Category: News

Sri Lanka’s inflation in the capital Colombo accelerated to 69.8 percent in September 2022 from 64.3 percent a month earlier, data from the state statistics office showed amid the worst currency crisis in the history of the island’s intermediate regime central bank.

The widely watched Colombo Consumer Price Index rose 3.8 percent to 244.7 points in the month.

The food sub-index rose 0.9 percent to 323.3 points.

Food prices were up 94.9 percent in the last 12 months. Food prices are up 120 percent from January 2020 when Sri Lanka began to print money aggressively after cutting taxes in December 2019.

Sri Lanka’s central bank has allowed interest rates to go up and private credit is now negative. Attempts are also made to minimize the budget deficit with high taxes and state enterprise credit is also contained with utility price hikes.

Sri Lanka operates Latin America style soft-peg with inherent anchor conflicts and triggering currency crises when attempts are made to suppress market interest rates.

Currency crises intensified from around 2014 when aggressive open market operations were unleashed to suppress rates in an ill-fated infaltion targeting exercise despite having a reserve collecting peg.

Sri Lanka cut taxes and printed large volumes of money to suppress rates in a ‘stimulus’ from 2020 ultimately driving the country to default.

Food prices are up 120 percent from January 2020 when Sri Lanka began to print money aggressively after cutting taxes in December 2019. Adding to the inflation is money printing by the Federal Reserve which had fired the highest price rises in 40 years.

Bad US and European policy in a resurgence of mercantilism also led to bad policy across countries.

President Ranil Wickremesinghe said amidst major economic stress, Sri Lanka is undertaking an unprecedented fiscal effort as part of the government’s commitment to restoring the country’s debt sustainability.

Therefore, he expressed hope and expectation that Sri Lanka’s creditors, and all stakeholders, will support Sri Lanka in these efforts to restore the country’s debt sustainability and help put the country back on the path of inclusive and sustainable economic growth.

President Wickremesinghe presided over the annual meeting of the ADB Board of Governors on Thursday (29) which was held at the ADB headquarters in Manila, Philippines and attended by Governors and official government delegations.

President Wickremesinghe noted that the government has already undertaken major macroeconomic policy reform measures and this program is aligned with the commitment of the government to implement an ambitious and comprehensive package of reforms that will help restore the sustainability of the country’s public finances, addressing external imbalances, and restarting the growth engine through structural reforms and improvements in governance.

“Amidst major economic stress, Sri Lanka is undertaking an unprecedented fiscal effort as part of our commitment to restoring the country’s debt sustainability. It is our hope and expectation that Sri Lanka’s creditors, and all stakeholders, will support us in these efforts to restore our debt sustainability and help put the country back on the path of inclusive and sustainable economic growth,” he said.

The President said that whilst Sri Lanka undertakes these deep and often painful reforms, the country is experiencing rising unemployment and a reduction in purchasing power of the consumers. He added that the government is cognisant of the adverse impacts on the most vulnerable members of society, adding that every effort has been taken to allocate greater financing and resources towards targeted support for social protection.

He assured that the government has stabilized Sri Lanka’s economy and many countries and stakeholders are keenly monitoring how they resolve this crisis. Wickremesinghe said that his government is well aware that the evolution of Sri Lanka’s economic crisis includes both domestic policy elements as well as external shocks, adding that the resolution of the crisis also requires both domestic efforts and the support of external partners. “It is incumbent upon Sri Lanka and our creditors and partners to set an example of how collaborative and good faith action can result in sustainable and equitable solutions to sovereign debt issues.”

However, he emphasized that the economic levers alone are insufficient to stimulate global economic recovery. Adding that the factors underlining the main crisis is not only of economic origin, the President said they are also the consequences of evolving geopolitics.

He noted that as this global rivalry intensifies into a new cold war, which will determine a new global power balance by 2050, the inability of the major countries to give leadership to the mitigation of the global climate change crisis is becoming more apparent.

“As they say in many of our countries when the elephants fight, it is the grass that is crushed. This is the predicament of many of our member countries. Therefore, we must overcome the geopolitical rivalries to address the major threats to our existence, otherwise we will all fail leading to instability in our region reminiscent of Europe after World War I. On the other hand, our ability to successfully meet these challenges will lead to remarkable progress in raising the living standards of our people through the rise of the economies of our member countries.”

Hence, President Wickremesinghe said that the ADB’s Strategy 2030 seeks to respond to global challenges, including climate change and natural disasters, food and energy insecurity, whilst also embracing opportunities in the digital economy, sustainable energy, and leveraging technology for inclusive education and healthcare. Thus, he said that the ADB has a crucial role in helping to shape and finance policies that improve people’s lives and livelihoods across Asia and the Pacific.

Deposed President Gotabaya Rajapaksa had talks with Indian politician Subramanian Swamy.

Swamy, who is in Sri Lanka, had met Rajapaksa together with members of his delegation.

Subramanian Swamy also met former Prime Minister Mahinda Rajapaksa and attended an event hosted by the former Prime Minister.

The Indian politician, a member of the ruling BJP party, is known to be a close friend of the Rajapaksa family.

While in Colombo, Subramanian Swamy also met Prime Minister Dinesh Gunawardena and members of the Ceylon Workers Congress.

Swamy also delivered the keynote speech at an event held at the General Sir John Kotelawala Defence University.

Sri Lanka’s Government appears increasingly upbeat about its chances of receiving International Monetary Fund board approval for a $2.9 billion bailout by December, but the multilateral lender has cautioned that the time frame remains uncertain, and much depends on discussions with the heavily indebted country’s creditors.

Peter Breuer, senior mission chief for Sri Lanka, and Masahiro Nozaki, mission chief for Sri Lanka, in written comments to Nikkei Asia, said, “It is difficult to predict the timeline, as the process of debt relief discussions takes time. All parties who are involved in the process should move expeditiously, so that Sri Lanka can emerge from the crisis as quickly as possible.”

On Sept. 1, Sri Lanka reached a staff-level agreement with the IMF to obtain the $2.9 billion, a crucial lifeline for a country wrestling with the worst economic crisis in its history. The country’s year-on-year inflation topped 70% in August, and the public continues to face severe shortages of essentials.

Earlier this year, Sri Lanka defaulted on a foreign bond for the first time, after its foreign reserves dwindled to next to nothing. “We announced that we are not in a position to pay,” central bank Gov. Nandalal Weerasinghe said in May, confirming the “preemptive default.”

“Our position is very clear. Until [the lenders] come and restructure, we can’t pay,” Weerasinghe said.

Last Friday, Sri Lanka’s Finance Ministry held an online presentation for external creditors to explain the situation and discuss the next steps toward restructuring. A handout cited “some past policy mistakes” along with the COVID-19 pandemic and the resulting crisis as key factors that crippled the economy, depleted reserves and forced the country to stop debt repayments.

The day before, President Ranil Wickremesinghe chaired a meeting with ambassadors from 23 Paris Club and non-Paris Club countries, including Japan, France and India, to discuss related matters.

Wickremesinghe appealed to all creditor countries to offer the “financing assurances” on debt sustainability the IMF has said are essential for the board to give the final green light.

The Indian High Commission in Sri Lanka, for its part, expressed support even before the creditor briefings. On Sept. 20 it said that it had started discussions on restructuring Sri Lanka’s official debt to India. A spokesman told Nikkei Asia that the “cordial atmosphere” of the talks reflected New Delhi’s support for an “early conclusion and approval of a suitable IMF program.”

Noting the need for other creditors to work on ensuring Sri Lanka’s debt is manageable, he added that India would remain “closely engaged” with relevant stakeholders.

During last Friday’s presentation, Weerasinghe and Mahinda Siriwardana, secretary to the Treasury and Ministry of Finance, noted that as of the end of June, Sri Lanka’s public debt stood at 122% of gross domestic product. A figure equivalent to 70% of GDP was denominated in foreign currency.

According to the presentation by the Ministry of Finance and the central bank, China, Japan and India were the country’s top three bilateral creditors, with China accounting for 52% in total, followed by Japan at 19.5% and India at 12%.

The Sri Lankan officials also pushed for the formation of an ad-hoc coordination group to expedite the process of obtaining financing assurances from multiple creditors. They explained that such a group would allow official bilateral creditors to give such assurances to the IMF collectively, after discussing the matter among themselves.

The Japanese Embassy in Colombo agreed that it is essential for all creditors to come to the table for debt restructuring discussions to ensure that the process is transparent and fair. “If all the creditor countries will participate in a coordination platform proposed by President Wickremesinghe, the government of Japan is ready to contribute to the discussion in a constructive way,” the embassy told Nikkei Asia.

But all eyes are on top creditor China, known for its preference for refinancing loans or deferring repayments rather than restructuring and settling for loss-making “haircuts.”

On the sidelines of the United Nations General Assembly last week, Sri Lankan Foreign Minister Ali Sabry met his Chinese counterpart, Wang Yi, who pledged China’s support for a Sri Lankan economic recovery.

A Chinese Foreign Ministry readout of the meeting said that Wang promised China “is ready to work with Sri Lanka to carry forward the traditional friendship, consolidate strategic mutual trust and deepen and expand pragmatic cooperation.” He also said that China would “continue to offer assistance within our capacity to help Sri Lanka overcome temporary difficulties.”

Still, a highly placed Sri Lankan diplomatic source said that although debt discussions have started with some countries, it is “impossible” to say how long they will take and when a final decision will be made.

Source:Nikkei Asia

The police have launched extensive investigations over the involvement of some politicians who had encouraged some ‘protester’ groups to overthrow the government by forcefully occupying Parliament and preventing a vote to elect a new President following the resignation of former President Gotabaya Rajapaksa in July.

Highly placed sources told Daily Mirror that these politicians had even brokered talks with the parties involved and investigations are being carried out into their actions.

The Daily Mirror learns that despite reports that last week’s gazette declaring high-security zones in Colombo will be reversed,the government will brief the Supreme Court in the coming days over the purpose of why the HSZ’S are required and why the sites listed need to be protected.

Sources said that according to information received by the investigators which will be communicated to the Supreme Court is the second phase of the ‘operation’ following the July 9 public protest.

This was by a group posing themselves as protesters, and that was to surround and take over Parliament to prevent the MPS from electing a new President following the forceful exit of Gotabaya Rajapaksa.

Investigators were informed that the group had also planned to surround the Supreme Court.

It was based on this information that the security authorities had recommended the setting up of HSZS in several key areas including the Supreme Court.

However as the Supreme Court had not been consulted in the process, the relevant authorities will now consult the Supreme Court and seek its advice over the establishment of these HSZS to ensure an unhindered administration, sources said.

Some of the areas declared as HSZS by President Ranil Wickremesinghe include the Parliament Complex, Supreme Court Complex, High Court Complex – Colombo, Magistrate Court Complex – Colombo and Attorney General’s Department, Temple Trees, Presidential Secretariat, the Prime Minister’s Office, and the Army Headquarters.