By Laksiri Fernando –
Sri Lanka has come to a decisive political-economic juncture with a big question mark on the present administration. Crisis deepens day by day without any plan for its rescue. It appears that the foreign debt default in April this year has affected the local debt market as well. The defaulted foreign debt is not small. While the country owed $7 billion to foreign buyers this year, the total debt is estimated to be over $50 billion. Proper accounts are not kept on this matter. Different figures are given on different occasions.
On 22 June, the government tried to sell Treasury Bills to the amount of Rs. 93,000 million but could sell only Rs. 30,779 million, nearly one third. The credibility of debt resettlement is doubted both externally and internally. Out of Rs 30,779 Treasury bills the bulk and nearly Rs. 20,000 million must be settled in three months. These are the steps of current management, not so different to the previous one.
IMF and All
IMF officials are now in Colombo asking the government to show a viable macroeconomic plan, among other conditions, before they lend dollars, as Sri Lanka had not heeded these requests several times before. They will assist Sri Lanka to restructure debt, while giving the requested 3 billion in stages. Sri Lanka should have requested a bigger amount as the present foreign exchange crisis is insurmountable.
Amnesty International also has sent a letter to the IMF, emphasizing the unfortunate situation of the ‘poor and the vulnerable,’ among other human rights issues. Sri Lanka has a bad record of assisting political supporters and not necessarily the ‘poor and the vulnerable.’ It is also well known that the debt accumulated through sovereign bonds were largely used for unproductive purposes and to the benefit of certain sections. This was largely the same when Ranil Wickremesinghe was running the previous government (2015-2019). Among other things, the Amnesty International has said the following.
“To ensure that the verbal commitments above translate into real and effective protections in these difficult times, human rights must be central to any future economic reform program negotiated between the IMF and the Sri Lankan government.”
There are several foreign countries who are willing to assist Sri Lanka within the IMF framework, and Australia has already pledged A$ 50 million. The US has announced $12 million assistance (USAID) and this amount might increase. Britain is another country promising support. Japan has been a traditional donor and a lender who has today become somewhat distant. China will continue to assist.
Since January 2022, India has been generously assisting Sri Lanka through currency swaps, credit lines for essentials, and loan deferments. It is estimated that this generosity now amounts to $4 billion. This is mostly a new debt. This has taken a new dilemma because of the controversy over Adani deal.
No country or international agency would give dollars to Sri Lanka without any condition or some benefit in return. More pertinent question is whether the present Sri Lankan authorities would be able to manage this assistance properly and prudently. There are undoubtedly prospects in resolving the crisis in Sri Lanka. However, do we have the right administration to do so?
Grievances of People
Not only people’s grievances but also anger is visible in various queues for petrol, diesel, kerosene, and cooking gas. Over ten people have already died almost all of them due to ill health while in these queues overnight. Now there are food queues, mostly women are forced to attend. Most alarming is the shortages of medicine and medical equipment. The death toll is not properly counted. Inflation is now nearly 50% and the poor are the most affected.
Without fuel for their vehicles, people cannot go for work or run their businesses. Public transport is also not working properly due to fuel shortages. Now the government decision is to limit the working week to four days. Is that a right decision is a question? In addition to all these, there have been power cuts due to the lack of necessary fuel to run some power stations. Reuters and others have reported some of the heart rending stories about queues. The following is one.
‘Lasanda Deepthi, a 43-year-old Sri Lankan woman, plans her day around fuel queues. The driver of an auto-rickshaw on the outskirts of the commercial capital Colombo, she keeps a close eye on the petrol gauge of her sky-blue three-wheeler before accepting a job to make sure she has enough fuel.’
A woman three-wheel driver is a rare sight in Sri Lanka. However, Deepthi is one who has selected the job to support her family. She has stated ‘I spend more time in line for petrol than doing anything else. Sometimes I join a line about 3 p.m. but only get fuel about 12 hours later.’
The government and the Energy Ministry should have stopped people unnecessarily joining queues by transparently announcing a scheme how they would distribute the limited fuel to the people. Transparency is something the governments are lacking for a long period. There was no point in using the police or the army to discipline people when they gather in hundreds or thousands. When you google on the subject, the following are some news items you come across.
‘Long queues outside gas stations,’ ‘Sri Lanka troops open fire to contain unrest over fuel shortages,’ ‘Clash at fuel queue in Vavuniya – five hospitalized,’ ‘Sri Lanka sees signs of fuel riots as motorists wait for days in queues,’ ‘Clashes reported at gas queues in Kandy.’ ‘Sri Lanka’s poor queue for hours to buy kerosene amid crises,’ ‘Sri Lanka deploys troops as fuel shortages sparks protests,’ ‘Queue for death: Systemic examination of Sri Lankans’ etc.
Roots of Crisis
The crisis that Sri Lanka has been encountering at present is two-fold. (1) Economy is in shambles and the PM himself has named the country as bankrupt. (2) There is an emerging strong opposition, mostly extra-parliamentary, from the youth. It is difficult to distinguish one from the other and that is why it should be called a ‘political-economic’ crisis. If the major problems are not addressed soon, there is a possibility of an ‘uprising.’
The crisis has its roots in decision making or more correctly erroneous decision making. That is why people ask particularly the President to resign. Prof Mick Moore (University of Sussex) has uncovered the crisis as ‘manmade.’ Who is the remaining man? Apart from a necessary change of heads, there is a need for a policy change. Some can be outlined below.
Without going or listening to the IMF, the country depended mainly on China and sovereign bonds dubiously sold to questionable foreign institutions and speculators. Amounts were unbearable to the country. There is a possibility that some of the decision-making Sri Lankans had stakes in these institutions when sovereign bonds were sold. Now there is a lawsuit by the dubious Hamilton Reserve Bank against the country for not paying of their sovereign bonds. A former Central Bank Governor is also implicated. Even if they had a clean record, the borrowed money was not used for productive and priority purposes of development. This applies to both China loans and sovereign bonds. These deals should have been transparent.
What was particularly missing was proper financial management in the case of balance of payments and internal budget balances. Most of the budget figures presented were just bogus. Country’s income and expenditure did not match and 2019 budget was a mere disaster. There was no proper transparency. There should be a parliamentary committee like COPE to scrutinize past budgets. Or the present COPE should handle it. Lessons can be drawn, or the culprits could be reprimanded. There were huge budget deficits in actual sense and money printing was used as a solution. Local debt also was accumulating throughout years and as we have noted at the beginning the last Treasury bill auctions was a disaster.
During 2018 foreign exchange reserves were estimated to be over $9 billion. It came down to $7.6 billion in 2019. This was before the Covid pandemic and with a clear early warning for the policy makers. However, in the absence of proper measures, the amount came down to $5 billion by the end of 2020. These early warnings were clear enough to go before the IMF. Within the SLPP government and in the country in general there are sections who are opposed to the IMF claiming that the institution is not supportive of developing countries. Even if the IMF was ‘dubious’ during the early period, things have changed over decades. Sri Lanka joined the IMF in 1950. It is one of the important multilateral organizations among other institutions. It is up to the local officials to bargain and deal properly with the IMF.
It is very clear that Sri Lanka had enough time and opportunity to deal with the crisis earlier on. However, this was not done. It is difficult to excuse the President, Gotabaya Rajapaksa, on this matter among other things. He has a pathetic human rights record. Since the beginning of the financial crisis, the authorities have not taken measures properly to mitigate the situation. The ad hoc nature of measures is still a liability and would boomerang on the country again and again.