It has been reported that the Sri Lankan government had taken a decision to restructure domestic debt.
This was revealed in the first-ever report produced by the Sub-Committee in identifying short and medium-term programmes related Economic Stabilization of the National Council.
Appointment of the Sub-Committee:
The Resolution to constitute the National Council, moved by Dinesh Gunawardena, the Prime Minister was approved by Parliament on 20th of September 2022.
According to the above Resolution, the National Council shall have general responsibilities and jurisdiction over three main areas. One of them is to agree on short and medium-term common minimum programmes in respect of the stabilization of the economy.
At the first meeting of the National Council which was held on 29th of September 2022, the Secretary-General of Parliament, presenting the way forward of the Council, suggested to appoint a Sub-Committee to recognize short and mediumterm programmes for the stabilization of the economy.
The members of the SubCommittee were announced as per the preferences indicated by them at the Second meeting of the National Council which was held on 6th of October 2022.
The committee is chaired by Patali Champika Ranawaka and includes MPs Naseer Ahamed, Tiran Alles, Sisira Jayakody, Sivanesathurai Santhirakanthan, Wajira Abeywardana, A. L. M. Athaullah, Rishad Bathiudeen, Palani Thigambaram, Mano Ganesan, and M. Rameshwaran.
Findings on Domestic Debt & Recommendations:
The need has arisen to change the legal and undeveloped systems, radically in every sector. It is a necessary condition for economic growth and a prime condition for building public confidence. Although financial stability is essential at this time, there is a danger of collapsing the economy in an attempt to establish strict financial stability. Therefore, a balance must be struck between financial and economic stability.
* A collaboration of both the diplomats and the officials to accelerate the process of debt restructuring is essential.
* The changing of the maturity periods of loans, the loan interest and the initial loan payments by paying attention to the factors such as the total debt amount compared to the GDP, the Gross Financial Need (GFN) rate to the GDP, foreign debt repayment to the GDP in keeping with the international standards on the debt and debt repayment ability of Sri Lanka at least during the next three years and the next decade is necessary in restructuring the debt.
* The income and expenditure, foreign exchange earnings, control of balance of payments and a full financial and managerial restructuring of the public sector is mandatory to Sri Lanka in order to fulfill the difficult task of obtaining the concurrence of the creditors for the debt restructuring.
* It has been reported that the government had taken a decision to restructure domestic debts. The liquidity of domestic debt had been contracted by over 60% due to the inflation. If the debt restructuring is continued in spite of the above situation, it is emphasized to reach a collective agreement among the depositors of the local banks and of the Employees’ Provident Fund and the local investors after having formal negotiations whereby the trust will be built up among the foreign creditors on the restructuring of the foreign debt.
* It is necessary to amend existing laws and bring new laws to establish responsibility and accountability in the financial sector to prevent the recurrence of the economic bankruptcy that occurred.
* A new Public Finance Management Law must be adopted immediately, which binds the responsibility and accountability of the Ministry of Finance and its authorities for the stability of income, expenditure and debt, and the provision for debt management and Fiscal Management (Responsibility) Act (2003)) should be updated.
* A new Financial Regulation Act (Monetary Law Act 1950) which ensures accountability of inflation and financial supply should be prepared in line with the old Act and thus the independence of the Central Bank should be assured. The Monetary Board and the Governor of the Central Bank and the top management should be made responsible and accountable for the financial situation.
* A new independent agency should be set up for public debt management. The Central Bank and the Treasury can work together in its front office and back office functions and the debt management strategy should be managed by the middle office.
* A new strong Act should be introduced to prevent corruption and it should ensure:
Professionalism for investigations.
The confidentiality of the complainant.
Efficiency and impartiality of investigations and litigation.
Independence, impartiality, and non- partisanship in litigation.
Active relationships with international parallel organizations.
* The assets and liabilities of politicians and higher-ranking officials in Ministries should be declared to the public.
* An independent, impartial, and efficient National Procurement Commission should be appointed for regulation and appeal with regard to procurement. It should consist of professionals who have experience in every field.
* An independent, impartial, and efficient National Procurement Commission should be appointed for regulation and appeal with regard to procurement. It should consist of professionals who have experience in every field.
* The prices of all food items, essential services, medicine and health care should be brought to a digital platform and any service supplier and consumer should be given the facility to access it. The consumer will receive the best service for the lowest cost and market competition.
* The public entities should be restructured to gain the public’s confidence.
* 2200 number of public entities audited by the Auditor General should be subjected to a proper management audit.
* The nominal institutions should be closed.
Patali Champika Ranawaka, the Chairman of the Sub-Committee to recogniz programmes for stabilization of the economy said that “As per expert opinion from the World Bank, Sri Lanka delayed approaching the IMF. Sri Lanka is the only country that sought financial help after its reserves dropped to zero.”
Sri Lanka has currently defaulted on its bilateral and open-market debt and rests its hopes on the US & 2.9 Billion Extended Fund Facility offered by the International Monetary Fund.
Although Sri Lanka has reached a Staff Level Agreement with the IMF, in order to tap the US $ 2.9 Billion is needs to prepare a program on defaulted debt to secure approval from the IMF Executive Board.
The IMF is hoping for a certain portion of the debt to be slashed.
However, Sri Lanka’s largest bilateral creditor China is yet to announcement its position to cut its debt to Sri Lanka.
Sri Lanka has already started discussions with India, and Japan, however there is still no proper position with regard to China’s debt to Sri Lanka.
Leaders of the Group of 20 major economies expressed concern about the “deteriorating debt situation” facing some vulnerable middle-income countries, and called on all official and private creditors to respond swiftly to requests for debt treatment.
A draft of the G20 leaders declaration seen by Reuters includes far stronger language about debt issues and acknowledges that the problems extend far beyond just the poorest nations.
The leaders said they would step up efforts to implement the Common Framework for debt treatments in a “predictable, timely, orderly and coordinated manner,” according to the draft.
The framework was created by the G20 and the Paris Club of official creditors in late 2020 to help low-income countries weather the COVID-19 crisis.
However, results have proven elusive and only three countries – Chad, Zambia and Ethiopia – have formally applied for debt treatment under the framework.
According to the Reuters report, the IMF and World Bank leaders, along with officials from the United States and other Western powers, have pushed unsuccessfully to expand the G20 framework to include vulnerable middle-income countries, but that effort has been blocked by China, now the world’s largest sovereign creditor.
The draft declaration acknowledges, for the first time, the severity of the debt problems facing middle-income countries, in what experts said was a clear reference to Sri Lanka, which reached a staff-level agreement with the IMF in early September but needs to get financing assurances from multiple creditors, including China and Japan, to secure disbursements.
