Opposition MP Harsha de Silva, in response to the President’s speech on the IMF agreement, said that he was relieved that the government had finally obtained the approval of the IMF Board for the USD 3 billion facility. He commended the President for convincing his majority SLPP government on the IMF program who until recent times was totally opposed to it.
Dr de Silva stated the only political party that tabled their own plan out of the crisis was the SJB. He said their plan, named the “Blueprint”, first tabled in August 2022 and an updated version in February 2023, contained a detailed plan on how to come out of bankruptcy and set the stage for sustained growth. He said the Blueprint dealt with the sensitive issue of taxes. He criticized the highest marginal tax rate of 36% being applied at Rs 300,000 a month. Dr de Silva pointed out that the maximum rate for those earning approximately Rs 500,000 a month could be capped around 24 to 25%, while the highest tax bracket would increase to 39-40% to achieve the expected income.
He said that they were ready to help the government wholeheartedly to rescue the country from the crisis. De Silva stressed the need to come out of this IMF agreement victorious; as this could not be another failed attempt. He called for unity regardless of party allegiances, as the President stated, as this was only the start of a long road. The next biggest hurdle was the debt-restructuring process, and to do that, massive economic reforms were necessary.
De Silva clarified what these reforms were, stating that the government revenue needed to increase from 8.5 percent to 15 percent of GDP. He explained that over 95 percent of government revenue was tax revenue, and only 5 percent was non-tax revenue. He added that to increase revenue, the economy must expand. But currently it is contracting, with lending rates increasing to 30 percent. Many small-medium enterprises had closed as they couldn’t keep up with the rates. Additionally, export companies were planning to move shop as taxes on the export sector had gone up to 30 percent while neighboring countries were only 12 to 15 percent.
De Silva called for a plan to turn the economy around and create jobs. He noted that the IMF agreement was only a stabilization program and not a roadmap to develop the country. He added that they needed to have a consistent political ideology governing the country; otherwise, they would go nowhere. De Silva stressed the need to cut Sri Lanka’s debt stock but argued that foreign creditors were not willing to carrying the entire burden, as, of Sri Lanka’s debt to GDP ratio of 128 percent, 63.6 percent was foreign debt, while 64.6 percent was domestic.
De Silva noted that the IMF’s focus was on the government reducing the gross financing need from about 34 percent to 13 percent of GDP and that the question of domestic debt restructuring had been raised at the press briefing by the IMF yesterday. Although IMF stated that methodology was irrelevant to them, they were insinuating that domestic restructuring had to happen. De Silva urged extensive discussions on critical issues like these, as they could not hastily state whether they agree or oppose such measures. According to de Silva, there was roughly Rs 14 trillion domestic debt, out of which Rs 4 trillion was in Treasury bills, and Rs 9 trillion was in Treasury bonds. He questioned whose debt will be cut and what the roadmap for reducing this debt will be. De Silva believed that extensive discussions are necessary as most of the local debt is from the Employees Provident Fund (ETF) and local banks that consist of people’s hard-earned money.
Another critical issue that de Silva highlights is the impact of the economic crisis on low-income households. In particular, he highlights the issue of electricity tariffs, which have increased by over 1,100 percent in a short span of time for the bottom 25 percent of consumers, who use less the 30 units a month. De Silva suggested that it is not the responsibility of the Ceylon Electricity Board to provide subsidies to low-income households. He argued that if this is the case, the Board will never be able to become profitable. Instead, de Silva argued that it is the responsibility of the government to cushion low-income households by providing subsidies to those who need them, while the Electricity Board focuses on becoming profitable. De Silva emphasized the need to move away from traditional politics that advocate for providing subsidies to all or going on strike. He suggested that developed countries, or even developing ones like India with their Aadhar system, are able to determine who needs help and provide adequate assistance via budget allocations. He insisted Sri Lanka adopt a mechanism of targeted subsidies.
De Silva concluded by expressing his general agreement with the Sri Lanka’s IMF program but urged further discussion to resolve the contentious issues.