Category: News

Amid reports that cash-strapped Sri Lanka’s ruling coalition is split down the middle over an International Monetary Fund (IMF) bailout, another cabinet minister on Wednesday (29) spoke in favour of IMF assistance, even going as far as to hint at the sale of the country’s national carrier.

“We will have to go to the IMF. There is nothing wrong with that… since we have no other option,” Environment Minister Mahinda Amaraweera said speaking to reporters on Wednesday (29).

Amaraweera is a member of the Sri Lanka Freedom Party (SLFP), which is increasingly at odds with the ruling Sri Lanka Podujana Peramuna (SLPP). State Minister Dayasiri Jayasekara, the SLFP’s general secretary, had also recently advocated going to the IMF.

“Of course, we need to not accept every condition put forward by the IMF,” said Amaraweera.

“We have been informed that the central bank governor and the Treasury Secretary will be joining the cabinet meeting next Monday (03). I think we will be able to reach a final consensus then,” he added.

Co-cabinet spokesman and Media Minister Dullas Alahapperuma on December 21 told reporters that the cabinet had “exchanged views” on an IMF bailout for the second week in a row but no decision had been made.

Minister Amaraweera, meanwhile, also commented on SriLankan Airlines, the national carrier, and other under-performing state owned enterprises (SOEs).

“At this point, we may have to let go of certain institutes. For example, SriLankan suffers losses in the billions. These losses are borne by people who have never even touched [an aircraft],” he said.

A day before Sri Lanka raised fuel prices last week, Trade Minister Bandula Gunawardena told reporters that the IMF would ask to cut the bloated public sector, reduce the budget deficit, make state enterprises profitable, and raise fuel and electricity prices.

A few days earlier, State Minister Jayasekera said after last week’s cabinet meeting that the IMF imposes conditions such as making state enterprises profitable.

“It is a good thing to do that,” Jayasekera said.

Finance Minister Basil Rajapaksa had already said the state workers and state enterprises were a big burden on the economy.

Older IMF baiout programs typically involve cutting the deficit with tax hikes (revenue based), trimming expenses (spending based) expressed as a net domestic finance target, a foreign reserve target and a reserve money target.

However Sri Lanka’s last failed extended fund facility from IMF program where money was printed within the program to create forex shortages and worsen foreign debt, an inflation target was given and the budget target was defined as a primary deficit.

Instead of a measurable reserve money or ceiling on central bank credit an inflation target was given, allowing the trigger happy central bank to print money and trigger a currency crisis within the program.

Under revenue based fiscal consolidation, state spending soared and the currency collapsed from 151 to 183 under a so-called flexible exchange rate where the exchange flipped from pegged to floating rapidly and interventions were sterilized on top of it.

Sri Lanka Muslim Congress (SLMC) Deputy Leader and Ampara District MP, H. M. M. Harees said they were ready to collaborate with other political parties when it comes to the development of the Eastern Province.

Harees was addressing an event held at the Sainthamaruthu Divisional Secretariat under the patronage of Divisional Secretary M. M. Ashique.

“Our country is facing a foreign currency crisis right now. However, a large sum of money has been allocated in the Budget 2022 for rural development activities. Bangladesh is achieving its development goals as they focused on rural development. Therefore, it is the duty of responsible parties to implement rural development projects,” he said.

Speaking further, he said that the Government has allocated Rs 100 million for each MP and they must make use of this money to alleviate poverty in their electorates.

More than 40 percent of people in the Ampara District are engaged in Agriculture. They have many issues to be addressed and the fertiliser issue is one of them. The Government has taken all possible steps to address the issues of farmers and the public, Harees added.

The $ 1.5 billion exchange deal to be taken from the Central Bank of China will take place this week, Treasury Secretary S.R. Attygalle said.

The exchange is aimed at boosting Sri Lanka’s foreign reserves.

The Central Bank of Sri Lanka has stated that Sri Lanka’s foreign exchange reserves will be around US $ 3 billion with this deal.

Sri Lanka’s foreign exchange reserves have fallen to US $ 1.5 billion, of which only US $ 1.1 billion is in exchange, according to Finance Ministry sources.

However, commenting on the foreign exchange problem, Central Bank Governor Ajith Nivard Cabraal recently said that Sri Lanka’s foreign exchange reserves would increase to US $ 3.5 billion by December 31 and that accordingly, the amount of foreign reserves should not be a problem.

The Bangladesh Bank (BB) has extended validity of the 200 million US dollar credit facility it extended to Sri Lanka by three months after the expiry of its first three-month tenure, the Dhaka-based New Age reported.

The loan facility has been renewed following a request from the island nation, New Age quoted a senior BB official as saying on Sunday (26).

The forex-rich Bangladesh extended the credit facility amounting to $200 million under a currency swap deal with Sri Lanka, to be delivered in three tranches as follows: 50 million US dollars on August 19, 100 million dollars on August 30, and the final 50 million dollars on September 21.

As per the agreement, Bangladesh would receive 2 per cent plus LIBOR (London Inter-Bank Offered Rate) as interest on the credit amount. If the instalment principal remains unpaid even after six months, the applicable interest would be 2.5 per cent plus LIBOR, New Age reported.

“Our assessment is that the Sri Lanka would use the fund for at least nine months,” the publication quoted the BB official as saying.

The currency swap initiative was taken after Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh to join the celebrations of the golden jubilee of Bangladesh’s independence and received the BB’s approval in May.

The island nation also received another 787 million US dollars from the International Monetary Fund’s special drawing rights (SDR) allocation to boost its reserves in September.

While Sri Lanka’s forex reserves plummeted, Bangladesh’s reserves stood at 46.3 billion US dollars after hitting a record high of 48 billion from around 33 billion one and a half year ago, according to New Age.

Former Prime Minister Ranil Wickremesinghe says that the US dollar shortage has resulted in a serious situation in the country and that it has reached a point where the people are no longer able to bear this burden.

He stated that businesses are collapsing, people are losing jobs, the middle class is deteriorating and the farmers are left stranded. “Solutions are urgently required for these,” he said, issuing a statement to the media today (28).

The UNP leader said that despite the Covid-19 pandemic, many countries have shown economic progress in the year 2021 and that Sri Lanka too should resolve its issues.

“Therefore the government has a responsibility to immediately go to the International Monetary Fund (IMF) and obtain aid or else it should present an acceptable alternative,” he stressed, while adding that “both those things have not happened.”

Wickremesinghe said that today the people of the country are in anger.

The UNP parliamentarian added that in addition to this the country is now having to face another problem, which is the food shortage that is going to occur in Sri Lanka.

He said that based on the information they are receiving a food shortage is likely to occur in the country around the time of the Sinhala and Tamil New Year. He said that many regions are reporting that this year’s harvest will be only around 60% of the harvest from the previous time.

The former PM warned against angering the general public which could have drastic impacts on the government as well as the parliament and therefore called for the prevention of such a situation in order to develop the country.

He sternly urged the government to immediately conclude its discussions and agreements with India to obtain fuel and food on credit.

Wickremesinghe said that obtaining loans or obtaining goods on loan will not resolve the country’s foreign exchange crisis. However, he urged the government to implement the process to obtain fuel and food on credit in order to at least get a temporary reprieve.