24 September, 2020

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Sri Lankan Economy After The October Coup

By Mangala Samaraweera

It is a pleasure to address the inaugural meeting of the Breakfast Buzz series organized by the American Chamber of Commerce. On the eve of the budget, I believe it would be an opportune moment to engage the business community on the economic situation and share some thoughts on our broad plans and strategies. 

In fact this is the first time that I am addressing the business community after our government was re-instated in December following the 52 day coup. It has taken a great deal of hard work to bring us back to stability after the cataclysmic disruptions to the economy during that period. Let us refresh our memories. 

In the lead up to October 26th, our government had brought stability to an economy that had been adversely affected by successive years of drought that debilitated rural incomes and hurt consumption across the economy. Global oil prices had doubled, and the US Federal reserve was ramping up interest rates, driving capital out of emerging/frontier markets.

However, from end October global oil prices began to decline sharply, the Federal Reserve signaled an easing of their stance, and the consumption began to recover in the fourth quarter. Without any disruptions, Sri Lanka would have been able to enjoy a robust boost to the economy and we would have seen a strong uplift in economic performance in 2019. Unfortunately, Sri Lanka was deprived of the opportunity to benefit from these emerging tailwinds as we got engulfed in a political crisis. 

The resulting loss in confidence resulted in a surge in capital flight from our debt and equity markets – bleeding over a billion dollars from our hard earned foreign reserves and causing the currency to depreciate at a time when other emerging and frontier market currencies were recovering. Sri Lanka’s credit ratings were downgraded resulting in our external borrowing cost surging into double digit levels just when we had to re-finance US$ 5.9 dollars of external debt repayments in 2019. Tourist arrivals stalled soon after Sri Lanka was adjudged the best travel destination by Lonely Planet and a new campaign had just been launched. 

Furthermore, government cash flows were disrupted as the plans to raise capital in the last quarter of 2018 could not materialize and without a budget in November spending plans were also disturbed. As a result we are still behind target on cash disbursements which would have typically been settled in January.

It was in this context that our government came back into power on December 17th. We have since repaired the damage to our external sector and markets have regained confidence in the last 2 months. Today our external borrowing costs have declined by over 200 basis points – assuming US$ 3 billion in fresh borrowings this year, that translates into a saving of over Rs. 10.8 billion. Foreign capital is now flowing back into the economy with Rs. 8 billion inflows into government securities since January – and the rupee has also appreciated 2.3% year to date. 

Therefore, a lot of the damage from the coup has been addressed and the economy has again been stabilized. We are now looking forward and focusing on rebuilding and re-positioning after the disruptions. We have three major economic policy priorities;

Ensuring our continued access to global capital markets at an affordable rate to enable us to re-finance external debt this year.

Uplifting economic growth through Enterprise Sri Lanka and Gamperaliya.

Continuing our reform programme to build competitiveness of the economy.

A lot of work has been done to ensure the first priority. A key element of this would be the continuation of the IMF programme which will signal to markets our continued commitment to disciplined, rules based economic management. The IMF staff mission is in Colombo this week continuing negotiations with officials of the Treasury and Central Bank. Our objective is to ensure responsible fiscal policies whilst enabling space to invest in targeted growth supportive measures. 

By targeted growth supportive measures, I refer primarily to Enterprise Sri Lanka and Gamperaliya. As you are all aware, Enterprise Sri Lanka is a programme to support private investment in small business, start-ups, and drive entrepreneurship. Sri Lanka has for too long relied on hand outs and artificial consumption booms to drive growth. 

These are unsustainable measures that have repeatedly resulted in balance of payments crises. Enterprise Sri Lanka will drive growth through private investment and expand economic capacity for future growth. We have already seen over Rs. 70 billion in new credit disbursements going into SME exports, agriculture, and the service economy. 

In parallel, Gamperaliya is a rapid rural infrastructure investment programme. The need of this was highlighted due to the droughts that adversely affected cash flows into the rural economy. By October 2018 Gamperaliya was fast tracking investment into rural roads, small markets, and irrigation – and importantly putting cash back into the hands of the rural economy. This is no doubt one factor that supported the recovery of consumption in the fourth quarter of last year. In fact given the success of Gamperaliya, one of the first actions of the illegal coup government was to halt the Gamperaliya programme by a cabinet decision. We have now resumed the programme with renewed vigor. 

Having stabilized the economy, I am confident that our twin programmes will support economic growth and consumption – which will in turn drive consumption growth and help all business activity as well. In parallel, our third priority is to continue reforms to enhance productivity and competitiveness. In fact in the latter part of 2018 we began to see results of our efforts as Sri Lanka moved up 11 places in the Doing Business index. 

There is a lot more to be done but it is clear that we are on the right path. We will continue to build competitiveness by liberalizing the economy where we see excessive controls and costs. We are also investing heavily in training and skills development – we will work closely with the private sector in building the relevant skills. More on this will be revealed in the budget.

Let me end by assuring you that all of our policy initiatives build on the spirit of the title of this session – “crafting and implementing evidence based policies”. Gamperaliya for instance includes investments in irrigation to improve climate resistance and reduce vulnerability of the rural economy. It includes investments in rural roads and markets to improve connectivity and integration into value chains that can uplift sustained income generation. 

At the same time, we are implementing a rules based economic framework that will create confidence in the sustainability of the policy outlook. The Inland Revenue Act for instance is an important piece of legislation that reduces individual discretion and builds in predictability. The same applies to a market based fuel pricing mechanism. We will explore similar practices in other areas that help instill certainty and predictability. 

We will continue to consult with industry in policy implementation and provide the necessary time frames for industry to adjust to such measures. I assure you that these principles will inform our budget process this year and the years to come. 

Thank you.        

*Remarks made by Mangala Samaraweera, Minister of Finance and Media at the inaugural meeting of the AmCham Breakfast Buzz, organised by the American Chamber of Commerce, held today (21), at the Hilton, Colombo.

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Latest comments

  • 2
    0

    Every time a disaster strikes a government and they come out of it either by election or other means they speak well and promise the Sun and the Moon and the Earth. But the Sun fails to shine due to ‘Dark Clouds’, Moon fails to glow due to man created ‘eclipse’ and the Earth Slips from its orbit. All these are due to Political Misadventure.

    • 0
      2

      Mangala, the fashion designer and Minister of Media Spin in this Miracle of Modayas who knows nothing about economics, Mangy, who is called Minister of Finance dances to Washington’s IMF tunes. Mangy was saying last year that Sri Lanka’s rupee should crash to 200 against the dollar as it was “over valued”– on IMF instructions as the rupee was being targetted by Washington’s proxy Nomura Ratings and in free fall.
      Mangy forgot that his job was to DEFEND the Sri Lankan currency and economic interests as he so wanted to please Trump and IMF and of course their puppet Bondscam Ranil. and so that Trumpland could buy cheap and asset strip Lanka’s Lands and Marine resources and transport infrastructure, etc.
      Sri Lanka is in the Washington Consensus Debt trap and IMF, WB-MCC bailout business because Trumpland is waging ECONOMIC WAR against the people of Lanka it wants to own and operate Sri Lanka in its Cold War against China’s presence in Indian Ocean– just like in Venezuvla.
      Trumpland wants to own and operate Lanka in the Cold War against China, and so the local UNP-SLFP-PP corruption game with US citizen and Avant Guard Gotabaya Rajapaksa on the other side, is played and sanctioned by the Washington Consensus that has perfected the art of Fake News and blaming China for Washington’s and IMF’s bail out racket and financial crimes…

  • 0
    1

    At last a GoSL minister accepts that the October 2018 ‘happenings’ was not a ‘crisis’ but was a coup d’état.
    Will the culture of corruption/nepotism/impunity be accepted as endemic?
    Is it too much to expect the need to bridle it?
    Please comment Mangala, on the plan to have a Lankan Navy retiree as the DG of Customs.
    .
    MR says that he cocaine use is here to stay because “MPs use it”. Good enough reason to tolerate cocaine use?

  • 0
    1

    A GoSL Minister now accepts that the October 2018 ‘crisis’ was in fact a coup d’état.
    While you are at it Mangala, please comment on the need to replace the DG Customs with an SL Navy retiree.

    • 0
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      “the government of the politicians, by the politicians, for the politicians, shall not perish from Lanka”

      The people are mere spectators ………… they do not matter ……….. just numbers in elections

  • 1
    1

    Anga, Anga! Well said – All these are due to Political Misadventure of Rascals Sirisena and MR. They are power greedy, and wanted to topple the legitimate government, and form an illegitimate government by way of foul methods- illegally, undermocratically and unconstitutionally -. The cousqences of their despicable actions, the country and the people are paying though their noses. But those who did the coup are still roaming scot free. It’s time for the civil society to hold Sirisena and MR accountable for these troubles and pains, and make them pay dearly for their sins.

  • 1
    1

    Anga, Anga! Well said – All these are due to Political Misadventure of Rascals Sirisena and MR. When Ranil and UNP refused to back him for the next term, Sirisenas wanted MR and JO support, using these horrible tricks. Sirisena and MR least bothered of the country or people, and only what they want is power by any means. They are power greedy, and wanted to topple the legitimate government, and form an illegitimate government by way of foul methods- illegally, undermocratically and unconstitutionally -. The cousqences of their despicable actions, the country and the people are paying through their noses. But those who did the coup are still roaming scot free. It’s time for the civil society to hold Sirisena and MR accountable for these troubles and pains, and make them pay dearly for their sins.

  • 1
    0

    the normal bla bla of a politician.may i ask this ministerhis qualification to be the finance Minister .according to the jvp this year budjet would be his last.,but the next Budget by a new government would be the same shit, because shit brings only shit.to hell with the law makers except the jvp.

  • 3
    1

    As soon as Mahinda Rajapakse was appointed the Pm, these people backed by his masters in the International community restricted everything to the new PM and the Cabinet. Now, UNP and the American Agent Mangala Samaraweera says it was a coup. UNP did not have any policies. they say they are running the govt day to day. that is why just 51 days made the system collapse. Why these cunning as they are big liars but stupid ministers and their PM won’t understand.
    Sri lanka is a small country. Sri lanka can not grow it rice, vegetables, fruits and species. but, talk about a big economy. Who are these american chamber of comemece. Is it all the Agents of the west looking for what we can buy in the auction. All cunning and cheating talk. In the middle of these things Mangala Samraweera has taken in one of his brothers. SO often I hear a Politician from UVA has moved into Colombo. that is Nepotism.

  • 0
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    This comment was removed by a moderator because it didn’t abide by our Comment policy.For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

  • 0
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    Sounds good, but the Indian deal was not mentioned although it features strongly. All is not sustainable enough for the IMF, isn’t it. Indeed, the IMF deal intends squashing us with India so if things don’t produce fast enough, Indian workers will be brought over to do the producing, instead of training our people at considerable expense. Likewise, money can flow in between countries so discrepancies can balance out. Now if the Indian deal is not there, all would be perfect.
    Ps btw. The cou-de-tar was because of the Indian move.

  • 2
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    Wonder what happened to those 132 Containers which this FM’s Coordinating Secretary ordered the DG to give clearance for quick delivery to the Customers.

    Now I know why the hurry.

    Thanks Mr FM for rectifying the October Economic Wreck
    And catch up with the Yahapalana Development and Turbo Charge our Gamperiliya which will transform our Mahavamsa .into a Federal Vamsa where every one will be living in equality in quality in all aspects for ever..

    Does it sound right?…
    BTW wonder how much this Uncle Sam is giving Managala for his Gamperaliya….

    • 2
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      KASmaalam K A Sumanasekera

      “Wonder what happened to those 132 Containers which this FM’s Coordinating Secretary ordered the DG to give clearance for quick delivery to the Customers.”

      You are confused.
      It was PM Jayaratne who wrote a letter to customs to expedite heroin scam which hits his office in late 2013 though at least 131kg (288lb) of heroin worth millions of dollars was seized on 30 August.

      You are getting old rapidly than normal.

      • 0
        0

        Dear Native,
        I thought it is Coke or Kerala Herb..
        Do they take Heroin too???..

        Do you have any idea of who are on that List which Handsome Ranjan has given to the Police and the Speaker which Uncle Kirra is going to check with Eran in Kotte?.
        -.
        I don’t think they can Inject that Stuff and Sit in Parliament for 8 to 12 hours unless they have a good snooze..
        I must watch the Live forecasts more often..

        • 1
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          KASmaalam K A Sumanasekera

          What is your favourite?
          Happy dust, Gravel, Blue heavens, China girl, Ever clear, Aunt Hazel, Discorama, Aunt Mary, Beannies, ……………………

      • 0
        0

        Native Vedda: This person said that HEads of the buddhist organizations, Heads of the Lion’ club and rotary club are the Drug barons. did he name names instead of with drawing those. Do you say he doe snot know it. UNP alone has 28 Drug addicts that includes the five ministers. They can be recognized from their face.

  • 1
    0

    There was no coup . the coup was by the Mangala’s funding agency and the International community, who asked Ranil to barricade inside the Temple trees and speaker to take over the parliament. the coup is an open secret. Even Mahinda Rajapakse is scared to open the mouth on that. That brave politicians we have. but, they say they are Dutugemunus.

  • 2
    0

    Mr. Samaraweera! We are fed up of you and your speeches since you always look for a scapegoat for your problems that you fail to find solutions for. For over 3 years, it was the Rajapaksa administration and now it is the coup.
    Poor people in villages call it not ‘coup’ but cuckoo!
    People have never seen such an inefficient government like your UNP Yahapalana? government.
    People have already told your government to “get lost” at the last local elections but you all have been clinging to power like leeches. What’s the use of giving lengthy lectures when you all have failed to keep your election promises made in 2015 and 2016?

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