Posturing in Sri Lanka for the March UNHRC session

With the situation in Sri Lanka coming up for discussion at the UN Human Rights Council (UNHRC) on March 3, the Sri Lankan government as well as the Tamil parties have begun posturing either to get off the hook, as in the case of the Sri Lankan government, or to corner the adversary, as in the case of the Tamil parties.

The Sri Lankan government is expecting censure following the report of Human Rights Watch (HRW) for 2021. And the Tamil side is worried as the international community may, as in the past, not walk the talk. The Tamils are trying to rope in India, which is influential among Asian and African countries. They had a meeting with the Indian High Commissioner on January 18.

It was clearly with an eye on the forthcoming session of the UNHRC that President Gotabaya Rajapaksa mentioned the question of ethnic reconciliation in his address to the opening session of the Lankan parliament earlier in the week. He said that the Tamil problem is economic and not political, and that the solution is equitable economic development. He also promised to act on the long standing problem of missing Tamils. And to placate the hounded Muslims, the Gotabaya government informed the Court of Appeal that the detained Muslim lawyer Hejaaz Hizbullah could be granted bail. Hizbullah was arrested in April 2020 in the 2019 Easter Sunday suicide bombings case.

Be that as it may, Colombo would find it tough going at the UNHRC. According to HRW, there had been a comprehensive deterioration in the rights situation in Sri Lanka during 2021. The UNHRC had mandated the Office of the UN High Commissioner for Human Rights (OHCHR) to “collect and prepare evidence of grave crimes for use in future prosecutions.”

HRW says: “Under the administration of President Gotabaya Rajapaksa, Sri Lankan security forces harassed and threatened human rights defenders, journalists, lawyers and the families of victims of past abuses, while suppressing peaceful protests. The government continued to target members of the Tamil and Muslim minority communities using the country’s overbroad counterterrorism law, and policies that threaten religious freedom and minority land rights.”

“After Rajapaksa’s election in November 2019, he withdrew Sri Lanka from a 2015 council resolution agreed by the previous government to promote truth, justice, and reconciliation. Rajapaksa said he would not tolerate any action against ‘war heroes’ and instead appointed several officials implicated in war crimes to his administration. The UN human rights chief, Michelle Bachelet, noted that “Sri Lanka remains in a state of denial about the past, with truth-seeking efforts aborted.”

The Prevention of Terrorism Act (PTA) has for decades been used to enable prolonged arbitrary detention and torture. In 2021, President Rajapaksa issued two ordinances that would make the law more abusive. An order issued in March, which has been challenged in the Supreme Court, would allow two years of “rehabilitation” detention without trial for anyone accused by the authorities of causing “religious, racial, or communal disharmony.”

Many prisoners, especially from minority communities, remain in pretrial detention lasting many years under the PTA, or are serving lengthy terms following convictions based on confessions obtained using torture.

UN rights Commissioner Michelle Bachelet called upon UN member countries to consider imposing targeted sanctions against alleged perpetrators, and to pursue prosecutions in national courts under universal jurisdiction. The core group on Sri Lanka (the UK, Canada, Germany, Montenegro, North Macedonia, Malawi) at the Human Rights Council successfully led the adoption of Resolution 46/1, which established an international evidence-gathering mechanism, which has now been established as the OHCHR Sri Lanka Accountability Project. However, among Sri Lanka’s key trading partners, India and Japan abstained, while China opposed the resolution. In June, the European Parliament passed a resolution calling upon the European Union to ensure Sri Lanka abides by its human rights commitments under the GSP+ program. However, the EU, like other foreign partners including the United States, Australia, and the United Kingdom, was reluctant to publicly call upon the Sri Lankan government to end abuses, HRW said.

The Tamil parties of the North and East have rejected President Gotabaya Rajapaksa’s proposal for ethnic reconciliation made on the opening day of parliament earlier in the week. Speaking on the President’s speech in parliament on Wednesday, Ilankai Tamil Arasu atchi (ITAK) MP, M.A.Sumanthiran, said that contrary to the President’s notion, economic development of the Northern and Eastern provinces will not bring about reconciliation. What the Tamils need is meaningful devolution of power based on the concept of self-determination and self-rule, he stated.

Sumanthiran demanded the full implementation of the 13 th. Amendment (13A) of the constitution as it was a bilateral commitment made to India. But the 13A is not the solution to the Tamil question, he pointed out. The 13A safeguarded India’s security, but it was not the solution to the Tamil question in Sri Lanka. The permanent solution lies in a federal structure based on the concept of self-determination and not the 13A which distributes power within the framework of the existing Unitary constitution.

For India’s Security

To rope in India, the leaders of eleven Sri Lankan Tamil parties met the Indian High Commissioner in Sri Lanka, Gopal Baglay, on Tuesday told him that only fully empowered provincial councils in the Sri Lankan North and East can ensure that forces inimical to India, like China, do not get a foothold there.

Although the High Commissioner did not raise the issue of China’s determined bid to get foothold in the North and East, Suresh Premachandran, leader of the Eelam Peoples’ Revolutionary Liberation Front (EPRLF), told the envoy that strengthening the Tamils in political and economic terms will enable them to stop the entry of forces inimical to India. He pointed out that without powers over land the Northern provincial council cannot stop any project or foreign involvement desired by the central government in Colombo..

M.A. Sumanthiran of the Ilanka Tamil Arasu Katchi (ITAK) said that under one pretext or the other, the Gotabaya government has been taking over lands which were returned to the Tamils after the end of the war in May 2009. The Tamils feel that such things will not happen if the 13A is fully implemented. The 13A had given powers over land to the provinces but no government has handed over this power to the provinces. Hence the Tamils’ demand for the full implementation of the 13A with land and police powers.

However, the Tamil parties of the North and East do not feel that the 13A is really adequate for the protection of the Tamils because it is embedded in a “Unitary” Sri Lankan constitution. In a unitary constitution, powers handed over to the provinces or any other unit in the periphery, can always be taken away. But in a federal constitution, powers given, cannot be taken back. This is why, in the letter addressed to the Indian Prime Minister, the parties of the North and East gave primacy to the demand for federalism and sought Indian support for it.

Posted in Uncategorized

Fake passports puts NIA on alert as Tamil Nadu police probe reveals LTTE connection

Three arrests in Tamil Nadu over fake passports in October 2021 have put central agencies, including the National Investigation Agency (NIA) on alert.

An investigation by Tamil Nadu police revealed the involvement of active Liberation Tigers of Tamil Eelam (LTTE) cadres behind the fake passport racket.

In Chennai, Tamilnadu police ‘Q’ branch arrested Letchumanan Mary Franciska in October 2021. Another Sri Lankan national was arrested by Tamil Nadu police in Madurai airport while boarding a Sri Lankan Airlines flight with a fake Indian passport.

Meanwhile, another man was arrested at Trichy airport after his Spanish passport was found to be fake. All these arrests by state police have altered central agencies.

On January 18, the NIA, which is the premier Indian central agency, registered a case under the Unlawful Activities (Prevention) Act, Passports Act, Foreigners Amendment Act and relevant sections of the Indian Penal Code (IPC).

They have taken up the investigation into the fake passport racket.

The agency investigated the use of fake Indian identities and Indian passports to withdraw money from several banks. It is alleged that the fake passports and forged documents were used to withdraw money from the Indian Overseas Bank, Mumbai Fort branch for the terror activity of the LTTE.

The NIA took over the case from Tamilnadu police based on the Ministry of Home Affairs orders and launched an investigation against five accused, identified as Letchumanan Mary Franciska, K Baskaran, Johnson Samuel and L Sellamuthu.

This is the second case where the NIA was brought in to look into the activity of the LTTE in India.

Earlier, former intelligence chief of LTTE, 47-year-old Satakunam aka Sabesan was arrested by the NIA from Chennai for alleged smuggling of arms and drugs from Pakistan to Sri Lanka.

Two other Sri Lankan nationals, 35-year-old Chinnasuresh and 25-year-old Soundarajan were also arrested along with Satakunam.

They were also investigated by NIA in the Kerala Vizhinjam arms recovery case where the Indian coast guard arrested six Sri Lankan nationals off Minicoy Coast near Lakshadweep in March 2021. The coast guard recovered five Ak-47 rifles, 1,000 bullet rounds and 300 kg of heroin.

Posted in Uncategorized

The draft constitution will be presented to the President next month

The preliminary plan for the new draft constitution will be handed over to President Gotabaya Rajapaksa next month, Justice Minister Ali Sabry said.

The committee appointed to draft the constitution under the chairmanship of President’s Counsel Romesh de Silva will complete its work in a few days, he said.

He said the President would then study the plan, discuss it and present it to the cabinet.

The Minister of Justice said that many previous attempts to draft the Constitution had failed, adding that Prof. GL Peiris, KN Chosky and former Prime Minister were among those who got involved in the task.

He added that as there was a consensus on many issues, only ten percent of the debate should take place in Parliament.

Diplomacy To Encourage Change On The Ground

The government would be relieved by the non-critical assessment by visiting UK Minister for South Asia, United Nations and the Commonwealth, Lord Tariq Ahmad of his visit to Sri Lanka. He has commended the progress Sri Lanka had made in human rights and in other areas as well, such as environmental protection. He has pledged UK support to the country. According to the President’s Media Division “Lord Tariq Ahmad further stated that Sri Lanka will be able to resolve all issues pertaining to human rights by moving forward with a pragmatic approach.” The minister, who had visited the north and east of the country and met with war-affected persons tweeted that he “emphasised the need for GoSL to make progress on human rights, reconciliation, and justice and accountability.”

Prior to the minister’s visit, President Gotabaya Rajapaksa had announced in Parliament that his government had not violated nor would support “any form of human rights violations.” This was clearly an aspirational statement as the evidence on the ground belies the words. Significantly he also added that “We reject racism. The present government wants to safeguard the dignity and rights of every citizen in this country in a uniform manner. Therefore I urge those politicians who continue to incite people against each other for narrow political gains to stop doing so.” This would be welcome given the past history especially at election time.

The timing of Lord Ahmad’s visit and the statements made regarding human rights suggest that the forthcoming session of the UN Human Rights Council in Geneva, commencing on February 28, loomed large in the background. The UN High Commissioner for Human Rights will be presenting a written report on that occasion. A plethora of issues will up for review, including progress on accountability for crimes, missing persons, bringing the Prevention of Terrorism Act in line with international standards, protecting civil society space and treating all people and religions without discrimination.

The UK government has consistently taken a strong position on human rights issues especially in relation to the ethnic conflict and the war which led to large scale human rights violations. The UK has a large Tamil Diaspora who are active in lobbying politicians in that country. As a result some of the UK parliamentarians have taken very critical positions on Sri Lanka. Lord Ahmad’s approach, however, appears to be more on the lines of supporting the government to do the needful with regard to human rights, rather than to condemn it. This would be gratifying to the architects of the government’s international relations and reconciliation process led by Foreign Minister Prof G L Peiris.

Reaching Out

In the coming week the government will be launching a series of events in the North of the country with a plethora of institutions that broadly correspond to the plethora of issues that the UNHRC resolution has identified. War victims and those adversely affected by the post war conditions in the North and livelihood issues that arise from the under-developed conditions in those areas will be provided with an opportunity to access government services through on-the-spot services through mobile clinics. The programme coordinated by the Ministry of Justice called “Adhikaranabhimani” is meant to provide “ameliorated access to justice for people of the Northern Province.”

Beginning with Kilinochchi and Jaffna there will be two-day mobile clinics in which the participating government institutions will be the Legal Aid Commission, Office for National Unity and Reconciliation, Office for Reparations, Office on Missing Persons, Department of Debt Conciliation Board and the Vocational Training Authority to mention some of them. Whether it is by revising 60 laws simultaneously and setting up participatory committees of lawyers and state officials or in now launching the “Adhikaranabhimani” Justice Minister Ali Sabry has shown skill at large scale mobilization that needs to be sustained. It is to be hoped that rather than treating them as passive recipients, the governmental service providers will make efforts to fulfill their need for justice, which means that the needs of victims and their expectations are heard and acknowledged.

It will also be important for the government to ensure that these activities continue in the longer term. They need to take place not only before the Geneva sessions in March but also continue after them. The conducting of two-day mobile clinics, although it will send a message of responsiveness, will only be able to reach a few of the needy population. The need is for infusing an ethic of responsiveness into the entirety of the government’s administrative machinery in dealing with those problems that reaches all levels, encompassing villages, divisions, districts and provinces, not to mention the heart of government at the central level.

The government’s activities now planned at the local level will draw on civil society and NGO participation which is already happening. Government officials are permitting their subordinate officials to participate in inter-ethnic and inter religious initiatives. It is in their interest to do so as they would not wish to have inter-community conflicts escalate in their areas which, in the past, have led to destruction of property and life. They also have an interest in strengthening their own capacities to understand the underlying issues and developing the capacity to handle tensions that may arise through non-coercive methods.

Building Peace

Many of the institutions that the government has on display and which are going to the North to provide mobile services were established during the period of the previous government. However, they were not operationalized in the manner envisaged due to political opposition. Given the potency of nationalism in the country, especially where it concerns the ethnic conflict, it will be necessary for the government to seek to develop a wide consensus on the reconciliation process. The new constitution that is being developed may deal with these issues and heed the aspirations of the minorities, but till that time the provincial council system needs to be reactivated through elections.

Sooner rather than later, the government needs to deal with the core issue of inter-ethnic power sharing. The war arose because Sinhalese politicians and administrators took decisions that led to disadvantaging of minorities on the ground. There will be no getting away from the need to reestablish the elected provincial council system in which the elected representatives of the people in each province are provided with the necessary powers to take decisions regarding the province. In particular, the provincial administrations of the Northern and Eastern provinces, where the ethnic and religious minorities form provincial majorities, need to be reflective of those populations.

At the present time, the elected provincial councils are not operational and so the provincial administration is headed by central appointees who are less likely to be representative of the sentiments and priorities of the people of those provinces. In the east for instance, when Sinhalese encroach on state land the authorities show a blind eye, but when Tamils or Muslims do it they are arrested or evicted from the land. This has caused a lot of bitterness in the east, which appears to have evaded the attention of the visiting UK minister as he made no mention of such causes for concern in his public utterances. His emphasis on pragmatism may stem from the observation that words need to be converted to deeds.

A video put out by the UK Foreign, Commonwealth and Development Office confirms a positive approach with regard to engaging with the Sri Lankan government. In it Lord Ahmad says “the last three days illustrated to me that we can come together and we can build a constructive relationship beyond what are today with Sri Lanka. We can discuss the issues of difference and challenge in a candid but constructive fashion.” Lord Ahmad’s aspiration for UK-Sri Lankan relations needs to be replicated nationally in government-opposition relations, including the minority parties, which is the missing dimension at the present time.

Posted in Uncategorized

Hambantota Port to begin MGO Fuel Bunkering

Oil tanker ‘Sunny Bay’ carrying 15,000 metric tons of Marine Gas Oil (MGO), called at the Hambantota International Port (HIP) on the 23rd January.

The vessel was the first to discharge MGO for storage at the port’s tank farm.

HIP, with its global partner Sinopec, launched bunkering operations for VLSFO last year.

With the tank farm along with its oil jetties fully refurbished and FSS certified for safety by the Lloyd’s Register, HIP is ready to utilise the storage facility allocated for MGO and MDO (Marine Diesel Oil).

The port which received their first MGO shipment is now capable of providing a full complement of bunkering fuels to its customers, positioning as a strategic bunker operator in the region.

Benchmarking international standards, HIP has also set up a state of the art Petroleum Testing laboratory in partnership with leading global independent inspection service provider Intertek Lanka, to provide innovative and bespoke assurance, testing, inspection and certification services for bunker fuels, LPG, LNG and other petrochemical products.

The laboratory located within the port premises, is classified as a truly international facility capable of testing IMO 2020 global Sulphur protocol.

CEO of HIPG Johnson Liu says, “With our Lloyds certified oil storage facility and state of the art testing capabilities, HIP has the overall capacity to add great value to customers. With our location in the Indian Ocean rim, where 50% of the world’s maritime oil is traded, our oil fuel bunker, LPG and future LNG operations, we are securing the Hambantota Port’s rightful place as a global maritime location.”

The lab testing facility will enable HIP clients to get their products such as fuel oil, marine diesel and marine gas oils tested efficiently and with ease, at the bunker terminal site, ensuring that products meet the required international quality standards. The port’s dedicated professional team ensures safe operations of the oil tank network, ancillary pipelines, oil berth jetties, and control systems, which are on par with international standards. All supporting facilities for operational safety are in place such as a wholly functional firefighting system and wastewater treatment facility.

HIP’s location in close proximity to one of the busiest sea routes coupled with the port’s partnership with top global player Sinopec to provide IMO 2020 compliant high quality fuel oils, makes Sri Lanka’s energy market more competitive while benefiting Sri Lankan players supplying bunkers for vessels.

Once commenced HIP will cater to the second highest demand in the maritime industry. The MGO supplied by the port is of very high quality, compliant with ISO 8271 standard and can also be provided to overseas locations such as the Maldives, said a statement from the Hambantota International Port.

The Sinopec group, the port’s bunker partner, was ranked 2nd in the Fortune Global 500 list in 2020, and a global leader in the fields of oil exploration, production, refining, marketing, and distribution. The partnership between SINOPEC International Petroleum Services Corporation and HIPG, will not only benefit the two parties and their international clientele, but will boost the Sri Lankan oil and gas industry, which will see the highest standards in terms of quality, knowledge and expertise.

Posted in Uncategorized

Debt Restructuring and Structural Reforms: It’s Class, Stupid!

Sri Lanka earns US$ 1 billion a month in exports and it needs to bring the import bill down to US$ 600 million per month to have close to a total of US$ 5 billion per year to make the repayments on external debt

The Sri Lankan economy is sinking deeper and deeper into crisis. The economic establishment and their policies that reduced the country to this state of affairs are screaming for more of the same. They are calling for restructuring the external debt along with structural reforms, disregarding the fact that it was similar polices in the past that pushed the country into the debt trap.
What can be gained from so-called restructuring of external debt? And what will be the impact of the so-called structural reforms? Hidden under these assertions about debt restructuring and structural reforms is class; the interests of the wealthy elite as opposed to the working people.

Debt fix

By restructuring debt, bankers and economists mean lengthening the time of repayment; that is to find ways of paying the interest and delaying the payment of capital on accumulated debt. Furthermore, to gain the mercy of the lenders, they claim, there is a need for structural reforms to give confidence that the debt will be repaid. Those structural reforms include austerity measures including cuts to social services and privatization of state enterprises. However, cutting social welfare and privatizing public services, will reduce the little support working people receive and force them to pay more for public services.

The issue is that even if the lenders restructure Sri Lanka’s debt – either through a guarantee of the IMF or through negotiations on a piece meal basis with the various actors to whom debt is due – with imports exceeding exports, the country will in a short time accumulate more external debt. So why is it that mainstream economists never talk about restricting imports? Because the economic policy packages that Sri Lanka has been following for decades, the acceleration of which are called structural reforms at the current moment, have at their core the idea of trade liberalization. The result is the free flow of goods into the country regardless of the import bill.

In this way, rising external debt that eventually turns into a debt trap as we are facing now, has been a useful tool for the powerful global capitalist forces and their local comprador agents: that is to restructure economies towards the accumulation of capital by cutting the entitlements of working people. Similar to the crisis of the 1970s leading to the open economy reforms, the current crisis is seen as an opportunity by right wing ideologues to carry out dispossessing structural reforms linking them to debt restructuring.

Public distribution system

We are told there are no alternatives to painful structural reforms. However, there are in fact other counter paths. First, given the debt trap, support from external actors to boost foreign reserves is necessary, but that has to be combined with not just restructuring the debt, but also restructuring the import bill.
Sri Lanka earns US$ 1 billion a month in exports and it needs to bring the import bill down to US$ 600 million per month to have close to a total of US$ 5 billion per year to make the repayments on external debt. The import bill should be brought down and limited to the bare essential of medicines, food, oil and the intermediate goods necessary for exports. And that can only be done if a public distribution system by the state takes charge of imports. If debt can be restructured, then there will be more room to say increase imports to US$ 800 million per month, but ensuring imports are limited to essential goods will require a public distribution system in the medium term. Non-essential imports should only be considered after exports drastically rise.

Relief and social investment

Next, with the mounting economic crisis there is going to be increased poverty and social suffering, so visibly evident with increased begging on the streets. At the very moment when relief and state support is most needed, cuts to social welfare will be disastrous. Where will the Government find the funds for such relief? Indeed, having cut taxes for the wealthy over the decades, and most recently two years ago, Sri Lanka has abysmally low state revenues now of just 9% of GDP.

The solution that some of us have proposed and conveniently ignored by the Government is a wealth tax. That is a tax on property of the wealthy, with redistribution benefiting the working people. Indeed, we should be using revenues from such wealth taxes to beef up social welfare, rather than increase the social burden on working people during these times of crisis.
Next such wealth tax revenues should also be channelled towards state investment to increase domestic production capable of substituting imports and to create a virtuous cycle of production that can contribute to increase exports. These are times when domestic actors are unlikely to invest with the economic depression, and increasing Foreign Direct Investment (FDI) that did not even materialize during the best of times remains a pipe dream. Therefore, state investment to increase production, employment and effective demand are crucial for rejuvenating the economy.

Global turbulence and class struggles

The global economic winds are also unfavourable for Sri Lanka. With the US Federal Reserve on the path of increasing interest rates, capital flows and international loans are going to become tighter for developing countries. That is all the more so for a country like Sri Lanka on the verge of default, and restructuring debt much less getting foreign investment, is going to be much more challenging.

According to FAO’s Food Price Index, global food prices increased by 28.1% over the last year and the index is at a ten year high. Just when we need cheaper foods, our import bill for foods are also rising. Unfortunately, the same is also true with rapidly rising global crude oil prices as well, which is a large share of our import bill.

In these worrying times survival is of utmost importance and that needs to begin with food. Without a public distribution system and relief for the working people we may face famine type conditions. The anger of the working people and the protests out on the streets are revealing. What is keeping the economic establishment and our ruling class from understanding this dire reality? It’s class, stupid!

Pakistan PM calls for optimal use of FTA with Sri Lanka

Pakistan Prime Minister Imran Khan has called increased bilateral trade relations between Pakistan and Sri Lanka through the optimal use of the free trade agreement (FTA) between the two countries, the Pakistan high commission in Colombo said.

Regular high-level exchanges must be made to strengthen bilateral relations, the high commission statement quoted Khan as saying.

The prime minister had made these remarks when ri Lanka’s Minister of Trade Bandula Gunawardhana and State Minister for Regional Cooperation Tharaka Balasuriya paid him a courtesy call on Tuesday (25).

Khan had also referred to the “strong cultural bond” between the two nations and expressed his hope that more Sri Lankans would visit Pakistan for religious tourism, considering the “rich Buddhist Heritage” of the country, the statement said.

The two Sri Lankan officials are in Pakistan along with a business delegation from January 20 to 27. They had previously met Pakistan’s Foreign Minister Shah Mahmood Qureshi.

According to the statement, Sri Lanka’s “growing need for international aid in areas including ICT, pharmaceuticals, minerals, textiles, education, defence, tourism, human resource development through B2B contacts, joint ventures, investments in high potential sectors and technology transfers etc” have been discussed at the two meetings.

According to data from 2020, Sri Lanka generated more than five times the number of exports than imports to and from Pakistan via free trade agreements, the statement said.

In August 2021, Sri Lanka’s cabinet of ministers approved a proposal to import 6,000 metric tons of rice into the island to deal with a rice shortage created by a ban on inorganic fertilizer. Currently, Pakistan is also Sri Lanka’s primary importer of betel, the statement said.

According to the high commission’s official website, the two countries are also looking to strengthen ties in the education field, and in 2021 the Pakistan Higher Education Commission announced the ‘Allama Iqbal Scholarships’ under the Pak-Sri Lanka Higher Education Cooperation Programme, providing 1000 Sri Lankan students with the opportunity to visit Pakistan and pursue undergraduate, postgraduate, and doctoral degree programs in Engineering Science, Basic and Natural Sciences, and Social Sciences over the next five years.

The scholarship was provided to promote “an effective exchange of knowledge and a better understanding of cultures and tradition between Sri Lankan and Pakistani students,” a report on the website said.

Sri Lanka has already drawn up new agreements in several sectors including education, transport, healthcare and infrastructure in 2022, with countries like the UK, Hungary and India. The latest trade delegation, headed by Gunawardhana, was to strengthen ties between Sri Lanka and Pakistan, the statement said, and will be returning to the island on Thursday (27).

Iran’s Foreign Minister to visit Sri Lanka next week

Iran’s Foreign Minister Hossein Amir-Abdollahian is to visit Sri Lanka next week for crucial talks.

According to reports, he is scheduled to arrive in Sri Lanka on Tuesday following a visit to India on Sunday.

The Iranian Foreign Minister’s visit to Colombo comes a month after Iran agreed to accept tea from Sri Lanka to settle outstanding payments for oil purchased from Iran.

The Ministry of Plantation of Sri Lanka and the Ministry of Industries, Mines and Trade of the Islamic Republic of Iran agreed last month to formulate a scheme for the settlement of a sum of US$ 250,925,169 outstanding from the Ceylon Petroleum Corporation to the National Iranian Oil Company by means of utilizing the said sum to facilitate the export of Ceylon Tea to Iran by signing a memorandum of understanding (MoU).

The MoU is a form of mutual commitment in complimenting each other`s duties and function in the Formulation of a Scheme for the Settlement of Sri Lanka’s Oil Outstanding to the Islamic Republic of Iran through the Exportation of Ceylon Tea.

Iran is among the top 10 importing countries of Ceylon Tea for the past several decades. Ceylon Tea which had a market share of around 47% in 2016 dropped to around 25% in 2020 due to the economic sanctions resulting in banking restrictions, payment problems and depreciation of Iranian Riyal. From a peak of 38.42Mn Kgs in 2013, tea exports from Sri Lanka to Iran dropped to 14.73Mn Kgs in 2020.

Due to US sanctions imposed on Iran in November 2012 and with the absence of an accepted payment mechanism through the banking system, Sri Lanka tea exporters found it difficult to receive the export proceeds from Iranian buyers.

Sri Lanka doesn’t need IMF relief, Cabraal tells foreign media

(CNBC) – Sri Lanka’s central bank governor told CNBC that the South Asian nation doesn’t need an economic lifeline from the International Monetary Fund (IMF).

“Well, we don’t need relief if we have an alternative strategy,” Ajith Nivard Cabraal said on CNBC’s “Squawk Box Asia” on Monday.

 

He claimed Sri Lanka is able to finance its outstanding debt, especially international sovereign bonds, “without causing any pain to our creditors.”

Credit agencies have recently warned Sri Lanka may need support to cushion the blow from inflation and foreign exchange headwinds, but Cabraal disagreed with that assessment.

He argued the government does not need to approach the IMF, especially if it is successful in finding government-to-government as well as central bank solutions in the short term.

“And we have a strategy to change that into something a lot more sustainable in the next one year or two,” Cabraal said.

Credit downgrades

Earlier this month, S&P Global Ratings downgraded Sri Lanka from CCC+ to CCC with a negative outlook, indicating the country’s increasing financial vulnerability.

“Sri Lanka’s foreign exchange-denominated debt is vulnerable given the government’s declining foreign exchange reserves and high repayments. The government faces international sovereign bond maturities of US$500 million in January 2022 and US$1 billion in July 2022,” S&P said in a note.

This followed a similar move by Fitch Ratings in December to downgrade Sri Lanka from CCC to CC, suggesting imminent default.

“We believe it will be difficult for the government to meet its external debt obligations in 2022 and 2023 in the absence of new external financing sources,” said the report.

India has recently offered credit and foreign exchange support, saying the measures illustrate its commitment to Sri Lanka and its economic growth. That includes a $500 million line of credit to help Sri Lanka purchase fuel as the country grapples with surging inflation.

Inflationary pressures

Analysts are increasingly concerned about Sri Lanka’s inflationary problems, which they said could be amplified by foreign exchange issues.

“We think this foreign exchange scarcity will continue to fuel inflationary expectations, which can be only temporarily mitigated by Sri Lanka’s access to credit facilities from India, if a $1.5bn deal can be finalized. Moreover, elevated energy prices and risks from further administered adjustments to curtail losses in the electricity sector still loom,” Citi analysts said it a recent note.

While the government is likely to avoid IMF assistance for now, “we believe pressures will remain high going into the July bond maturity,” they added.

Sri Lanka’s benchmark inflation rate accelerated to 14% in December, up from 11.1% in November, according to data published Friday.

The central bank said food inflation hit 21.5%, noting price spikes for vegetables, rice and green chilies. Non-food inflation rose to 7.6% in December, which the central bank attributed to price hikes at restaurants, hotels as well as for alcoholic beverages and tobacco.

But Cabraal, Sri Lanka’s central bank governor, dismissed concerns about shortages.

“We don’t have any fuel shortage… There isn’t any shortage of medicines. We have imported $870 million worth of medicines last year,” he said.

“So just one or two items have been highlighted, but that doesn’t mean that Sri Lanka has any shortage. We have all the foodstuffs available. And I don’t think there’s any reason to say anything much of that,” added Cabraal.