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Govt. rationing dollar reserves, as rupee shortage looms 

07 Aug 2021

  • Central Bank cites Section 64 of Monetary Law Act to ensure st
  • Basil warns Cabinet that Central Bank may soon face a shortage of rupees 
  • Govt. looking at other means including loans and export earnings for funds 
  • KNDU Bill deferred, as governing party MPs express concerns over clauses
  • Covid-19 spiralling out of control and hospitals declare emergencies 
  • Courts push back at Political Victimisation PCoI and deradicalisation regulations  
From the intensifying Covid-19 situation in the country to the growing economic crisis, the Government, headed by President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa, is hit by a tsunami of challenges.  The height of the economic crisis was, last week, witnessed during the weekly meeting of the Cabinet of Ministers. The meeting last week was a physical one, after ministers met via Zoom the previous week.  The reality check on the growing economic crisis was laid down before the Cabinet by Finance Minister Basil Rajapaksa, who a few weeks earlier, assured the Cabinet that he would require a few weeks to get the economy back on track.  In fact, when Ministers Bandula Gunawardana and Udaya Gammanpila expressed concerns over the depleting foreign reserves and ancillary issues including the obstacles to importing essential commodities to the country, a confident Basil dismissed their fears, claiming the country’s economic situation was not as dire as painted out to be.  Basil then claimed that the country had faced times when there were far weaker foreign reserves and yet managed its way out of crisis. He went on to blame a state bank and several officials from the Central Bank of Sri Lanka for “creating” an unwanted fear over the economy.  However, the fact that the country’s economic conditions have gone from bad to worse during the past few weeks was evident by the message sent to the Finance Ministry by the Central Bank.  Speaking at last week’s Cabinet meeting, Basil had informed the ministers that there were no provisions in the Treasury to meet any additional fund requests.  “Mama mudal nethi mudal emathi (I’m the Finance Minister without any money),” Basil had told the Cabinet, not for the first time.  Basil had explained that the Central Bank had informed that it could not support any more government expenditure, given the state of its foreign reserves, and had thereby outlined the clauses under Section 64 of the Monetary Law Act.  Following is what is outlined in Section 64 of the said Act:  Section 64 (1): Whenever the Monetary Board anticipates economic disturbances that are likely to threaten domestic monetary stability in Sri Lanka or whenever abnormal movements in the money supply or in the price level are actually endangering such stability, it shall be the duty of the board – 
  1.   To adopt such policies, and to cause such remedial measures to be taken, as are appropriate in the circumstances and authorised by this Act; and 
  2.   To submit to the minister in charge of the subject of finance and, if not prejudicial to the public interest, make public a detailed report which shall include, as a minimum, an analysis of – 
  3.   The causes of the anticipated economic disturbances, or of the actual abnormal movements of the money supply or the price level; 
  4.   The probable effects of such disturbances or movements on the level of production, employment, and real income in Sri Lanka; and 
  5.   The measures which the Monetary Board has already taken, and the further monetary, fiscal, or administrative measures which it proposes to take or recommends for adoption by the Government. 
(2) Without prejudice to the generality of the provisions of subsection (1), it shall be the duty of the Monetary Board to submit a report in terms of paragraph (b) of that subsection if at the end of any month the board finds that the amount of the money supply has increased or decreased by more than 15%, or the cost of living index has increased by more than 10%, of its level at the end of the corresponding month in the preceding year.  (3) The Monetary Board shall continue to submit further reports periodically so long as the circumstances which occasioned the submission of the first report constitute a threat to domestic monetary stability.  Hearing the latest development, the Cabinet of Ministers has expressed concerns over the economic situation.  The Central Bank has invoked Section 64 of the Monetary Law Act after releasing $ 1 billion to honour the Government’s commitments as at end-July. The Central Bank foreign reserves that started with over $ 5 billion this year were down to a little over $ 4 billion by end-June and currently stands at a little over $ 3 billion.  Basil had noted that without the support of the Central Bank, the Government would have to find its funds through export proceeds and other means including loans.  It is in this backdrop that the Government has extended a request to China to increase the amount of the $ 700 million loan requested from the China Development Bank (CDB).  Under the $ 700 million loan, Sri Lanka has already received $ 500 million with $ 200 million remaining to be received.  However, the Government has now requested an additional $ 150 million to be added to the remaining second tranche of $ 200 million, increasing the total to $ 350 million.  The Treasury is currently in the process of finalising the relevant documents and the monies are expected from the CDB within this month.  The Central Bank of Sri Lanka already has agreements with the People’s Bank of China for a $ 1.5 billion currency swap and for a $ 200 million currency swap with the Bank of Bangladesh.  From dollars to rupees  While the cabinet ministers were reeling from the foreign reserves issues and the country’s dollar crunch, Basil has hit the ministers with another bombshell.  The ministers were informed that it was not only the shortage of dollars that the Government had to worry about, but a possible shortage of rupees as well.  It is well known that the Government raises monies through the sale of Treasury Bills. Usually, around 90% of the bills are purchased by funds and private banks while around 10% is purchased by the Central Bank of Sri Lanka.  However, since of late, the Central Bank has been purchasing around 90% of the bills. The Central Bank finances these purchases by printing money.  According to Basil, given the impact money printing would have on the economy, the Central Bank was likely to reduce its Treasury Bill purchases, yet again affecting the Government’s additional funding.  Hence, the Government, in such an eventuality, would face not only a dollar shortage, but also a possible decline in rupee earnings.  It is at this point that Trade Minister Gunawardana had said that the country’s stockpiles of sugar and sprats were running out fast and we would face an imminent shortage if arrangements were not made to import necessary supplies.  However, given the economic crisis at present, the Government was left to prioritise imports to the country. Apart from food commodities, the next key commodity was fuel imports.  The ministers had then discussed that while sugar could be substituted by local products like jaggery and sprats with fish, there would be no substitute for fuel. A shortage in fuel supplies would mean a standstill in the country’s entire economic process.   Petroleum imports in the balance The current financial crisis has left the country’s impending petroleum imports in the balance.  While the country at present holds fuel that could last a little over two weeks, with no immediate shortage in the local market, a delay in opening letters of credit (LCs) for the due fuel imports would have an adverse impact on the local fuel supply.  The LC for $ 300 million for the next fuel shipment was to be opened early last week and the continuous insistence by the Energy Ministry resulted in the Treasury stating that the relevant documents would be prepared on Thursday (5). True to their word, the Finance Ministry has somehow ensured that the LC was prepared and opened by Thursday evening.  Also, requests made by the Ceylon Petroleum Corporation (CPC) from the Bank of Japan and State Bank of China for low-interest loans have been turned down by the respective banks.  The CPC is on the lookout for low interest loans to settle its dues to the Bank of Ceylon and People’s Bank.  However, the CPC, it is learnt, has received several proposals for a credit line that are in the process of being evaluated. Meanwhile, the corporation informed The Sunday Morning that it had sufficient stocks to last two months. Nevertheless, while the evaluation process is ongoing, the Government is left to find ways to scramble for funds to get the next fuel shipment to avoid a fuel shortage in the local market.  Hit by the wave  Amidst the ongoing economic crisis, the Government is also faced with a growing health emergency in the form of resurgence in Covid-19 cases.  The sudden increase in the number of Covid-19 patients being hospitalised has resulted in the capacity of the units allocated for the treatment of Covid-19 patients at hospitals reaching its limits. This has left many patients now without a bed. The situation in the state hospitals have gone from bad to worse with patients having to sleep under beds that are already occupied by two patients and on hospital corridors as well as in gardens.  A further indication of the growing catastrophe was evident with the declaration of emergency by two state hospitals last week. The Ratnapura General Hospital and the Karapitiya Teaching Hospital had reportedly declared emergency due to the sudden increase in Covid-19 patients. Although other state hospitals did not announce a state of emergency, their facilities were also stretched thin.  Health authorities, however, claimed that the state hospitals have been advised on preparing themselves for the increasing number of Covid patients.   Meanwhile, the Sri Lanka Medical Association (SLMA) last week said that there are around five times more Covid-19-positive people in the community than shown in the limited number of PCR tests conducted daily.  “The data shows that the virus is spreading at an extremely fast rate these days. In most hospitals in the Western Province, especially at the National Hospital of Sri Lanka (NHSL), there are many Covid-19 patients. We must understand that there are about five times more Covid-19-positive people in the community than shown in the PCR tests conducted daily, due to testing limitations,” SLMA President Dr. Padma Gunarathne had said.  Dr. Gunarathne had warned that the current surge of Covid-19 cases is most likely due to the highly transmissible B.1.617.2 Delta Indian variant and stressed that the public must be extra vigilant in its collective effort to prevent infection.  “The Covid-19 surge from the months of April to June was due to the B.1.1.7 Alpha UK variant of the virus. However, we are once again seeing a surge in cases and we can conclude that this is due to the Delta variant, particularly in the Western Province.”  Meanwhile, the Association of Medical Specialists (AMS) has expressed concerns over the current situation in the country and has requested the Government to revisit their Covid-19 restriction protocols in the wake of surging numbers of cases.  They especially highlighted those infected with the highly transmissible B.1.617.2 Indian Delta variant of the virus and an impending crisis due to the absence of a patient bedside oxygen (O2) delivery mechanism.  AMS President Dr. Lakkumar Fernando had noted that with the Delta variant being commonly detected, the increasing number of patients and, more disturbingly, an exponential rise in the number of oxygen-dependent patients, the system’s capacity to accommodate them has virtually reached its breaking point.  “With the increasing demand for oxygen, it will only be a matter of days before the supply is exhausted, and hence, deaths may result due to the lack of oxygen, or more importantly, due to the lack of an oxygen delivery mechanism to the patient’s bedside. This crisis will be equally applicable to both the public and private sectors. Therefore, the relaxation of Covid-19 restrictions, in our opinion, will be adding fuel to the fire. With such relaxations, the public who are already complacent in obeying the health guidelines will invariably start behaving like free birds, thereby aggravating the crisis further,” he has added.  Govt. defers KNDU Bill  Meanwhile, the Government last week decided to stop the growing protests over one of its proposed pieces of legislation – the Kotelawala National Defence University (KNDU) Bill.  The Bill came under fire from the education sector, Opposition political parties, and even members of the governing alliance.  Minister Chamal Rajapaksa informed Parliament on Wednesday (4) that the controversial KNDU Bill will not be presented in Parliament on Friday (6), as initially speculated.   “I believe that the parliamentarians and the public need more time to present their ideas. Therefore, I will not be presenting it to Parliament tomorrow (5),” said Rajapaksa, in response to a question posed by United National Party (UNP) MP Ranil Wickremesinghe.  However, the piece of legislation was already discussed at the parliamentary group of the governing Sri Lanka Podujana Peramuna (SLPP) and a decision was reached at the group meeting to defer the Bill to another date.  The parliamentary group met last Monday (2) at Temple Trees under the patronage of Prime Minister Rajapaksa.  After discussing the parliament agenda for this week, the proposed KNDU Bill was taken up for discussion.  A presentation was made about the proposed Bill by Defence Secretary Kamal Gunaratne and KNDU Head Milinda Peiris.  After listening to the presentation, the SLPP MPs started to discuss the proposed Bill.  Several governing party members, as well as alliance partners, expressed concerns and objections over the proposed Bill. Among those who expressed concerns over the piece of legislation were State Minister Susil Premajayantha and MPs Gevindu Cumaratunga, Weerasumana Weerasinghe, Seetha Arambepola, and Premanath C. Dolawatte.  Kumaranatunga had said that he would not support the legislation in its current form, as it was against his principles.  Premajayantha had given a lengthy speech analysing the contents of the Bill and had expressed concerns. Weerasinghe had noted several clauses that needed to be amended, as it posed a threat to the free education system.  Among those who had spoken in favour of the Bill was State Minister Arundika Fernando.  It was finally Dolawatte, who after intently listening to everything, had referred to the presentation witnessed by the group.  He had noted that if the university is functioning without any hindrance at present, it should continue to do so without pushing for controversial legislation that is further putting pressure on the Government.  Dolawatte had further explained that there was growing dissent among the public against the Government and the current Covid-19 situation had created many frustrations among the people. “We should therefore not push things that would further provoke the people,” he had said, adding that there did not seem to be a necessity to push for the KNDU Bill that has caused much controversy.  After listening to the views expressed by the governing party members and the debate that followed, Premier Rajapaksa had noted that a ministerial committee would be appointed to further study the piece of legislation and make observations with recommendations to be included in the Bill.  The Prime Minister had also observed that the proposed KNDU Bill would not be presented to Parliament until the observations and recommendations are received from this ministerial committee.  Hence, the KNDU Bill that was to be taken up in Parliament on Friday to receive House approval was deferred.  Meanwhile, a committee appointed by the Sri Lanka Freedom Party (SLFP) to study the KNDU Bill sent its report to President Rajapaksa last Tuesday (3).   The committee headed by SLFP Vice President Ranjith Siyambalapitiya had proposed that a parliamentary select committee (PSC) be appointed to study the KNDU Bill, taking into account the current situation in the country. The SLFP had also called for a decision on the Bill to be reached without inordinate delay. The report had also mentioned certain amendments that should be considered if the current Bill is to be continued without appointing such a PSC. Accordingly, it has been proposed that the KNDU should not be excluded from the regulation and control of the University Grants Commission (UGC).  The committee had further pointed out that while about 200,000 students qualify every year for university admission, less than 35,000 students are admitted to universities. Considering the matter, the committee had stated that the KNDU Bill should clearly provide for a fair system based on the Z-score system to admit undergraduates to this university, except for those employed in the defence sector, thereby protecting the educational rights of students who are unable to enter other state universities.  The report had further stated that it is appropriate to provide students from low-income families some loan facility since they must pay a fee to study at this university.   The SLFP had also proposed that most of the governing body members of the said university should be civil servants.  However, Federation of University Teachers’ Association (FUTA) President Prof. S. Banneheka had said that although several parties had suggested certain amendments, that was not the solution to the issue.   “Tinkering with this and bringing ad hoc amendments will not solve the issue. What we say is that there should be a clear demarcation between military education and civilian education, and unless the amendment pertaining to that is there, anything else is not acceptable,” he had said.  No money  Meanwhile, the trade union action launched by the principals and teachers over the failure to resolve their long-standing salary anomalies continues to gather momentum with several rounds of talks with the Government including the Prime Minister and Education Minister Prof. G.L. Peiris failing to resolve the issue.  The Cabinet of Minister last Monday discussed the issue of the salary anomalies in the education sector and agreed in principle to resolve the issue through the 2022 Budget since the Government was not able to allocate any additional funds for state sector salaries.  It is learnt that the Government would require over Rs. 50 billion if it is to rectify the long-standing salary anomalies in the school education sector. According to Treasury statistics, the Government spends close to Rs. 800 billion on state sector employees and an increase in salaries of principals and teachers would push this amount to around Rs. 1,100 billion.  The ministers have also discussed that the issue of salary anomalies faced by the principals and teachers was not the doing of the incumbent Government, but an issue that had accumulated over the years under several governments.  Minister Gamini Lokuge, who provides leadership to SLPP trade union movements, had said that while the right to protest and strike were vested with the trade unions, the Government at this point, had no other alternative but to explain the present situation to the protesting trade unions.  Claiming that the Government is not in a position to provide immediate solutions to the demands of the teachers, Education Minister Peiris had told Parliament last Tuesday (3) that the Government was planning to provide practical solutions to the issues faced by all public servants through the budget.  He had said the Government has admitted that the teachers’ salary should be increased.  The Minister had said the stance of the Government on resolving the issues of the teachers was that the matter should be discussed with the National Salaries and Cadres Commission, as it could lead to other complexities within the parallel services.  “We hope to take suitable solutions considering the whole public sector in the next budget. We cannot take immediate action. We are facing an economic crisis due to the Covid pandemic. We have to admit that. Considering all these matters, we hope to provide practical solutions to issues of the whole public sector through the November budget,” he had said.   However, the trade union representatives who spoke to the media after the latest failed discussion with Minister Prof. Peiris have said all the trade union actions including the withdrawal from online and face-to-face teaching activities at regional learning centres as well as examination duties, would continue.  Ceylon Teachers’ Union (CTU) General Secretary Joseph Stalin, speaking to the media, had said: “Our request is to implement the recommendations contained in the report of the Subodhini Committee which was appointed to resolve the teacher-principal salary anomaly issue. However, during the discussion, neither Prof. Peiris nor any other official stated whether those recommendations would be implemented or not. Simply, the Education Ministry has no position on how the issue should be resolved.”  Meanwhile, the teachers’ and principals’ trade unions have also requested Education Ministry Secretary Prof. Kapila Perera to withdraw the circular issued on 1 August, requiring all academic and non-academic school staff to report for duty.  Commenting on this, Stalin had claimed the relevant circular was an attempt to sabotage the trade union actions that are currently being carried out.   Meanwhile, Ceylon Teachers’ Service Union (CTSU) General Secretary Mahinda Jayasinghe had told the media that there is no other option but to continue trade union actions against the backdrop of the Government, on a daily basis, delaying the provision of solutions for the teachers’ and principals’ issues.  “We are ready to negotiate whenever necessary, but Prof. Peiris, Prof. Perera, and the Government have to come up with their plans. However, so far, they have not come up with any plans,” he had added.  A committee comprising officials from the Finance Ministry and the National Salaries/Pay Commission (NSC), has been appointed by President Secretary Dr. P.B. Jayasundara to look into the issues of the education sector, including the teacher-principal salary anomaly issue, according to the trade unions.   During a protest staged by the teachers’ and principals’ trade unions in front of the Presidential Secretariat on Wednesday (4), the trade union representatives had been informed by Presidential Secretariat officials of the appointment of the said committee.  Meanwhile, on Friday, the teachers’ and principals’ unions announced the suspension of their protest march from Kandy to Colombo in light of the Covid-19 situation in the country. Focus on de-radicalisation regulations The Supreme Court last Thursday (5) issued an interim order that suspends the implementation of the Prevention of Terrorism (de-radicalisation from holding violent extremist religious ideology) Regulation, No. 1 of 2021, until the next court date.  The case that was filed in April 2021 was taken up on Wednesday and Thursday. The case was heard before a three-judge bench comprising Justices Murdu Fernando, Yasantha Kodagoda, and Shiran Gooneratne.  The court issued a temporary stay until it hears all matters pertaining to it, on 24 August. The move was welcomed by detractors of the regulations, as a positive development, as they argue that the problematic portions of the regulations cannot be implemented until the case is decided.  The Centre for Policy Alternatives (CPA) and its Executive Director Dr. Paikiasothy Saravanamuttu, in April, had filed papers challenging the Prevention of Terrorism (de-radicalisation from holding violent extremist religious ideology) Regulations, No. 1 of 2021, published in Extraordinary Gazette No. 2218/68 dated Friday, 12 March 2021.  While the petitioners have maintained the need to integrate a process of rehabilitation into the criminal justice system, they have noted that the impugned regulations violate several of the constitutionally guaranteed fundamental rights of the petitioners as well as of the general public.  The petitioners have argued that the impugned regulations serve to enable the denial of due process, due judicial protection and a fair trial, and result in an arbitrary deprivation of liberty, entailing infringement and/or imminent infringement of the fundamental rights guaranteed under Articles 12(1), 13(2), 13(3), 13(4), and 13(5) of the Constitution.  They have also argued that the impugned regulations, and the broad language contained therein, entail provisions that may result in degrading treatment of persons and deny persons the safeguards provided by law in cases of detention and imprisonment and thus and otherwise entail infringement and/or imminent infringement of Articles 10, 11, 14(1)(a), 14(1)(c), 14(1)(e), and 14(1)(f) of the Constitution.  The petitioners have also maintained that the impugned regulations are ultra vires, as they have not been promulgated by the proper authority and thus and otherwise entail infringement of Article 12(1) of the Constitution.  They have further argued that the impugned regulations have the effect of conferring and/or transferring discretion required to be exercised (as may be duly conferred upon it by law) by the judicial arm of government, to the executive arm of government in a manner inconsistent with Articles 3 and 4 of the Constitution, and thus and otherwise entail infringement of Article 12(1) of the Constitution.  The petitioners have prayed for inter alia declarations that the impugned regulations violate the fundamental rights guaranteed by the Constitution, and that they are null and void and of no avail in law.  Meanwhile, Senior Counsel Pulasthi Hewamanna, appearing for Ambika Satkunanathan in the Supreme Court (SC), has said that the regulations violated Article 12 (right to equality) and Article 14 (freedom of speech, assembly association, etc.), of the Constitution. In the interest of time, the submissions were kept brief. In respect of Article 12, the counsel submitted that when there is discretion vested upon a public officer, such discretion must be guided with rules in place, and there is no unfettered discretion vested upon such officials. The counsel stated that in the absence of rules, discrimination is inevitable, and uncertain, vague, and unclear procedures and criteria tend to create a very big and real scope for discrimination violating Article 12(1) of the Constitution.  He had said in respect of Article 14(1), the counsel submitted that the public authorities should not assume guardianship of the public mind, and that the regulations have a chilling effect on freedom of expression. The counsel reiterated that the vague and uncertain terms in these regulations may allow an arbitrary exercise of power, in that, it will not be limited to an offence under Section 2(1)(h) of the Prevention of Terrorism Act (PTA) but will also mean a person attending a peaceful meeting can be arrested.  The petitioner had challenged that the regulations made under the Prevention of Terrorism (Temporary Provisions) Act No. 48 of 1979 titled “Prevention of Terrorism (de-radicalisation from holding violent extremist religious ideology) Regulation, No. 1 of 2021, as observed by the Court itself, had been made by the President under section 27 of the PTA although such power is given to the Minister of Defence.  The counsel had also made several preliminary observations about the structure of the regulations. It was that by Regulation 3, any person connected with any offence under three key instruments: (1) the PTA (2); Prevention of Terrorism (Proscription of Extremist Organisations) Regulations, No. 1 of 2019 published by Gazette Extraordinary 2123/3; and (3) Emergency (Miscellaneous Provisions and Powers) Regulation, No. 1 of 2019 may be subjected to rehabilitation. The third, emergency regulations, are in fact no longer in force.   RW’s petition  Meanwhile, former Prime Minister Ranil Wickremesinghe last week filed a writ petition in the Court of Appeal seeking an order to stay the operation of finding and recommendations of the Presidential Commission of Inquiry (PCoI) appointed to probe incidents of political victimisation.  Filing this petition through Attorney-at-Law Dinesh Vidanapathirana, Wickremasinghe has sought an interim order suspending the operation of the findings and recommendations contained on pages 17-51 relating to the petitioner.  In his petition, Wickremesinghe had cited the commissioners of the PCoI; (Retd.) Supreme Court Judge Upali Abeyratne, (Retd.) Court of Appeal Judge Chandrasiri Jayatilake, and former Inspector General of Police (IGP) Chandra Fernando, Commission Secretary Pearl Weerasinghe, and President’s Secretary P.B. Jayasundara as respondents.  Wickremesinghe had stated that on or about 4 September 2020, he had attended the PCoI and was informed by the commission that he was not being treated as a respondent, but only as a witness.  The petitioner had said he was led to believe that no findings and recommendations would be made against him.  However, the petitioner had said the PCoI report contains findings and recommendations or materials about the petitioner.  The former Prime Minister had stated that there has been a complete violation of the rules of natural justice and no proper hearing has been given to him during the presidential commission inquiry.  He had further alleged that no proper rules of natural justice have been followed during the inquiry and that findings and material collected against him are unreasonable, irrational, and arbitrary.  Meanwhile, the Court of Appeal last Tuesday, had issued an interim order staying the operation of recommendations made by the PCoI in relation to Senior State Counsel Janaka Bandara.  The Court of Appeal had issued notices on several respondents including the members of the PCoI on Political Victimisation returnable for 29 September in connection with a writ petition filed by Senior State Counsel Janaka Bandara.  The petitioner had named PCoI appointed to look into alleged political victimisation of public servants Chairman Upali Abeyratne, its members Daya Chandrasiri Jayathilaka and Chandra Fernando, its Secretary, and the Attorney General (AG) as respondents.    The Court of Appeal three-judge bench comprising Justices Nissanka Bandula Karunaratne, Devika Abeyratne, and D.N. Samarakoon had further issued an interim order to stay the operation of the Cabinet decision dated 18 January 2021, in respect of a complaint against Senior State Counsel (SSC) Janaka Bandara.  The Court of Appeal had observed that these interim orders will be effective until 29 September regarding the recommendations made against SSC Janaka Bandara.  In his writ petition, SSC Janaka Bandara has sought an order staying further proceedings of the PCoI regarding a complaint made by Avant-Garde Chairman Nissanka Senadhipathi. 


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