15 October, 2019

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Full Text: On The State Of The Economy: Statement Issued By Mangala Samaraweera, Minister Of Finance & Mass Media

As a result of the illegal and unconstitutional coup, led by President Maithripala Sirisena, Sri Lanka’s economy has been placed in great peril. The uncertainty created has triggered an immediate negative impact at a time of tremendous fragility in global financial markets.

Mangala Samaraweera, Minister Of Finance & Mass Media

The first impact was felt in the stock market. Between Monday and Thursday net foreign outflows from the Colombo stock exchange were Rs. 4 billion in just a 4 day period. For the entire 9 months (270 days) from January to September 2018, the total net outflow from the stock market was Rs. 6.1 billion.

Foreigners are selling out rapidly due to a sharp drop in confidence in Sri Lanka’s economic management. These outflows are putting major pressure on the Sri Lankan rupee in an already fragile global economy.

The yield on the US$ 1 billion international sovereign bond maturing in January 2019 increased from 5.6% to 9.9% this week – almost doubling in an unprecedented manner. The spike in yield is because global investors are demanding a higher return for the very recently increased risk associated with Sri Lankan debt. This means Sri Lanka’s external borrowing costs will almost double.

If Sri Lanka is unable to meet its external obligations we will collapse into a situation like Argentina or worse Venezuela, where similar reckless policies were implemented. It is our citizens that will suffer as a result of this reckless, opportunistic behaviour. In Argentina, a country with similar challenges to Sri Lanka and made key policy errors like what we saw this week, interest rate just reached 74%, inflation is 22%, and the Peso depreciated 115% this year.

As a result of the accelerated foreign sales of Sri Lankan debt and equity, there will be significant pressure on the value of the rupee and will cause domestic interest rates to spike. The selling rate of the SL rupee that had stabilized below 175 spiked from 174 to 177.3 in just 4 days. The old Rajapaksa strategy of selling off our hard earned reserves to try and defend the Rupee has no doubt already been deployed – this has been proved time and again to be a failed strategy. Lost reserves will make it even more difficult to meet our upcoming external debt repayments.

There is already significant upward pressure on domestic interest rates as liquidity had tightened sharply – it is highly probable that the Central Bank will have to increase interest rates in order to withstand the pressure that has developed this week. This will increase costs in borrowing across the board and will stifle investment and economic activity.

Sri Lanka had just managed to turn around our declining exports and stagnating FDI. In 2017 we had our best ever exports and FDI and in the first half of 2018 these figures continued to grow. Unfortunately, the blatantly undemocratic, unconstitutional measures by this illegal regime have put at risk our hard won access to the EU market through the GSP + scheme. If we lose this market we will severely undermine our fishing & seafood sector and apparel sector, which were making strong inroads into the world’s largest single market. A return to inward looking, protectionist, regressive policies will put us back on the fast lane to economic crisis.

These negative developments have immediately attracted the attention of global rating agencies. Fitch is quoted as stating “Prolonged political upheaval accompanied by deterioration of policy continuity could undermine investor confidence and make it more challenging for the government to meet its large external financing needs in 2019-2022”. Another rating agency Moody’s stated “At a time when global financial markets are turbulent, uncertainty about the direction of future policy could have a large and lasting negative impact on international investor confidence”

There is a serious risk that rating agencies will downgrade their Sri Lanka ratings. In addition to the spike in yields on Sri Lankan international sovereign debt, the incoherent policy of this week will make creditors extremely reluctant to lend to Sri Lanka to enable us to refinance our US$ 15 billion debt payments in the next three years. We are at very serious risk of our first ever international default unless the economy is restabilised immediately by reverting to the policy path that our government had carefully put in place.

Sri Lanka’s Ministry of Finance and Central Bank had worked hard to build fiscal consolidation and macroeconomic stability in the last 2 years – sacrifices were made in order to ensure we gained the trust and credibility of global financial markets since we have such high external debt obligations between 2019 and 2022. This credibility has been eviscerated in the most irresponsible manner by an illegal regime in just one week.

The range of tax cuts made on Thursday will severely undermine government revenue. In a context where we have Rs. 2 trillion worth of debt service in 2019 and our revenue in 2018 was just touching Rs. 2 trillion – any revenue slippage will be disastrous for the government’s ability to meet its financial obligations and to fund public services.

Taking just three of the 15 tax measures proposed – telecommunications levy reduction, VAT threshold increase, and WHT on interest income – the revenue impact would be around Rs. 75 billion (almost double the annual expenditure on Samurdhi). Unless of course by removing the 5% Final Withholding tax they are expecting interest income to be declared as income tax and charged 24% tax instead of 5% applicable at present.

It is not clear as to how this illegal administration expects to reduce government expenditure in order to balance the budget after these erratic, irresponsible, and populist tax cuts. In the first 6 months of 2018, total revenue was Rs. 925 billion. Expenditure on salaries and wages was Rs. 316 billion, interest payments Rs. 391 billion, welfare Rs. 223 billion. These 3 items alone add up to Rs. 930 billion. Will Mahinda Rajapaksa reduce the size of the public service? Will he cut salaries? Perhaps he will reduce pensions?

In fact with the spike in treasury yields as a result of this coup interest expenditure will be far higher than previously estimated. The only other option is drastic cuts to development expenditure which our government was not willing to do. Simply saying that lost revenue will be caught up by “rationalising cabinet ministers” and “re-examining capital expenditure” is an irresponsible and lazy attempt to deceive the public.

By shelving the fuel pricing formula, the illegal administration is attempting to revert to the opaque, politicized regime of fuel pricing that resulted in the CPC being landed with debt of more than Rs. 350 billion – which is eventually borne by tax payers. There has been a 12% reduction in the Singapore Platts price of refined petrol since October 10th, which would have enabled a reduction in pricing as per the fuel price formula as well.

The irresponsible measures during this week have gone against the basic principles of economic management. These short-term, cheap, populist measures are an attempt to deceive the public to capture political power and avert impending court cases, whilst putting the country risk of major economic peril.

Our government had put in place a carefully thought out, responsible set of programmes to stimulate economic growth and uplift the people. Enterprise Sri Lanka loan schemes have been making great progress in empowering small business and entrepreneurs, Gampereliya has resulted in a major drive to boost economic infrastructure in rural areas. Our pragmatic macroeconomic policies brought inflation under control and in fact food prices declined by 2.3% in October. We did not resort to cheap, short sighted, irresponsible measures like what have been proposed this week. I urge the public to not be fooled by these unsustainable gimmicks and to reject all undemocratic, unconstitutional measures of this illegal regime.

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Latest comments

  • 4
    0

    Every govt since the MRs. B period was taking IMF/world bank loans and they wwere promoting NEO-LIberlism. Their adfvice was import RICE from vietnam (A country eating sticky Rice). So, they let people paddy fields, cleaned coconut lands and built houses so the western Real estate firms can build housing complexes and and establish a real estate market. They take the PRofit and run away. Sri lankan both husband and wife work two jobs each to pay many different loans and push children to be successful. So, we are rats running around the whole day. foreigners via th stock market take all the profits home. Stock market is for that. When the shares go up they take profits and run away. Sri lankan economy is import and sell. Even in the western countries they have an export economy. Only Sri lanka is trying to make every citizen a serving some one to earn a rupee. Now, the stock market is for for foriengers, Farmers die from the Unknown Kidney disease which kill them and even their children for drinking toxic water.MAnga Samraweera TALK BULL &HIT.. MAhinda Rajapakse did not know what to do. Because of the PEACE – DIVIDEND there was an improvement after that he did not renovate any abandoned factories, he allowed Apparael manufacturing companeis in every region to be vanished and promoting Neo-Lioberalism. When Ranil he did it in passion. They have sold even the Insurence corporation which can onlhy earn money and if anhy insurence compay have to offer settlements over the limit the govt has to help or they do not pay. Both theprevipus govt and this govt are highly corrupt. An Economic expert from Colombo say even the GAMPERALIYA program of MANGALA Was laying foundation for Neo-liberalism to take place at the village level.

    • 1
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      Mangala Samaraweera,

      A well articulated statement of economic-facts as they stand ……………. but unfortunately it’ll fly over the heads of 220 of the 225 legislators in the assembly ………… What chance does the average ignorant voter out-there has of ever comprehending it?

      The only chance of stopping the Rajapakse-phenomenon nonsense …….. is for the economy to crash and for the people to feel the consequences of their own folly/actions.

      I hope this would not come to pass …………. as Gerald Celente always says ………… when the economy fails the leaders take the country to war; create a greater calamity for people to forget the economy


      To forget the country’s economic woes ………if Gota and the Rajapakse idiots get the BBS – they are unafraid to attack Muslims as they feel they have no close by defenders – to attack the Tamils a la 83 ……….. India with all the “outside-world” justifications will step in and partition the country.

      Then heroes will be separated from “heroes.”

  • 5
    5

    What state of the economy he si talking when the rupee is 176 per dollar. Srilanka is to be sold for foreigncompanies. First to go are Colombo HArbour Jetties, TRansport and others may be tourist hotels and tea estates which donot make much becuse they ruined even’s LIPTON’s Tea estate. Sri lanka has workd’s best tea. YEt they export only 5% of the world’s need. China and India for low quality tea have taken 65% of the world’s tea trade. NAvin dissanayake from his govt said, the only $ 600,000 I collected was my money. Estate Tamik politicians think that they are gods. Thondaman Says he builds his palace in Pilimathalawa area as it has expensive export quality trees. Digambaran was saying I import 30,000 Tamil graduates from Tamil Nadu to Estates to make them learned people.

    • 3
      12

      The rupee appreciated on Friday and local business sentiment is positive about the new regime in Lanka. Sri Lanka should continue to trade with Iran and buy cheap oil and sell tea and ignore Trumps’s sanctions just as the EU and India
      Seems like Mangy’s statement was drafted in Washington DC by the very Fake development “experts” who have put Lanka in the ADB, JICA, IMF Debt trap and international bailout business who are crashing the Lankan rupee today!
      Sri Lanka’s economy was being targeted to become another Greece or Argentina and this would have happened if Bondscam Ranil and his economic hit men team remained in power to loot and asset strip land, and marine and energy resources of Lanka to benefit global 1 percent and America First.

    • 3
      3

      All these overpriced foreign loan projects like highways to nowhere, that cause massive debt should be stopped and reviewed, to see if they actually benefit the people of Lanka. particularly the most impoverished sectors who most need development assistance.
      Foreign aid for trade loans are a racket.

    • 3
      2

      It seems CT is being blocked by persons unknown. We are back to dirty Rajapaksa tactics.
      Users can google for “free proxy server” and use any of the ones that show up. This one is OK:
      https://whoer.net/webproxy

  • 2
    1

    Today’s country’s economy is if it was a manufacturing coutry it is in Depression. Bangladesh is doing better than Sri lanka. How come. I heard it is Ranil who sent Sri lankan money all over the world.

  • 5
    13

    Who needs Fake Aid from Washington’s MCC, ADB and Japan which are Washington’s Consensus proxies in Asia, who have put Lanka in their Debt trap and crashing the rupee after dodgy Nomura ratings gave fake figures about Lanka’s debt in their Democlese Index ?!!
    ADB and Japan Govt JICA have been building overpriced highways and flooding Lanka with Japanese cars to boost Toyota and Nissan companies, when what is needed is decent public rail and bus transport in Sri Lanka, also to reduce environment pollution. Fake aid benefits the donors and their strategic security and business interests in Indian Ocean particularly in their Cold War against China. This is the root of the current so called Constitutional Crisis!
    Well, Now the gloves are off – Bondscam Ranil’s Washington Economic hit men have entered the Sri Lanka arena for all to see — in defense of their Bondscam man, who with the “Land Bank” and MCC funded US Agency for Development under Managla Yapa was getting ready to asset strip the country! So, la la our hairdresser finance minister who was IMF and MCC’s Economic Hit man and was cashing the rupee and beggaring the people of Lanka so Washington and its Overseas Private Investment Corp. (OPIC) and its proxy Japan could loot Lanka’s strategic assets (land via Trimble and Co. and Mckinsey’ s Land Bank for Sri Lanka, transport infrastructure , ports, Indian Ocean Marine assets air sectors and energy security has woken up! Bravo!
    Check out Tanzania’s Ruptured Relationship with the Millennium Challenge Corporation …
    https://www.csis.org/…/tanzanias-ruptured-relationship-millennium-challenge-corporat…
    May 2, 2016 – The Millennium Challenge Corporation (MCC) announced in March that it had suspended its partnership with the government of Tanzania.

    • 3
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      Civil society should have mass protests outside Japan embassy and ADB and ask for DEBT CANCELLATION as their Fake aid development project with lots of kickbacks for corrupt local politicians are the cause of the current crisis..

  • 1
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    I heard Ranil is not a Saint who did not STEAL a cent. Ranil has a relative who is doing MAsonary work (PEDARARUWA). He says, Ranil give all of his money to Relatives. HE gave me too. but not too much But, if you ask Ranil, he says, I gave him money every time. HE does not stop asking so I did not give profits from Bond Scam and that is why he is upset with me (God NAtha). Anyway, that MAson may be a very rich and educated guy now.

  • 4
    4

    Seems that this “State of the Economy” (this is the address that the US president gives annually on the State of US economy), statement on Sri Lanka was drafted in Washington by MCC, just like Bondscam Ranil’s Vision 2025, that was the policy map to loot and asset strip the national wealth of Sri Lankan citizens in order to benefit the Global 1 percent and America First, and their strategic security interests in Indian Ocean?!

  • 4
    2

    the common man will pay, when factories start closing.

    • 2
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      jehan,
      There are no factories to close. Ranil closed all the factories during the last three and half years. Agricultural sector also ruined. It is a pity that two guys who ruined agricultural sector have been given the same Ministries again.

  • 1
    1

    There are reports that the gazette is out for the parliament to reopen on the 14th
    of Nov ! Sira is looking for trouble from the U N P for certain and this 14th may
    possibly not come if they fail to show strength. So what is those ten days holding ?
    Only buying and selling of souls ? I think more ! In fact , why U N P has only one
    choice that is the parliament if the dismissal is against the constitution , so
    unlawful ? We can not help blaming U N P for trusting a man like Sira for such a
    power house ! Out of main four who came out with Sira , the monk has already
    expressed his dissatisfaction with Ranil . The situation is so destructive that unless
    all MPs are made ministers , state ministers and deputies the party is vulnerable of
    losing them to bribery offers ! Parliament can not wait this longe with this kind of
    emergency , it is a deliberate move to challenge the party ousted .

  • 3
    1

    My3 & MR will take this with a pinch of salt.
    They are only interested in foreign aid with a 10%

  • 3
    0

    As long as dumbo’s are among us, we will have to pay the price.

  • 2
    7

    The sole reason for the current impasse in SL is the deceitful 19th amendment to the constitution.

    UNP cunningly passed it to curtail presidents power to dissolve the house & then work without presidents participation.

    It must be understood that 2015 mandate was given to both MS & RW to go together & legal experts must come forward to give correct/practical legal interpretation to effect that mandate comes to the end with the withdrawing the participation of the SLFP from the government.

    So there’s no mandate for UNP to continue rule now & convene the house to get UNP to provide 2/3 majority to dissolve the house.

    Sad to mention that calling Mangala a minister is just adding fuel to fire.

  • 7
    1

    Sir,
    .
    We, as Sri Lankans, have to accept the reality – If one is lazy, works very little earns a little too. So he has to depend on aids and loans to meet both ends, and that is where we are now.
    .
    Can’t imagine “Expenditure on salaries and wages at Rs. 316 billion and welfare at Rs. 223 billion”. Are we an oil-rich Saudi Arabia or gas-rich Qatar with so many lethargic citizens and still see budget surplus?
    .
    Your listed achievements for nearly 4 years shows running the show as it is, avoided a complete collapse at the expense of such a huge cabinet, while MR’s 1 week achievements are to make people happy – Both don’t have any concrete long term plans towards development. Above all, a country needs a stable government to develop, but we did not see that during the last 4 years.

    • 3
      0

      Fatima,
      Do the maths. “Expenditure on salaries and wages at Rs. 316 billion and welfare at Rs. 223 billion” comes to about a million bucks on welfare per citizen. I know I’m not getting that much from the govt!
      Something doesn’t add up.

      • 0
        0

        old codger,
        .
        Welfare list from treasury.gov.lk:
        .
        Samurdhi relief, assistance to disabled soldiers and internally displaced persons, relief given for flood and drought victims, distribution of fresh milk for children, provision of drugs for all government hospitals ,provision of nutritional foods for children and pregnant/lactating mothers, free text books and uniforms for the school children, water subsidy for religious places & schools, street lighting and subsidy to Sri Lanka Transport Board for uneconomical routes
        .
        Might be more,

        • 0
          0

          Fathima,
          Looks like a miscalculation. It’s about 10,000 per citizen.

    • 2
      0

      If this over-sized public sector is reduced to 50% with increased efficiency can still be more than sufficient to the needs of this little country. Then reducing the welfare too by 50% will distract people depending on state-sector. This money can be spent on industrialization and other investment projects where people previously wanted to work in state sectors will be showing more interest in these jobs, plus reducing the state-sector will also create a lots of positive “turning-points” in many lives – more productive contribution to the economy

  • 4
    1

    USD Bonds maturing in 2019 increased to 9.6 from 5.25 says this ex Finance Minister of Lankawe..
    What a load of Bull Crap **
    No wonder the Yahapalana Economy was in the Shit House under these UNP Politikkas..

    I just checked the current rates for Srilankan US Dollar Bonds.
    5 year Bonds still pays only 5.6 % & even 10 year Bonds yield 6.65%..

    May be Mallika’s US Bonds came from. Perpetual Trustees, run by Dr Ranil’s ex Royal Buddy Dr Mahendran’s Family Trust….
    I can understand because Dr Ranil had to send his blue eyed boy Young Sujeeva on a Crash Course, to learn about Bond Trading…

    Appreciate if Dr Wije can find out where this extra 4% would go to, come January 2019…..

  • 4
    3

    What Mangala saying is All lies and he doe snot know what he is talking. UKRaine, Brazil, Venezuela, Argentina are all the countries screwed up and destroyed and are being destroyed by a Western country.

  • 2
    1

    The Oxford English Dictionary defines “Pretender to the Throne” as A person who claims or aspires to a title or position. Need I say anymore ? Mangala’s legacy will be as the man who invented the stupidest petrol pricing formula known to mankind

    • 1
      1

      Angelo,
      We know that many people who can write can’t count. Don’t make it so obvious.

  • 1
    0

    In 2015, Chandrika brokered a marriage between UNP and SLFP. In this marriage UNP was the husband and SLFP the wife. A marriage to be successful, husband and wife should have equal status and respect the views of each other. But in this marriage things did not work out that way. Wife had to be a subordinate partner. Husband did not pay attention to the views or feeling of the wife. Husband was arrogant and expected the wife to accept whatever he decided. Having realized that the marriage is not going to work, wife decided to divorce the husband and marry her former lover. So, do not blame the wife for leaving the arrogant husband who ill-treated her. But in this forum, even people who talk about equal status for women keep on blaming the wife.

  • 3
    0

    When Rajapakse Government asked for a loan from IMF, they had told the economic fundamentals are good and there is no need for a loan. Ranil and his Economic Hitmen of the Royal Gang ruined that economy.
    ————————–
    In the next election, MPs of the Unpatriotic National Party will be branded as traitors. They committed political suicide by protecting the guy who was behind the Central Bank Robbery and the guy who tried hard to bring the new constitution with Federal System. This time Sinhalayo will unite and bury Goo N.P for ever at the next election.

  • 0
    0

    Due to Special exception Oil price fell Washington grants temporary waivers to key buyers prices fell on Monday as the start to U.S. sanctions against Iran’s fuel exports was softened by waivers that will allow major buyers to still import Iranian crude, at least temporarily.

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