Category: News

India’s External Affairs Minister Dr S. Jaishankar held a virtual meeting with Finance Minister of Sri Lanka Basil Rajapaksa on January 15, 2022, where both sides exchanged New Year greetings and conveyed wishes on the festival of Pongal celebrated both in India and Sri Lanka.

Furthermore, to help Sri Lanka overcome its economic challenges, India under the SAARC currency swap arrangement has made an extension of USD 400 million to Sri Lanka and provided a deferral of ACU (Asian Clearing Union) settlement of USD 515.2 million by two months, said the Ministry of External Affairs in a statement.

The two Ministers also reviewed the progress in extending the Indian credit facility of USD 1 billion for importing food, essential items and medicine and USD 500 million for importing fuel from India.

Jaishankar also brought up the issue of Indian fishermen detained in Sri Lanka. He urged the Government of Sri Lanka to ensure the early release of the detained fishermen on humanitarian considerations.

Jaishankar, during the meet, said, that India will continue to extend a helping hand to Sri Lanka amid these tough times of the COVID-19 pandemic.

“Dr Jaishankar conveyed that India has always stood with Sri Lanka, and will continue to support Sri Lanka in all possible ways for overcoming the economic and other challenges posed by COVID-19 pandemic. As close friends and maritime neighbours, both India and Sri Lanka stand to gain from closer economic interlinkages.”, said the statement.

Notably, this meet is followed by Rajapaksa’s visit to India last month.

The Ministry in the statement also said, “Mr Rajapaksa recalled India’s longstanding cooperation with Sri Lanka and deeply appreciated the gestures of support. He welcomed Indian investments in Sri Lanka in a number of important spheres including ports, infrastructure, energy, renewable energy, power and manufacturing and assured that a conducive environment will be provided to encourage such investments. In this context, both Ministers noted that the recent steps taken by the Government of Sri Lanka for jointly modernizing Trincomalee Oil Tank Farms will boost the confidence of investors, apart from enhancing Sri Lanka’s energy security.”

As per the statement by MEA, the two Ministers agreed to remain in close touch for guiding mutually beneficial bilateral economic cooperation towards long-term economic partnership for shared progress and prosperity.

Farmers have expressed concern that Sinhala families from other districts are re-occupying and cultivating the Mayiladuthurai and Madhavanai grazing areas in the Batticaloa district.

Sumanthiran, President’s Counsel and Member of Parliament on behalf of the Batticaloa District Parliamentarians, had filed a case in the Colombo Supreme Court last year alleging that Sinhala people from other areas had encroached on and cultivated hundreds of acres of land in the Madhavanai grazing area in Mayiladuthurai.

In this case, the cultivators in the area had agreed to leave. The farmers say that the area has been accepted as a grazing area by the lawyers appearing on behalf of the Sinhalese people (occupiers) in the court and the land is being reclaimed and cultivated again.

The farmers state that despite government support being brought to the attention of parliamentarians, no action has been taken so far.

Tamils around the world are celebrated the Thai Pongal festival yesterday (14). World leaders and political leaders send their wishes to the Tamils.

Here are some of the messages:

Thai Pongal Valthukkal! On behalf of @UKLabour I wish Tamils in the UK and across the world a happy and bountiful Pongal.

Labour will always stand by the Tamil people in their pursuit of true peace and justice.

— Keir Starmer (@Keir_Starmer) January 14, 2022

Wishing a very happy Thai Pongal to Tamils in London and those celebrating across the world. May this harvest festival bring you and your loved ones prosperity, health and happiness. Pongal Vazhthukkal! pic.twitter.com/lNOehjcgmP

— Mayor of London, Sadiq Khan (@MayorofLondon) January 14, 2022

Gotabaya Rajapaksa’s government is reluctant to go to the IMF.

Almost three years since terrorists blew up hotels along Colombo’s lovely beaches and two years since covid-19 shut down international travel, tourists have begun returning to Sri Lanka, providing sorely needed foreign exchange. The country’s stockmarket has been bounding along, up by more than 80% in 2021, trailing only commodity-rich Mongolia among global bourses. Corporate profits have been strong, too. gdp growth last year was somewhere between 3.5% (by private estimates) and 5% (by the government’s). This suggests a thriving economy. Yet alarm bells are clanging.

Encouraging though the renewed tourist arrivals may be, they are still barely a fifth of the pre-pandemic peak. Exports grew strongly in the fourth quarter of 2021 but are still too meagre to prevent a looming financial crisis. Years of heavy foreign debt and current-account deficits have taken a toll. Foreign reserves have collapsed (see chart). Supplies of oil, cooking gas, milk, wheat and medicine are running short. A rapidly depreciating currency has helped the country’s exporters, including clothing manufacturers and tea growers. But it has made servicing foreign-denominated debt more costly and has stoked inflation, which jumped during 2021 to 12% and appears to be accelerating.

The numbers are sobering. Interest obligations on government debt in 2021 amounted to 72% of total revenues, while public-sector salaries and pensions came to 80%. Multiple downgrades have in effect locked it out of the international private-credit market. On January 12th s&p, a credit-rating agency, downgraded Sri Lanka’s debt further, citing “increasingly likely default scenarios without unforeseen significant positive developments”.

So Sri Lanka finds itself looking down the barrel of a gun. On January 18th $500m in foreign-currency-denominated debt will come due. Another $5.4bn in principal and interest will need to be paid by the end of the year. Similar payments are required for years to come. That has provoked a series of complex financial manoeuvres. In January the central bank disclosed that it had sold off half the country’s $382m of gold reserves. Rumours abound that the rest has been liquidated too. One obligation—an oil bill of $251m owed to Iran—was paid in tea. The government has also taken a series of heavy-handed actions to preserve foreign currency. It has banned the import of cars. It briefly tried to ban foreign chemical fertiliser in the name of going organic, until crashing agricultural yields forced it to change its mind.

Other measures include a currency swap with China, nominally expanding the central bank’s foreign-currency reserves from $1.6bn to $3.1bn. It is unclear whether the money can be used for anything except Chinese goods. A similarly complex deal has been announced with India, along with—perhaps not coincidentally—the resolution of a long-running dispute over India’s stake in a Sri Lankan oil-storage facility. State assets, including prime property, have been put up for sale. No one has so far been keen to buy them.

A bigger problem is that Sri Lanka’s increasingly desperate deals do not address the real reason for its current travails. After Gotabaya Rajapaksa was elected president in 2019, he abandoned the fiscal and monetary-policy conditions imposed by the imf three years earlier after another financial upheaval. Taxes were cut and interest rates pushed down. The approach was not without merit. It may have softened the harsh consequences of the post-covid global economy and reawakened the animal spirits of businesses that are now reflected by the soaring stockmarket. But it has proved to be unaffordable. Deficit financing on this scale is unfeasible.

Were the imf to arrange a restructuring of the country’s finances, interest rates and taxes would probably rise, government spending decline, and bondholders would have to take losses. In exchange there would be stability and new funds. But Mr Rajapaksa’s government has vocally opposed imf intervention, calling it an infringement of sovereignty. Still, some kind of restructuring seems inevitable, either under the oversight of a multilateral agency or with a more comprehensive government plan that has yet to be presented. The alternative is default—and the risk of higher inflation, fewer imported goods and an end to the current recovery.

The United Nations (UN) expects Sri Lanka to face numerous challenges this year, mainly as a result of the coronavirus.

According to a UN report, Sri Lanka’s major challenges are food shortages, dwindling foreign reserves and sovereign debt risks.

The 2022 World Economic Situation and Prospects (WESP) report, produced by the UN Department of Economic and Social Affairs (DESA), cites a cocktail of problems that are slowing down the economy globally, namely new waves of COVID-19 infections, persistent labour market and lingering supply-chain challenges, and rising inflationary pressures.

On Sri Lanka, the report says GDP growth is projected at 2.6 per cent in 2022. Its major challenges include food shortages, dwindling foreign reserves and sovereign debt risks.

“The Central Banks of Pakistan and Sri Lanka increased interest rates in the second half of 2021 amid rising inflation and widening current account deficits. Central banks need to assess the magnitude and timing of policy changes to support an inclusive recovery and maintain financial and price stability,” the report said.

The report said that South Asia faces major downside risks that can strengthen headwinds in achieving the 2030 Agenda.

Relatively slow vaccination progress leaves the region vulnerable to new variants and recurrent outbreaks. Financial constraints and an inadequate global vaccine supply continue to drag down full recovery in some countries.

As of early December 2021, Bangladesh, Nepal and Pakistan had less than 26 per cent of their populations fully vaccinated. By contrast, the fully vaccinated population is above 64 per cent in Bhutan, Maldives and Sri Lanka. In India, a deadly wave of infection with the Delta variant stole 240,000 lives between April and June and disrupted economic recovery. The report said that similar episodes could take place in the near term.