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Fiscal consolidation a must; if not, must opt for IMF programme
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Government must move from investments in infrastructure to human resources
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Competitive export market will be lost if SL loses EU GSP+ facility
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Government trying to address solvency issue with liquidity management tool
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Shift to organic fertiliser good move; Government needs plan to meet goal
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Port City project is long term, can't expect short-term benefits
"The issue I have with the Government is that it is responding issue by issue. When a problem comes up, they are trying to find a solution. The economy can’t be managed in that manner since the economy is very integrated. There is a macroeconomy to consider to understand the fundamental big picture" Former State Minister of Finance Eran Wickramaratne[/caption]
How can the country come out of the mess it finds itself in with the debt crisis and Covid-19?
Sri Lanka’s national debt has been gradually rising and when we consider our debt obligations, we can say debt is 101% of Gross Domestic Product (GDP). That basically means the Government had understated it.
There are two reasons – there has been increased debt in state-owned enterprises and we know that most state-owned debt is a government obligation. The Government has given guarantees because certain enterprises won’t be able to pay that debt. The other issue is that the present accounting policy is not a government-accepted one.
We have a governance issue in the rule of law. The independence of the Judiciary is absolutely important. You can’t have the Executive overturning judicial decisions like what happened very recently. We must meet our international obligations, as past Sri Lankan governments over the last 25 years have become signatories to several international treaties. We need to widen the democratic space and freedom of the media. The country needs to build the Sri Lankan identity. If justice is delayed, justice is denied. People have been denied justice. In the present, we have also been isolating communities in our country. This is a multi-racial country and we need to accept that principle.
The economy can’t be isolated; there has to be socio-political stability. With or without the International Monetary Fund (IMF), we have to go for fiscal consolidation. If we don’t do that, we are compelled to go for an IMF programme eventually.
Increasing tax revenue is also an absolute necessity. When we talk about investments, the Government must move away from infrastructure investments and must invest in human resources. If we look at health, there has to be adequate ICU (intensive care unit) and HDU (high-dependency unit) staff, and if you look at education, we need to have high-speed internet coverage to conduct online education. Instead of building highways, we need to provide students with tabs and other necessary equipment to continue their education.
Restricting imports will also not help to save our economy, as 80% of our imports go into intermediate goods and capital goods. If we slow this down, it will basically affect the economic growth and the GDP.
The Government also has to invest in developing agriculture technology and small-scale businesses, as they are prime forces behind the Sri Lankan economy.
Concerns have been raised after the European Parliament's recommendation to withdraw GSP+. If it happens, what will be the possible impact on the country?
During the former Government’s time, we went and negotiated it and we got it restored in 2017. This happened after a long period of negotiation. After it got restored, Sri Lanka’s exports immediately had an advantage. Sri Lanka’s fisheries industry benefited from it. Basically, textiles to rubber products and various other industries benefited from the GSP+. The apparel sector benefited by 60%, and there is still room to grow there as well. The GSP+ makes Sri Lanka’s pricing more competitive, since we are competing with other countries who also have the GSP+ benefit and are selling to those markets.
So, if we don’t have that benefit, either we have to decrease our price levels or we have to forget GSP+ and compete on our own in those markets. If we are unattached from those markets, we will lose foreign exchange and it is going to be a huge loss for the country. If we lose the GSP+, we won’t be competitive in the export market and that will lead to a decrease in our income and jobs.
The European Union is really questioning Sri Lanka’s international obligations where we are signatory to so many different treaties, and the Sri Lankan law needs to be in line with those international treaties and obligations. They are not asking for anything new. So, in that manner, why are we losing this benefit? Why should we, with false pride, lose an economic benefit? We have to understand that this economic benefit directly transfers to the common people.
If we had made a commitment or a promise, we should be able to fulfil it. Even under our Government, although we restored the GSP+, we kept the discussions going. We had professionals in the Foreign Ministry handle these things. One thing that marked the difference between the present and the former Governments is foreign service professionals have been side-lined by the present Government to make room for political appointees.
What was the outcome of the recent meetings the SJB had with international envoys?
I participated in these meetings. One of the things that we made very clear to them was, with the Covid-19 pandemic, we want to support the Government in securing vaccines. There was a shortage of 600,000 Oxford AstraZeneca second dose vaccines. The international communities’ response to this matter is very encouraging. This is a government that has not been able to even secure 600,000 AstraZeneca vaccines.
What is your idea on the need to repeal and replace the Prevention of Terrorism Act (PTA)?
I would like to draw specific attention to the PTA. It needs to be overhauled; that is not only because it needs to be in line with our international commitments but the law is being used for injustice. This law is being used against the people who have a critical view of the Government or who hold different views. So, this law needs to be reformed.
If I may just single out one person presently, it is Rishad Bathiudeen, who is a leader of a political party and he has been in Parliament for over 20 years. He has been held under this law. This law is being misused. This is not because international communities are telling us; we are saying that this must be reformed. The PTA law does not reflect a democratic, free society.
According to the current PTA law, a person can be detained for up to 18 months. However, the Sri Lanka Law Commission came up with a report and recommended that this be amended to 30 days’ detention, and then move for a judicial review to release or remand them. The commission report also mentioned that suspects must be produced before a judge within 72 hours. The other thing the report mentioned is that confessions to the Police should not be admissible in a court of law. However, a confession can be made to a magistrate, which is admissible.
Forex reserves of the country have come down to a low level. In this situation, how can we manage our imports?
At the end of 2019, the foreign reserves were about $ 7.6 billion and then, within a year, it had dropped to nearly $ 5 billion. We saw that on 31 May 2021, it had dropped to $ 4 billion. So, within a period of one year and five months, the reserves had drastically dropped. Sri Lanka has been knocked out of the international markets with rating agencies downgrading Sri Lanka due to the present situation.
However, the question is how we are going to boost our reserves. The Sri Lankan Government is trying to negotiate foreign currency swaps with its international counterparts. However, judging by international practice, these foreign governments want to have our arrangements with the IMF. In that sense, it is not clear whether the Government will be successful with these swaps. On the other hand, we have payments to be made. On 27 June, we had to pay $ 1 billion and on 30 June we had to pay $ 180 million.
Chances are already very low, as we have to manage $ 4 billion for the importation process and other payments. It is very likely to decrease this amount by August. The real issue is that we are trying to address a solvency issue through the swap mechanism which is really a liquidity management tool.
The Government is saying that by increasing the fuel prices, they could manage the high demand for importation of petroleum products and that could save the limited forex reserves in the country. Do you think it is the best option right now?
The Government admitted that they have a forex issue. The issue I have with the Government is that it is responding issue by issue. When a problem comes up, they are trying to find a solution. The economy can’t be managed in that manner since the economy is very integrated. There is a macroeconomy to consider to understand the fundamental big picture. All these issues are microeconomic challenges. International prices of fuel are one variable that is out of our control; therefore, the consumer has to decide their products based on the prices mentioned internationally. That’s a basic principle and that was why, during the former Government’s period, we came up with a fuel price formula. At that time, the Opposition laughed at us. International fuel prices are changing virtually every day. In our country, a large part of the people are not aware of how these things happen in the international market and how much they are paying for fuel. That was why we introduced the fuel price formula to assist the people to understand the whole situation and to make decisions. However, the economic management in the present Government is very ad hoc and non-scientific.
What is your opinion on the Government's decision to ban private imports of Covid-19 vaccines? What's the most practical way to procure vaccines?
To be fair by the Government, that is not unusual, since globally, vaccination is done by governments and health ministries. However, this is an important question that should be answered by the health professionals in Sri Lanka as well as international professionals. It should be discussed whether the non-governmental organisations and private sector have a role in this; whether governments can regulate these things if it is handed over to non-governmental organisations and private sectors.
What is your opinion on the Government's move to ban chemical fertiliser?
It is a very good goal. However, to reach that goal, the Government should have a plan, as it is a long process of converting. If we take organic fertiliser consumption, globally, it is less than 2%. There are about 16-17 countries that base their agriculture on 10% organic fertiliser. It is not an easy conversion. There are developed countries that are dependent on chemical fertiliser and they don’t have the medical conditions that Sri Lanka is experiencing due to the use of chemical fertiliser.
I think we have to create a long-term plan. If we try to do this immediately, as announced by the President, it will be a disaster. From the economic point of view, we spend about $ 450 million on the import of fertiliser. So, if we use these funds to import fertiliser, which would not provide adequate harvests, there will be a food shortage. Then, we have to import essential food items; and when we import these things, the quality of the food is out of our control. We also have to import food grown by using chemical fertiliser.
The goal is good but the plan is ridiculous. With poor economic management, it would be a huge problem. According to my view, we should have a 10-year plan and a 30-year plan; mid-term and long-term plans. That way, we may be able to do a reasonable conversion from chemical to organic fertiliser.
What is your view on Sri Lanka's current foreign policy?
It is a disaster. Virtually, there are no international friends. Our main export markets are in Europe and we certainly have to protect our export markets. Then, we have China and India – the two global focuses in Asia, and we have to make sure that with our foreign policy, we don’t get sandwiched. We are in a developing cold war in which we must not become a pawn. Former Prime Minister Sirimavo Bandaranaike positioned Sri Lanka as a non-aligned country and working further on that concept, we should have a non-aligned foreign policy. We need to be integrated into the rest of the world and foreign professionals should be at the forefront, which the Government has completely failed in at present.
Will the Port City be able to change the country's economic history?
The Port City project is a long-term project. I don’t think we should expect short-term benefits out of it. We have opposed the Colombo Port City Economic Commission Bill on the basis that some of the clauses are questionable. Sri Lanka’s sovereignty was at risk.