrested in connection with the incident. In a parallel development which puts the spotlight on the manner in which an already beleaguered police have conducted the investigation so far, the Cardinal and his team who had viewed the church’s CCTV footage of the incident point to a reluctance on the part of the police to look into the matter comprehensively. The Cardinal, who has been leading his flock in theirdemand for justice for the Easter attacks and who is now a veteran at spotting police canards andquestionable professionalism on their part, briefed the media about how the police had asked them to watch footage from the afternoon of the day the incident took place and not from the morning. Having ignored what the police said, when the clerics had viewed footage from the morning of that day they had seen a man with a limp walk into the church premises, bend down to take something from his trousers and when a church worker walked past him leave the church without limping. The Mawrata news reported that a senior police officer in the Western province had given instructions on how the church CCTV footage should be viewed. Referring to police sources, the report said that following the Cardinal’s revelations, several police officers who had been examining the video footage had been transferred from their police stations to save them from criticism. In another public humiliation for the Sri Lanka police, this time aimed at its highest officer, the Cardinal challenged the Inspector General of Police to remove his uniform and go home if he cannot speak the truth.
There is no light at the end of the tunnel for the country’s economy which is being sucked deeper and deeper into a black hole. ‘This plane is crashing. The only question now is are we going to try a soft landing on the beach and save the passengers or are we goingto let it come down hard nose first and hit a rock’, tweeted Samagi Jana Balawegaya parliamentarian Harsha De Silva. According to global financial analyst Moodys, although the 227 billion rupee relief packagewhich Finance Minister Basil Rajapakse announced for state sector employees, pensioners and Samurdhibeneficiaries could boost the economy it will worsen the deficit. The relief given included a 5000rupee salary raise for the public sector, a 1000 rupee cash hand out for those on a low income agricultural subsidies and the removal of some taxes on food and medicine. Meanwhile rating company Standard & Poor dropped Sri Lanka’s rating even further to a CCC from an earlier CCC+.
The pitiful state of the country’s foreign reserves which nosedived into the red in November last year to US$ 1.6 bn is now skimming the surface with official reserves at US$ 3. 1 bn which includes a 1. 5 bn Yuan denominated swap. Useable reserves of US$1. 5 bn and another US$ 400 mn swap this month from the Reserve Bank of India will bump it up slightly to US$1. 9 bn but with liabilities for this year totaling about US$6. 9 bn the gap between existing reserves and payments will be around US$4 bn. Economists describe the situation as dramatic. Deshal De Mel an economist with local think tank Verite Research speaking at last week’s forum on Sri Lanka’s Economic Outlook for 2022 sees the scenario as one being where even with potential inflows it will be difficult to control reserves from going below zero without introducing measures to control imports and outflows. He points out that restricting imports and external payments will cause a lot of pain for the domestic economy, affecting a range of stakeholders from the consumer who will find it difficult to find essential commodities to business which will struggle to get raw materials and supplies on time.
The country’s economic woes have not been an overnight construct. The pandemic and the drop in earnings from tourism and foreign remittances have aggravated a widening budget and trade deficits which has been taking place for almost 40 years. The plastering of the economy with piecemeal and adhoccurrency swaps, leasing of prime real estate and the sale of gold reserves will not be the magic wand that Sri Lanka can wave to make the economy well again. A transparent scrutiny of the crisis in the domestic consumer market with the shortages of LP gas, essential foods such as milk powder and power failures because of inadequate fuel boil down to not having the purchasing power that comes with vaults full of dollars. The economic crisis, snowballing at speed, has already hit the energy sector and Energy Minister Udaya Gammanpila has spoken about the struggle to find dollars to buy fuel every month. Sri Lanka’s monthly fuel bill is US$ 400 mn.
Professor H. D Karunaratne who is an economist and an academic at the University of Colombo who was another speaker at the Outlook discussion clarifies that the situation in Sri Lanka is one which has gradually developed over 70 years and doubts if short term policies can overcome what is a long term issue. Since 1978 the country has been gradually facing deficits in trade and balance of payments and the accumulated debt stock is very large.
Of immediate concern is the payment of the US$ 500 mn sovereign bond which is maturing on the 22nd of this month. Top business leaders and economists have spoken in unison about the need to renegotiate it andinstead, to channel the money to buy essential goodsand fuel for the country.
However, the signs are that the government will not heed this crucial advice by industry stalwarts. ‘I will tell you why the Central Bank is going to settle the US$ 500 mn’, tweeted De Silva. ‘It’s because certain people bought these bonds at deep discounts guaranteeing them massive returns’. Central Bank Governor Ajith Nivard Cabraal confirmed that the payment will be made. In an egocentric tweet he moaned that ‘ the individuals who screamed that Sri Lanka will not be able to pay the 2022 ISB maturity are now screaming that the Central Bank should not pay it’. In doing so, the point that Cabraal misses is that the joy of a few fat cats will come at the expense of the grief of a majority of the country’s citizens.
De Mel points out the two ways that Sri Lanka can extricate herself from the current financial mess. ‘We can either continue to try to muddle through with swaps and bilateral transactions from another party but still continue with restrictive import measures. Or the other option is talk to our creditors and restructure the debt. We will also need significant reforms on the fiscal side. Creditors are likely to expect an IMF program to underpin a restructuring’. According to De Mel an IMF program will involve revenue raising measures, controls over public expenditure and measures to ensure that interest and exchange rates are in line with market forces all of which will create headwins for growth and for economic activity. Nevertheless either option has its own challenges and costs and Sri Lanka has to make a call as to what makes sense in the long term.
Also speaking at Outlook from his experiences of salvaging many distressed economies such as Greecewas Professor Lee Buchheit. His claim is that although a number of countries have embarked on debt restructuring without an IMF program, its involvement is very useful because traditionally countries like those that are a part of the Organisation for Economic Cooperation and Development insist the IMF is involved and the country has a programme before they agree to a restructure. ‘Commercial creditors who are involved ask themselves whether the debt restructuring is necessary and whether the terms that are being proposed for the restructuring is proportionate to what the actually needs are. Because they won’t have access to all these answers and they won’t trust the debtor country, they will look for a third party that has the expertise and the legitimacy to vouchsafe these two questions and the IMF fulfils this’.
According to Buchcheit, an honorary professor at the University of Edingburgh Law School, an IMF debt sustainability analysis will look at the effects of its policies on the country’s economy, particularly for the country’s poorer segments. The formulae is a mix of economics and morality. The involvement of the IMF will help the debtor country to assuage the concerns of its creditors that what they are being asked to do is what is proportionally needed by it. ‘Every sovereign debt restructuring comes down to one basic burden sharing decision and that is how much of the pain of the country’s adjustment should be borne by the citizens of the country and how much by the creditors in the form of debt relief’, he explains. ‘The only institution that purports to have the technical expertiseto make that burden sharing judgement and the political legitimacy to do it is the IMF. Both citizens and creditors will worry that they are being asked to bear a disproportionate share of the burden of the adjustment and they will look to a neutral third party to confirm that that is not the case’.
For Sri Lanka to have a better economic outlook she has to put her house in order first. Professor Karunaratne who was critical about the lack of basic information at grassroots level including those relating to revenue and expenditure at grassroots level pointsout the need to collate this for effective fiscal adjustments. ‘Though we talk about the Sri Lankan economy we don’t have information about it. We need information from the Gramaniladhari level if we are to mobilise the economy’.
Other considerations for Sri Lanka are whether further loans or foreign investments are going to be an option. In the case of the latter political parties have to agree on clear policies that will govern such investments. He also believes that the time to address the subsidy culture has been more than ripe. The performance of loss making public sector institutions have to be reviewed and the sector, which employs millions, has to increase its productivity before salary increases can be given to its employees. He calls the current existing phenomena one of eating the fruit before it is cultivated.
Among his suggestions for better economic planning for Sri Lanka is a professional outfit like the Economic Planning Agency in Japan which reads the economy and designs a suitable economic policy for the country which has to be implemented by whatever political party that comes to power.
Addressed prudently, the government can make a bad situation better by using the current crisis as a catalyst for change for a robust economy by changing the way public finances, trade, the labour market and pricing structures are managed.
