Thus spake Wimal Weerawansa By N Sathiya Moorthy

At a time when parent JVP is running high in opinion polls month after month in the post-Aragalaya period, NFF founder Wimal Weerawansa has been beating what seems to be a dead electoral horse that his one-time SLPP alliance leader has supposedly become.

His recent ‘revelation’ that Namal Rajapaksa was a political burden (to put it mildly) and inducting into politics was his father Mahinda Rajapaksa’s first blunder, to say the least, is crying over spilt milk. Rather, it is milk that the likes of him had spilt and spoilt (or spoilt first and then spilled) in the first place.

The reasons are not far to seek. Ever since he walked out of the JVP when it quit the first Mahinda government (2005-10) with 10 of the party’s 39 MPs in the 225-member Parliament, he was among the greatest of Rajapaksa defenders. He was the JVP’s spokesperson and the best of public speakers when the party walked out the Rajapaksa government.

In a way, the JVP had set the process in motion after contesting the 2006 local government elections independent of the then SLFP-led UPA combine under President Mahinda – and losing miserably, nation-wide. In just six months, Mahinda had simply devoured the JVP’s purported 10-plus per cent vote-share, which had earlier tempted him to continue the inherited alliance, which the Rajapaksas otherwise reportedly felt uncomfortable with.

In the years that followed and given the party’s hugely accepted clean image, the JVP was also finding itself increasingly embarrassed by corruption charges against the ruling Rajapaksa clan, whose ministries controlled nearly 80 per cent of all annual budgetary allocations. Yet, when he walked out of the JVP, Weerawansa had no qualms defending the Rajapaksas inside and outside Parliament, whatever the truth behind those allegations.

Weerawansa could now argue that he had backed Mahinda and other Rajapaksas at the time only in larger national interest, as the armed forces under their collective leadership was tasting victory after victory against the dreaded LTTE. Yet, for more than 10 years after the conclusive and victorious war, he and others were in the very same Rajapaksas, company, whether or not the latter were in power or out of it. In the second Mahinda term and the more recent failed and aborted presidency of younger brother Gotabaya Rasjapaksa, Namal was a Cabinet minister, with Wimal sitting in his company.

Dual citizenship

The truth is that the likes of Weerawansa and also Udaya Gammanpilla, founder of the centre-right PHU, the breakaway faction in turn of the JHU, had had the best of all worlds in the company of the Rajapaksas. Their electoral acumen should still be appreciated, but they are all in the past. They were among the first in the Rajapajksas’ company to turn against the family when continuing in President Gota’s Cabinet with Mahinda as Prime Minister, another brother Basil as Finance Minister later on, not to leave out Chamal, Namal and the former’s son Shasheendra, who was only a junior minister.

Yet, when the two of them began targeting Basil and the Finance Ministry under their care, only the traditional critics of the Rajapaksas, smiled. Others began wondering what had piqued them both, after decades of association. During that period, they along with other SLPP partners had taken orders from the very same man, who was the party’s national organiser.

At no point then or later did any of them question the ‘nationalist’ credentials of Gota and Bail, as they wanted to have the best of dual citizenship, in Sri Lanka and the US. Gota at least reluctantly gave up his American citizenship after he became convinced that he would after all be Mahinda’s (equally reluctant) choice as the SLPP presidential candidate in 2019, with realistic hopes of victory.

Basil, instead, would want to be Sri Lanka’s Finance Minister and also a dual citizen, something that the Supreme Court had ruled out in the ‘Geetha Kumarasinghe case’ as far back as 2017. For Basil, the Gota-Mahinda duo got Parliament to amend the law, rather than asking their dear brother to make his choice. It was incidental that Wimal, Udaya and the traditional Left, or whatever was left of it, had begun turning against Basil.

Credibility and consistency

One does not look for credibility and consistency from politicians, anywhere. It is worse in Sri Lanka, and more so in recent years. Mahinda and his 40-plus MPs had no problem serving in Parliament on the pre-split SLFP ticket, with estranged President Maithripala Sirisena as party chief – and criticising the government, both within and outside the House. Maithiri, for his part, when relationship with Prime Minister Ranil Wickremesinghe became too hot to handle, had no hesitation in making Mahinda PM – only to be over-ruled by the Supreme Court, and thankfully so.

Sajith Premadasa and his present-day SJB colleagues were all praise for Ranil when he was their leader, and are now critical of all wrong things from the past, when they were all his comrades-in-arms, or were eating their political meal out of his arms. Ranil and Mahinda, who were always civil to each other but still came from ideologically and socially different backgrounds, are today the best political buddies in the country.

Yet, Wimal and the like should realise, at least now, that their game is up and they all too might have been rendered irrelevant in the politics of the future – possibly more than the Rajapaksas themselves. They wanted to be seen as rebelling against the Rajapaksas and steal their thunder in future elections. Thus, they waited until Gota sacked them from the ministry after Wimal, Udaya and fellow Cabinet Minister Vasudeva Nanayakara went to court against letting an American firm, New Fortress Energy to purchase 40-per cent stake in the Kerawalapitya / Yugadanavi power station in 2021.

If any or all of them thought that such antics would help them in their political future, they too were short-sighted enough not to foresee President Gota’s ability to wreck the boat from within, more than the rest combined. Yes, the Aragalaya protests were unprecedented and thus they too could not have foreseen it – But they, it may have also washed away their individual political future as it might have done it to the Rajapaksas as a clan.

(The writer is a policy analyst & political commentator, based in Chennai, India. Email: sathiyam54@nsathiyamoorthy.com)

LG Polls: Time runs out for Postal Ballot

The deadline set by the Election Commission to receive postal ballot papers for the local government elections (LG) will expire tomorrow (21), with no sign that the Government Printer will be able to supply the required postal ballots by then, The Daily Morning learns.

The EC had earlier stated that postal voting of the LG elections would be held on scheduled dates which are from 28 to 31 March. However, Government Printer, Gangani Liyanage said that it was totally impossible for the ballot papers to be handed over to the EC before then, given that the Treasury had not released the required funds as of yesterday (19).

This in the backdrop of, the Finance Ministry, which is yet to release the required funds for the holding of the Local Government (LG) elections, has informed the Mass Media Media Ministry under which the Government Printing Department comes, in writing, that requests made by the latter Department for the release of the necessary funds had been forwarded to Finance Minister, President Ranil Wickremesinghe.

Following a meeting with the Elections Commission (EC) on 7 March, Government Printer, Gangani Liyanage had requested the Treasury Operations Department under the Finance Ministry to release required funds for printing ballot papers for the LG election. As there had been no response from the said Department to the initial request, she had again made a request last week, with copies to the EC.

Accordingly, The Daily Morning contacted Liyanage and queried as to whether she had received any funds or response from the Finance Ministry as of yesterday (19).

Responding to the query, she said: “We have not received any money. Finance, Economic Stabilisation and National Policies Ministry and Treasury Secretary, Mahinda Siriwardana had informed the Mass Media Ministry Secretary that our request had been forwarded to the subject Minister (Wickremesinghe).”

The Daily Morning also asked State Minister of Finance, Ranjith Siyambalapitiya regarding the latest situation with regard to the release of funds for the LG elections, and he replied: “I am not aware of it as of now. This is a matter to which I should respond responsibly, and I will be able to make a comment tomorrow (20).”

BASL vows to fight country’s executive to preserve judiciary’s independence

The Bar Association of Sri Lanka (BASL) is to wage a battle to preserve the independence of judiciary from the pressure being asserted from the nation’s executive, said the legal body’s chairman Saliya Peiris on Sunday, emphaising that attempts were being made to systematically ignore court rulings.

Speaking during a seminar held in the southern town of Weligama, Peiris said that the legal fraternity should now allow the executives to put the judges under stress.

“We have seen that the executive is unwilling to obey court orders and attempts are being made to systematically ignore court rulings,” Peiris said.

“We must not allow the executive to put the judges under stress,” Peiris further stressed in a reference to the ongoing spat over the non holding of the local council elections.

The Supreme Court earlier this month issued an interim order asking the state officials not to hinder the election by not releasing the funds.

At least two government parliamentarians had raised a privileges issue in parliament over the interim order which they claimed was an abuse of parliamentary privileges.

Peiris said that the executive meaning the President Ranil Wickremesinghe’s decision to not conduct the election was unacceptable and the use of parliament to bring pressure on the judiciary was an unhealthy development.

“All of us must fight against it,” Peiris was quoted as saying by PTI.

Source: PTI

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Freedom of the World Report 2023 downgrades Sri Lanka

The Freedom of the World Report 2023 has downgraded Sri Lanka in terms of democratic hallmarks. Sri Lanka has got an overall score of 53/100. Last year’s overall score was 55/100. But this year, as well as last year, its status is the same, namely, “Partly Free”.

In 2023, in terms of “political rights” it has got 22/40, and in terms of “civil liberties”, it has got 31/60.

Here are the main observations:

A culture of impunity regarding official corruption appears to exist in Sri Lanka, in which politicians do not prosecute political opponents on corruption allegations lest they risk scrutiny in the future. Corruption has also impacted the delivery of vital goods; a former chief executive of state-owned Litro Gas noted that corruption was rampant in that sector. In May 2022, Australian and Indian news outlets reported that Namal Rajapaksa, a scion of the Rajapaksa family, was linked to a money laundering scheme along with an Australian company and a Sri Lankan firm owned by a family associate.

In 2020, Gotabaya Rajapaksa established the Presidential Commission of Inquiry to Investigate Allegations of Political Victimization, which opposition leaders and rights groups said helped the Rajapaksa family and their associates evade criminal investigations and prosecution. In an October 2022 report, the UN High Commissioner for Human Rights reported that the inquiry had “actively intervened in police investigations and court proceedings in several high-profile human rights cases.”

Transparency is lacking in procurement and contracting decisions, including for large contracts with Chinese and other foreign companies. The auditor general in recent years has also noted major discrepancies in the government’s assessments of public debt.

Following the end of the civil war in 2009, the military presence in the Tamil-populated areas of the north and east increased. The creation of the Presidential Task Force for Archeological Heritage Management in the Eastern Province in 2020 led to concerns that the government would employ the military to back claims pertaining to Buddhist heritage, to further change the region’s demographics.

Civil Liberties

Media were critical when reporting on the 2022 anti-government protests, but journalists faced arrest and physical assault while covering them. In March, police and security forces arrested journalists who covered a protest near Gotabaya Rajapaksa’s home. On July 9, paramilitary forces attacked a team of reporters near the then prime minister Ranil Wickremesinghe’s home. Later that month, security forces assaulted journalists who were covering a raid on a Colombo protest site.

The Roman Catholic clergy has criticized the government for perceived faults in the official investigation into the 2019 Easter terrorist bombings, which had targeted three Christian churches.

Academic freedom is generally respected, but students and faculty feel pressure to avoid discussing sensitive topics, including alleged war crimes, human rights for marginalized groups, Islamophobia, or extremist activities by Buddhist clergy.

The civil war remains a sensitive topic. Awareness of state officials’ harassment of civil society activists working on human rights issues in the north and east has deterred open discussion of such subjects among ordinary citizens. Even anti-government protesters active in 2022 reportedly avoided those issues and discouraged discourse on those subjects.

In April, an activist who administered a Facebook group called “Go Home Gota” was arrested. The Aragalaya protests, which were prompted by the country’s severe economic difficulties, government mismanagement, and corruption, were held for much of 2022. The protests escalated on March 31, when protesters set fire to an army vehicle near Gotabaya Rajapaksa’s private residence and authorities responded with force. Rajapaksa declared a state of emergency and imposed a curfew days later.

On May 9, the day Mahinda Rajapaksa resigned as prime minister, SLPP supporters attacked antigovernment demonstrators in Colombo, injuring at least 20 people. Anti-government protesters also targeted Sri Lanka Podujana Peramuna (SLPP) members, with several lawmakers’ homes and vehicles being destroyed. In total, 5 people were reportedly killed from clashes on May 9, while 150 were injured.

On July 9, protesters occupied the presidential mansion forcing Gotabaya Rajapaksa to flee the country. Wickremesinghe’s home and several other buildings were destroyed by protesters that day.

The government maintained a crackdown on the Aragalaya evenafter Gotabaya Rajapaksa’s resignation. Soldiers dismantled a Colombo protest camp on July 21; over 50 people were reportedly injured during the operation. Authorities also targeted perceived Aragalaya participants, with over 100 people being arrested by early August. Also in August, three student activists were arrested under the Prevention of Terrorism Act (PTA). In September, the government used the Official Secrets Act to briefly restrict assembly rights in parts of Colombo, which were declared “high security zones.”

Nongovernmental organizations (NGOs) are generally free to operate without interference, but some NGOs and activists—particularly those in the north and east that focus on sensitive topics such as military impunity—have been subjected to denial of registration, surveillance, harassment, and assaults. Intelligence personnel have attended civil society meetings and questioned NGOs about their personnel and funding sources. Trade unions protested the government’s handling of the country’s economic crisis throughout much of 2021 and 2022.

Due process rights are undermined by the PTA, which was expanded in 2021 to allow suspects to be detained for up to two years without trial. The law has been used to hold perceived enemies of the government, particularly Tamils. Many detained under the PTA’s provisions have been kept in custody for longer than the law allows. Following the 2019 Easter Sunday bombings, hundreds of Muslim suspects were arrested under the act, while Sinhalese anti-Muslim rioters were charged under standard civilian statutes that allowed bail.

The government amended the PTA in March 2022 through an accelerated parliamentary process. But UN human rights experts warned that the legislation’s most severe provisions remained. The PTA has since been used against antigovernment protesters, with three student activists being detained under the law in August.

Military personnel accused of committing war crimes during the civil war later held prominent government roles, while others remain in senior military posts. Police and security forces have engaged in extrajudicial executions, forced disappearances, custodial rape, and torture, all of which disproportionately affect Tamils. Aragalaya protesters who were arrested were reportedly tortured while in custody.

Tamils report systematic discrimination in areas including government employment, university education, and access to justice. Ethnic and religious minorities are vulnerable to violence and mistreatment by security forces and Sinhalese Buddhist extremists.

Ongoing occupations and other forms of land grabbing remain serious problems, especially for Tamils in the northeast. Members of minority groups have been targeted by criminals using forged land deeds in Colombo, leading to an investigation in October 2022.

Rape of women and children and domestic violence remain serious problems, and perpetrators often act with impunity. Some very young girls are forced into marriages under Islamic personal law, which the Gotabaya Rajapaksa government sought to change by altering the Muslim Marriage and Divorce Act (MMDA). However, the government was criticized for attempting to revise the MMDA without adequate input from the Muslim community. In 2021, the All Ceylon Jamiyyathul Ulama objected to the cabinet’s decision to amend the MMDA, in part because it would ban polygamous marriages for Muslims.

While most of the mainly Tamil workers on tea plantations are unionized, employers routinely violate their rights.

Sri Lanka’s world-beating bonds pin hopes on IMF’s billions – Bloomberg

Investors are betting that Sri Lanka will win final approval for about $2.9 billion bailout from the International Monetary Fund on Monday, a key step for the bankrupt nation to revive its economy from the worst crisis in decades.

The South Asian nation’s dollar bonds have returned 20% this year, the top performers in the world. The local currency surged 8% and stocks climbed 5% this month, beating their Asian peers on anticipation of billions of dollars in financing trickling in. The rupee fell 45% last year, while the CSE All-share index declined more than 30% in 2022.

The funds are crucial to restore stability and debt sustainability for an economy mired in a recession. Through 2022, shortages of essential goods from fuel to medicines loomed large, stoking Asia’s fastest inflation and depleting funds.

Since defaulting on its dollar debt in May, Sri Lanka has taken tough measures to put its economy back on a steadier path, including cutting subsidies, raising taxes and loosening its control on the currency. It also increased borrowing cost to the most since 2001.

Sri Lanka also secured debt assurances from bilateral creditors including India, China and Paris Club nations and initiated good-faith negotiations with private bondholders as pre-requisites to getting the bailout.

“The pathway appears to have been gradually cleared for the IMF board to sign off on the program,” said Esther Law, senior investment manager for emerging-markets debt at Amundi SA in London. “One would expect the bonds move up slightly in price the moment the IMF program is announced.”

Debt due in 2030 has risen to about 36 cents on the dollar from 21 cents in November. The IMF bailout will help support bond prices at current levels while more gains will depend on how successful the nation is in raising revenue, said Edwin Gutierrez, London-based head of emerging-market sovereign debt at abrdn plc.

Foreign investors are also expected to boost their holdings of Sri Lanka’s government bonds on bets a bailout would unlock more funding to stabilize the nation’s finances. “You can’t wait until the debt restructuring is over, after that the price points will be very different,” said Bingumal Thewarathanthri, the chief executive officer for Standard Chartered Plc in Sri Lanka.

The island nation has a long track record with the IMF. It secured 16 bailouts since the 1960s with the last one in 2016. Disbursements by the Washington-based lender are spread across the duration of the program and tied to reviews, while an initial amount is released subsequent to board approval.

Debt Talks

Focus will turn next to the debt talks, which Fitch Ratings said may drag on for a long time as creditors debate on whether to include local-currency sovereign borrowings in the restructuring. The rating company cut its score on rupee debt in December, as it viewed a default probable.

“The prospects for a deal with creditors remain unclear for now,” said Sagarika Chandra, Hong Kong-based associate director. Fitch cited the case of Zambia, which received an IMF bailout in August and where debt restructuring talks are still ongoing.

Tellimer expects the recovery value of Sri Lanka’s bonds to be at 40 cents, with some upside possible as the nation’s debt targets imply less need for small haircut, said Patrick Curran, a senior economist.

Sri Lanka is showing some signs of a turnaround. Reserves rebounded 29% to $2.2 billion in the four months through February, inflation is easing and daily power cuts have ended.

“IMF aid will be a relief for the country, but the road ahead is not easy,” said Ankur Shukla, an economist at Bloomberg Economics in Mumbai. “Debt restructuring could take time to complete and this will keep the country locked out of markets. It will also not be politically easy to continue with harsh reforms demanded by the IMF.”

Source – Bloomberg

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United States Government-Funded 36,000 MT of TSP Fertilizer Arrives in Sri Lanka: Paddy Farmers to Receive TSP in Time for Yala Cultivation

COLOMBO, SRI LANKA

19 March 2023

More than a million Sri Lankan paddy farmers in all 25 districts will get vital assistance through a shipment of over 36,000 metric tons of fertilizer handed over today by the United States to the Ministry of Agriculture.

The shipment of Triple Super Phosphate (TSP) was funded by the United States Agency for International Development (USAID) and procured by the Food and Agriculture Organization of the United Nations (FAO) for distribution free-of-charge to farmers. This second shipment of USAID-supported fertilizer is delivered on a promise USAID Administrator Samantha Power made last September in response to Sri Lanka’s food security challenges. It brings the total of USAID-supported TSP and urea fertilizer to more than 45,000MT over the last year.

U.S. Ambassador Julie Chung said, “Farmers are working hard to maximize rice production and meet the country’s food needs under difficult circumstances, and the United States is committed to assisting. This year we celebrate 75 years of bilateral relations between Sri Lanka and the United States. Our story is one focused on people, progress, and partnership, and our commitment to supporting the people of Sri Lanka in good times and bad will not waiver.

Ambassador Chung added, “Today’s fertilizer donation is a demonstration of America’s enduring goodwill and commitment to the people of Sri Lanka. It comes without strings attached and it is a testament to how the American people stand with the people of Sri Lanka.”

The United States, through USAID, provided $46 million in funding to procure essential fertilizer, providing much-needed nutrients to paddy crops, helping increase paddy production, and averting a food crisis. This funding also provided cash assistance to small-holder farmers who were affected by low yields over the past few agricultural seasons and on account of the prevailing economic crisis. The program is being implemented by UN FAO with oversight provisions to ensure transparency and accountability.

Speaking at the handover Minister of Agriculture, Hon. Mahinda Amaraweera expressed his gratitude to the people of America and FAO for providing timely support to reinvigorate the local agricultural sector. “Through this support, we are certain the yield of the upcoming harvesting seasons will improve steadily. Our eventual aim is to minimize dependency on rice imports and further empower Sri Lankan paddy farmers,” Minister Amaraweera added.

“Fertilizer will help local farmers boost their production so that the country is food secure. Most importantly, this also can jump-start market-driven agricultural production and potentially lead to Sri Lanka becoming a food exporter,” said USAID Mission Director for Sri Lanka and Maldives, Gabriel Grau.

In the last year, the United States has provided more than $270 million in new support to Sri Lankans amid the ongoing economic crisis. In addition, the U.S. the largest donor to the UN Humanitarian Needs Plan for Sri Lanka.

“We thank the U.S. government for the support extended at a critical juncture, enabling this consignment of TSP fertilizer, the first to arrive in the country in two years, which will be distributed to all paddy farmers based on the extent of their cultivation and the advised application for each of the agricultural zones through the support of the Ministry of Agriculture,” said FAO Representative for Sri Lanka and the Maldives, Mr Vimlendra Sharan.

Minister Amaraweera and FAO Representative Sharan joined Ambassador Chung and USAID Mission Director Grau at today’s handover ceremony.

This assistance is one component of the United States’ long-standing partnership with the Sri Lankan people to promote a healthy, educated, and employed population. To find out more about USAID’s work, please see usaid.gov/sri-lanka and follow us on Twitter @USAIDSriLanka and Facebook @USAIDSriLankaMaldives.

FAO leads international efforts to defeat hunger. It helps countries modernize and strengthen agriculture, forestry, and fisheries practices, making them more sustainable and ensuring food security and nutrition for all. For more information visit: www.fao.org or follow FAO on Twitter @FAOSriLanka and @FAONews.

By U.S. Embassy Colombo | 19 March, 2023 | Topics: Agriculture, News, Press Releases, U.S. & Sri Lanka, U.S. Agencies

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IMF bailout package: president to inform House on March 21

The International Monetary Fund (IMF) will announce its decision with regard to the USD 2.9 billion bailout package for Sri Lanka following a meeting of its executive board on March 20, said state minister of finance Ranjith Siyambalapitiya.

The official announcement will come at a media briefing on the following day, at 8.00 am Sri Lanka time on March 21, to which Sri Lanka too, will join in via Zoom technology, he said.

Senior officials Peter Brewer and Masahiro Nozaki will address the media on behalf of the IMF.

Sri Lanka will receive the credit facility from March 22 in eight instalments, said Siyambalapitiya.

The agreement with the IMF will be placed before parliament by president Ranil Wickremesinghe as the finance minister, he also said.

His speech to the House will come on March 21, government sources said.

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Another meeting next week to discuss the LG election

Another decisive meeting is scheduled to be held next week to discuss the impending Local Authorities Election.

A spokesperson of the Election Secretariat informed NewsRadio that several factions are expected to meet on Wednesday to deliberate on the steps needed to conduct the election.

Meanwhile, earlier it was reported the National Election Commission had decided convene a meeting with Secretaries of recognized political parties on the 23rd of March.

Moreover, Postal voting for the 2023 Local Authorities Election is likely to be delayed once again.

According to the Election Secretariat, ballot papers for postal voting are yet to be released to the Election Commission by the Department of Government Printing.

The Election Commission had planned to handover the ballot papers to the Postal Department for distribution to relevant centres on Tuesday.

The Commission had announced that postal voting for the 2023 Local Authorities Election will be held from the 28th to the 31st of March.

Although, the Department of Government Printing had commenced printing documents related to the election and ballot papers, due to lack of funds, the process has been suspended.

The Department has indicated that it has not received the requested funds from the Ministry of Finance thus far.

The Local Authorities Election was scheduled to be held on the 9th of March.

However it was postponed due to the delay in printing ballot papers and owing to lack of funds.

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Sri Lanka central government debt rises to 115.2-pct of GDP by end 2022: analysis

Sri Lanka’s central government debt has risen to 115.2 percent of gross domestic product by end 2022 from 104.5 percent a year earlier based on the latest national account estimates by the island’s statistics office.

Sri Lanka’s central bank’s gross debt was about 4.66 percent of gross domestic product. The central bank has also spent special drawing rights, on which it has to pay interest.

However, the central bank holds government rupee Treasury bills which can be sold for dollars to rebuild reserves and repay the external debt as long as domestic credit is moderate and forex problems are not re-started under flexible inflation targeting, as credit recovers.

The government was also responsible for another 5.62 percent of guaranteed debt in state enterprises, taking the total to 125.7 percent of GDP.

Sri Lanka’s nominal GDP exploded 16.8 trillion rupees in 2021 to 24.1 trillion rupees in 2022 in a classic Latin America style ‘inflationary blow off’ boosting nominal tax revenues and reducing the rupee debt to GDP ratio.

Central government rupee debt fell from 66 percent in 2021 to 55 percent in 2022 as a result, in a High Inflation and Financial Repression (IFR) haircut, despite new debt being raised to cover deficits.

Sri Lanka’s domestic interest rates are around 20 to 30 percent amid fears of a domestic debt re-structure as there is no cut-off date for domestic debt re-structure under the IMF debt resolution framework.

Remarkably, domestic creditors are expected to keep financing the government as ‘senior creditors’ despite the threat of default.

Central government foreign debt meanwhile rose from 39 percent to 61 percent of GDP as the rupee fell, despite most new disbursements being halted.

The other so-called senior creditors like the World Bank and ADB, whose debt is not re-structured, redirected approved loans to help urgent and humanitarian needs during 2022.

The US, Japan and several European countries, China and India gave grants which will not add to debt.

Sri Lanka’s rupee appreciated in March 2022 amid a moderation in domestic credit and consumption, but fell back amid an ad hoc peg where central bank purchases appeared to have exceeded the excess dollars available from credit developments.

When year end debt is valued at 337 to the US dollar, the spot market value on March 16, government, government guaranteed debt was 118.7 percent of GDP with central bank’s foreign debt also counted.

Sri Lanka counts down to IMF bailout seen as ‘just the beginning’ – NIKKEI

COLOMBO — Sri Lanka is counting the minutes to Monday, when the International Monetary Fund’s executive board is expected to approve a $2.9 billion bailout for the bankrupt island nation.

For the first time in months, many are hopeful that the IMF’s decision will kick-start the country’s recovery from its worst economic crisis since independence from Britain in 1948.

Faced with deepening poverty under high inflation, scarce foreign reserves and dire shortages of essentials, Sri Lanka is on the cusp of the bailout after China offered additional financing “assurances” required by the fund, following months of tough negotiations. Beijing’s apparent hesitance to extend support drew comparisons to a more obliging India. But Sri Lanka’s ambassador to China, Palitha Kohona, strongly defended the country’s key bilateral lender, telling Nikkei Asia, “The Chinese bureaucracy works according to its own rhythm.”

Experts stress just how crucial the final IMF approval is for stabilizing Sri Lanka’s economy, after the turmoil that brought down President Gotabaya Rajapaksa last year.

“Without fresh dollars to import essential goods, an economic turnaround is impossible,” said Sergi Lanau, deputy chief economist at the Washington-based Institute of International Finance. “In the medium term, implementing reforms under the IMF program and successfully restructuring debt should improve Sri Lanka’s outlook.”

In February, the country’s foreign reserves increased to $2.2 billion thanks to various factors such as higher remittances from overseas workers, though the sum is still far from sufficient. Talal Rafi, an economist at the Deloitte Economics Institute, believes that if Sri Lanka receives the IMF loan, it will allow the country to unlock more capital from the World Bank, the Asian Development Bank and bilateral partners.

“IMF approval certifies to the world that Sri Lanka is on the right path,” he said. However, he cautioned, entering an IMF program is “just the beginning.”

The reforms that come next will not be easy. Sri Lanka has gone to the IMF before, completing only nine of 16 such programs. “So, implementing the right reforms is most important, or we would be at the IMF again, like Argentina,” Rafi said.

Dhananath Fernando, chief executive of the independent Advocata Institute policy think tank in Colombo, is skeptical in light of Sri Lanka’s track record. But he is also hopeful because, he said, the severity of the crisis leaves little space to deviate from the program.

“When we went to the IMF during the past 16 times, our debt was sustainable, but this time … our debt is not sustainable,” Fernando said, saying it would be “next to impossible” to deal with those obligations without the IMF. “We need growth and we need to grow out of the crisis, and growth will take place only when we implement economic reforms,” he said.

In focus are Sri Lanka’s state-owned enterprises (SOEs), many of which have racked up huge losses. SriLankan Airlines’ loss in the first half of the 2022-2023 fiscal year came to over 100 billion Sri Lankan rupees ($295 million), more than twice the amount the government spends on support for the most vulnerable citizens.

“Sri Lanka has a bloated public sector, where salaries and pensions took up 86% of government revenue in 2021, and many SOEs are making massive losses and do not even have annual reports for public reference,” Rafi said.

Analysts said that the country needs to redirect more money to the poor, and that SOE reforms are also essential in order to make doing business easier. Sri Lanka is ranked 99th in the World Bank’s index on the ease of doing business.

But Fernando noted that many of Sri Lanka’s leaders have backpedaled away from promised reforms in fear of consequences at the ballot box. “SOEs have been used as a political weapon by most political parties to provide employment for supporters to get more votes,” he said.

While President Ranil Wickremesinghe’s government attempts to put its own house in order, there are lingering questions about the potential geopolitical fallout of the crisis.

India and China, strategic regional competitors and key lenders to Sri Lanka, have been in the spotlight lately. Last week, Sri Lanka asked the State Bank of India and the Indian High Commission in Sri Lanka to extend a $1 billion credit line by half a year beyond the scheduled expiration later this month. Informed sources close to the Indian government told Nikkei Asia that the two sides are discussing the matter.

Last year, India extended around $4 billion worth of support to Colombo. In mid-January, it offered assurances to the IMF that it was willing to support Sri Lanka’s debt restructuring.

China, for its part, was seen as more reluctant to offer a similar pledge. Beijing did send help, but it mostly came in forms other than financial assistance. In 2022, China donated 10,000 tons of rice for more than 1 million students across 7,900 schools, along with 5 billion Sri Lankan rupees’ worth of medicine and health equipment.

But when the Export-Import Bank of China followed India by sending a letter to Sri Lanka’s Finance Ministry in late January, offering a two-year debt moratorium, it was met with disappointment. “China was expected to do more,” Reuters quoted a Sri Lankan source as saying. “This is much less than what is required and expected of them.”

In February, U.S. Treasury Secretary Janet Yellen criticized Beijing’s approach to distressed countries more broadly, saying, “China’s lack of willingness to comprehensively participate and to move in a timely way has really been a roadblock.”

In early March, the Ex-Im Bank sent another letter, promising to expedite debt treatment and finalize the terms in the coming months. This moved Sri Lanka over the line with the IMF.

George I.H. Cooke, a Sri Lankan former diplomat, stressed that India and China had different priorities. He said a continued collapse in Sri Lanka would have been a bigger immediate problem for India, risking a refugee influx.

On the other hand, Cooke noted that China lends to many countries, and that easily granting concessions could have led to “many others tapping on their doors [saying], ‘Give us the same thing you gave Sri Lanka and help us too.'”

Ambassador Kohona insisted that China has always been helpful, from countering terrorism to supplying COVID-19 vaccines. On debt, the envoy acknowledged that obtaining approvals was time-consuming but said, “We had no doubt that China would take its time but would stand by Sri Lanka in its time of dire financial need.”

He added, “Undoubtedly, we are also grateful that, as major bilateral creditors, India and Japan also have provided the requisite assurances.”