20 January, 2022

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Are Those In Governance Of Sri Lanka’s Financial Stability Hallucinating?

By Chandra Jayaratne

Chandra Jayaratne

A leading daily newspaper has quoted leaders in charge of the governance of Sri Lanka’s financial stability having purportedly stated on different occasions that;

* If Sri Lanka goes for an IMF bailout, the country has to sign a ‘Letter of Intent’ agreeing to all the conditions which are not viable options at this juncture and these will include:

* float the SL Rupee; which will result in the Rupee depreciating to around Rs. 240 to the US Dollar and import costs going up

* increase the interest rate; which will have a negative impact on the economy.

* dispose of valuable State assets owned by the Government and even privatize the state-owned banks;

* no new employees be recruited to the state services and in fact to reduce the present state employee numbers;

* Reduce subsidies and welfare packages offered to citizens;

* Place severe restraints on new capital projects and infrastructure spends, including the planned highway extensions, rural roads development projects and enhanced allocations to members of parliament and provincial and local government members:

* Require withdrawal of restrictions and high tariffs imposed on imports to protect the local farmers /manufacturers and conserve forex reserves

* Despite all of above being complied with the IMF will not be able to get creditors to agree to restructure the present external debt

* Sri Lanka does not need to go on bended knees to an outside agency to solve the country’s debt problems and has its own capability to manage the external debt commitments without going to the IMF

* The Country is now on a path to debt sustainability by changing the present debt profile. Debt obligations can be met and forex crisis resolved by:

* moving away from only borrowings to non-debt creating inflows,

* reducing exposure to commercial debt and going for government credit lines,

* attempting to improve remittance through a ‘carrot and stick’ approach.

* Government to government negotiated loans and swaps

* With Covid under control and expected revival in tourism and there will be no debt defaults and better times are ahead,

* IMF Bailout conditionality will destabilize the country and could lead to political instability and even regime change

* Road Map planned cash inflows having been realized, the official reserves position has now reached around US dollars 3.1 billion. Foreign currency inflows from several other facilities under negotiation at present are expected to be realized in the early part of January 2022.

Professionals and citizens are perplexed as to why these leaders feel the essential reform measures of any IMF bailout are not the very same measures that should be followed in any locally developed Road Map? How come these leaders are blind to the obvious that the Road Map now pursued in fact:

* decelerates growth options,

* drive away potential foreign and local investors, trading partners and technology transferors

* crate disincentives for growth in exports of value added goods and services and inward expatriate workers remittances

* increases cost of living, creates shortages in essential supplies; all of which severely impact on the poor and vulnerable and growth contributors in the economy

* The stress exerted on commercial banks and their overseas correspondents

* Violates IMF Membership guidelines by having multiple exchange rates

* Fails to address the crisis precipitating lack of fiscal discipline[1], losses of State Owned Enterprises, corruption and money laundering

Current measures placing reliance on short term swaps, proceeds of asset sales and contractual concessions related to state asset leverage and long term supply arrangements to fill in the shortfall gaps in regular cash flows are unlikely to ensure longer term debt service commitments without default. None of these measures will enable sustainable financial stability[2]

How come these leaders, supported by professionals and technocrats as advisors, all purportedly possessing expertise, experience and aware of governance accountability, (especially as trustees of national resources and voters), make such unrealistic expectations and how come they ignore the following within their strategic Road Map:

* Need to inform all stakeholders of the gravity of the situation, available options to avert a calamity and likely outcomes under each such option ( including do nothing and follow present road map), and debt restructure options and thereby secure supportive commitments for implementation of acceptable remedial measures,

* Available options with lenders of last resort or lenders willing to take over the current obligations and replace same with longer dated loan facilities with possible grace periods,

* Options to restructure the existing debt commitments by negotiating for grace periods, extensions in tenor and possible changes in interest commitments and payment frequencies

* Seeking the best available expertise to support restructure of the external debt portfolio ( This is what any private sector entity would do, by direct negotiation with the creditors or after using chapter 13 similar options being leveraged, when faced with bankruptcy or debt default lead asset seizure)

* Overvalued Rupee is one of the main causes of the forex crisis and is a deterrent to growing the share of the economy from value added export of goods and services

* Multiple exchange rates with different rates for dollars in the official sources, ‘carrot offer’ based rate for worker remittances and informal kerb market rates are inimical to IMF membership commitments and encourages money laundering, informal markets to boom and is a deterrent to attracting FDI

* Low interest rates lead to under subscribed T Bills/Bonds

* money printing leads to higher inflation

* Continuing budgetary support for loss making state owned enterprises and recapitalization of state banks are inimical to interests of good fiscal management

* Low productivity, overstaffing and low quality of state services is a burden on fiscal management and in vigorously expanding growth options and in improving the ease of doing business indices

* Need for exercise of fiscal discipline in the allocation of scarce national resources and where allocated ensure thing high quality sustainable outcomes and free cash flows from capital investments

* Seek every option to enhance and raise revenue and especially recover earliest the revenue wastefully given up by way of tax reductions and excessive and unwarranted tax concession granted since 2019

* Reverse all erroneous decisions taken and projects initiated that reduce net state revenue

* Restructure all loss making state entities focusing in priority the large leakage entities

* Introduce a composite social safety-net, with flexibility and rapid action capability, encompassing better design and targeting and direct bank transfers like Adhar Scheme,

The only logical explanation is that the current leaders are Hallucinating!


[1] a state of an ideal balance between revenues and expenditure of government,

[2] https://www.worldbank.org/en/publication/gfdr/gfdr-2016/background/financial-stability-‘a stable financial system capable of efficiently allocating resources, assessing and managing financial risks, maintaining employment levels close to the economy’s natural rate, and eliminating relative price movements of real or financial assets that will affect monetary stability or employment levels Financial stability is paramount for economic growth, as most transactions in the real economy are made through the financial system.

The true value of financial stability is best illustrated in its absence, in periods of financial instability. During these periods, banks are reluctant to finance profitable projects, asset prices deviate excessively from their intrinsic values, and payments may not arrive on time. Major instability can lead to bank runs, hyperinflation, or a stock market crash. It can severely shake confidence in the financial and economic system’.

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Latest comments

  • 14
    1

    The current leaders are not Hallucinating but they are fully aware of everything. The major objectives of the current leaders are keeping the masses under continued fear by threatening. They are doing the same for many years. They created a fear about Indian Tamils, then Sri Lankan Tamils and then Muslims, Western Countries, United Nations against Buddhism and Sinhala country. Even after Easter Bombing they knew it is easy to cheat Sinhala masses with the same tactics. They might organise another Bomb blast in a “Pansala” killing Buddhists to threaten them accusing it is the work of IMF.

  • 3
    1

    I am not sure the reasons given by the govt. against an IMF bailout are word to word quotation or Mr Jayaratna’s interpretation but I find some reasons highly amusing. For example ‘Sri Lanka does not need to go on bended knees to an outside agency to solve the country’s debt problems and has its own capability to manage the external debt commitments without going to the IMF” & ”Country is now on a path to debt sustainability by changing the present debt profile. Debt obligations can be met and forex crisis resolved..” by ”non-debt creating inflows…, reducing exposure to commercial debt and going for government credit lines, attempting to improve remittance through a ‘carrot and stick’ approach, Government to government negotiated loans and swaps…” Really? If I am to believe that crap, all I can say is, WOW, we sure have a master financial strategist. Anyway, much of the outcome is highly optimistic ”With Covid under control and expected revival in tourism and there will be no debt defaults and better times are ahead”, so, maybe, paying homage to god for divine intervention for a better tomorrow would be better than going to the IMF.
    .

  • 4
    0

    Is said that hallucinations happen when the brain overcompensates for a lack of information coming from the outside world.
    This is essentially, loss of rationality in thoughts.
    There is so much information in the media on the govt’s attempts at virtual suicide in every matter they have put their hand to, it is unbelievable that there is a lack of information.
    So actually these ministers are just blabbering.
    The latest is Aluthgamage who first said all farmers will be compensated for their losses, now twisting today to say compensation will only be for those who use all the organic fertilizer supplied by the govt and still have a loss.
    For both these conditions, the basis is an admission of failure, firstly of the ban and secondly of how unscientific the organic fertilizer supplied has been. Both certain losses.
    This begs the question “Who is responsible”. No one!
    According to the Minister and Prez, it is the officials who did not co-operate to carry the policy forward.
    Are we not wasting our time commenting on the absurdities of this govt’s policies.

    • 1
      0

      MyView,
      To fix culpability or accountability, the powers that be must answer simple questions:
      1. What was the plan and/or scheme to transition from chemical Fertiliser to Non-Chemical Fertiliser?
      2. What was the process of the plan and steps contemplated?
      3. Was the plan followed/adhered to in all its steps?
      4. Who or what body monitored the process through it steps to implementation?
      5. What was the outcome of these monitoring bodies?
      6. what was the time frame to ban on Chemical Fertiliser use was to be implemented?
      This should elicit information and culpability.
      If NO PLAN FOR IMPLEMENTATION happened, then why it was not adhered to?
      This is serious, because, from Dominion Status Governance times, we have had a ‘PLAN’ set up by PUBLIC SERVICE and APPROVED BY MINISTERIAL COMMITTEE OR CABINET from early 1900’s!!!
      The person who changed this ardent, time tested process,
      Was it due:
      1. Enhance personal political popularity?
      2. Personal Financial gain?
      3. Help a political supporter?

    • 0
      0

      (Part II)
      If none is responsible, then send the 225 Mee Harakkas, devouring the “FOOD AT SUBSIDISED PARLIAMENT CANTEEN, INSTEAD OF THEIR STAPLE GRASS HOME TO SAVE TAX PAYERS MONEY” in the first instance and not performing the function for electing them!!??
      And IMPORTANTLY, PRESIDENT AS HEAD OF CABINET AND GOVERNMENT FOR INCOMPETENCE IN GOVERNANCE, for not exercising control and monitoring, executive arm, to calamity!!
      Aren’t they useless and this country has LOST ITS WAY due to their lapse and none other?

    • 3
      0

      “Are we not wasting our time commenting on the absurdities of this govt’s policies.”

      Spot on!

      That’s why I write gibberish/nonsense …….. and play the fool …….. might as well entertain ourselves ………..


      The problem is, not that the rulers/pols don’t know what’s best for the country/citizens ……… but they know what’s best/better for themselves.

      • 4
        0

        nimal fernando

        “That’s why I write gibberish/nonsense …….. and play the fool …….. might as well entertain ourselves ………..”

        You will make an ideal candidate.
        Will you consider putting yourself as the next presidential candidate?

        Only problem is you need a loads of ill-gotten wealth initially, you need a good spin doctor, some saffron and non-saffron clad thugs, …. You need a few brothers, …

        How low can you stoop?
        The more you stoop the chances of victory is more.
        What is your best ever racist statement or catchphrase?

  • 0
    0

    Ajith
    You have explained to us on how the “DEEP STATE” brain is /was /will be working..Your blogs are👍

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