- Govt. looks at $ 1.5 b from China and $ 400 m Indian swap for salvation
- Ministers insistent that Govt. consider floating rupee and going to IMF
- President informs P.B., Attygalle, and Cabraal opposed to floating rupee
- More ministers openly criticise Govt. policies, actions, and New Fortress deal
- SLFP continues to consolidate path to go solo at next round of elections
- JVP and Anura relaunch NPP movement, seek to rally opposition against Govt.
Turbulent times continue for the Government headed by President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa while it waits patiently and expectantly for the much-needed US dollar inflows to help the country’s dangerously low foreign reserves.
However, Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal is confident that the country’s reserves will close at $ 3 billion come Friday (31). He told The Sunday Morning last week that the country would receive some significant inflows.
Although Cabraal stated that the inflows were to be received last week, such “significant” amounts of dollar inflows had not reached the country’s reserves even by last Friday (24).
Cabraal had, however, refrained from revealing the source of the inflows, claiming to be bound by an undertaking of maintaining what he called “radio silence”.
Independent of Cabraal’s claim, Black Box learns that the Government is expecting the country’s foreign reserves to increase to over $ 3 billion in January 2022.
Highly placed government sources explained that the Government is in the final stages of securing $ 1.5 billion from China, and the CBSL believes that the inflow will take place this week, prior to the end of the year.
“We are at the final stages of the documentation process. All approvals have been received. It is only a matter of time,” the source noted. However, the source also observed that given the ongoing holiday season, the final documentation process could take till the first week of January to be finalised.
The country’s foreign reserves currently stand at $ 1.5 billion, including $ 400 million in gold reserves.
The receipt of $ 1.5 billion expected from China would increase the country’s foreign reserves to the $ 3 billion touted by Cabraal.
It is also reliably learnt that Sri Lanka expects to receive the $ 400 million South Asian Association for Regional Co-operation (SAARC) swap, which the Government has been negotiating with India since September, by January 2022.
A senior government minister said that the SAARC swap will be received by 10 January 2022.
The next would be the $ 500 million Indian credit line for fuel that has been in the pipeline since August.
However, the Government is confident of receiving the $ 1 billion credit line/financial assistance, requested by Finance Minister Basil Rajapaksa from the Indian Government during his recent visit to New Delhi, also by end January 2022.
If all goes as planned, the country’s foreign reserves would receive $ 1.5 billion from China and $ 1.9 billion from India ($ 400 million, $ 500 million, and $ 1 billion). When added to the existing $ 1.5 billion reserves, the final total could stand at $ 4.9 billion.
Hence, the Government is confident of meeting its debt obligations scheduled for 18 January 2022 without having to default on its obligations.
Nevertheless, uncertainty looms large like in all events until the promised assistance/facilities are received by the country’s reserves. As the age-old adage goes, “there could be many a slip between the cup and the lip”.
Until the foreign reserves situation sees an improvement, the country’s economy remains in the doldrums, leaving a majority of Sri Lankans in dire straits.
It is in this scenario that the Cabinet of Ministers once again discussed the ongoing economic crisis last Monday (20). The Cabinet meeting was chaired by the President after a lapse of two weeks.
After considering the Cabinet papers according to the agenda, it was Energy Minister Udaya Gammanpila who first raised the issues related to the economy.
He said that most of the ministers at the previous Cabinet meeting presided by Prime Minister Rajapaksa had proposed floating the rupee following a lengthy deliberation, while the option of seeking assistance from the International Monetary Fund (IMF) was opposed by Minister Vasudeva Nanayakkara.
Several ministers endorsed the statement, saying floating the rupee needed to be seriously considered.
However, President Rajapaksa said that his Secretary Dr. P.B. Jayasundera, Treasury Secretary S.R. Attygalle, and CBSL Governor Cabraal have opposed both floating the rupee and seeking IMF assistance.
The President explained that the officials had informed him that floating the rupee would result in another set of economic issues, including a further increase in prices, while seeking IMF assistance would also result in more issues.
The Cabinet Ministers then requested the President to call the three officials for the next Cabinet meeting for a discussion as the Cabinet held a view different to that held by them.
President Rajapaksa then issued directives for CBSL Governor Cabraal and Treasury Secretary Attygalle to appear before next week’s Cabinet meeting for further discussion on the crisis.
The Cabinet is to be convened again on 3 January 2022 and a final decision on several key economic issues is to be taken at the meeting.
The Cabinet that met previously on 13 December also discussed at length the growing crises in the country, and considered many options ranging from floating the rupee to selling the country’s gold reserves to boost liquidity in the foreign reserves. However, the meeting that concluded after nearly five hours of deliberation failed to reach any final solutions to address the issues.
Price hike
After months of charges and counter-charges between members of the Government that resulted in an initial split in the governing alliance, the Government announced the increase of fuel prices in the local market at midnight last Monday, to be effective from last Tuesday (21).
Accordingly, 92 octane petrol was increased by Rs. 20 per liter, 95 octane petrol by Rs. 23, auto diesel by Rs. 10, super diesel by Rs. 15, and kerosene by Rs. 10.
Energy Minister Gammanpila took steps to stay behind the scenes without making any announcements on the fuel price hike, following his predicament after announcing the last fuel price hike in July.
Co-Cabinet Spokesperson Minister Dullas Alahapperuma told the Cabinet press briefing last week that the Government has taken the difficult decision to increase fuel prices in the domestic market, well aware of the difficulties faced by the people, as there is no other option than a price hike of petroleum products, as the national economy is in a major crisis as never before.
He added that the price increase was done after consulting the Central Bank, the Power and Energy Ministries, and the Ceylon Petroleum Corporation (CPC).
Meanwhile, the Janatha Vimukthi Peramuna (JVP) stated that it was unfair to increase fuel prices at a time when global fuel prices were on the decline for the last two weeks.
Former JVP MP Bimal Rathnayake told a news conference that fuel prices were on the decline for the last two weeks due to travel restrictions imposed in European countries amidst the spread of the Omicron Covid-19 variant.
The JVP last week carried out islandwide protests on Thursday (23) and Friday (24) against the fuel price hike.
The Government, however, had followed the formula that, despite a decline in global Brent crude oil prices from $ 85 per barrel to $ 75, the amount per barrel was still higher than the price of a barrel when the country last increased fuel prices in July. A barrel was $ 68 when the government last increased fuel prices.
However, the foreign reserves crisis and its impact on the country’s fuel purchases continue as the existing Murban crude oil stocks in the country are expected to run out by the first week of January, with the Sapugaskanda oil refinery facing a risk of closure for the second time within three months due to the lengthy time involved in the shipping of Murban crude oil to the country. It is believed that a shipment of crude oil might not reach the country until the end of January 2022.
“The Sapugaskanda refinery is currently using Murban crude oil and the previous shipment of that crude oil received prior to the reopening of the Sapugaskanda Refinery earlier this month will most probably last only until the first week of January 2022,” Energy Ministry Secretary K.D.R. Olga told the media last week.
It is learnt that the supplier required the order for Murban crude oil be made 90 days in advance in order to secure the ship and book the cargo. However, the existing foreign exchange liquidity issues faced by the country are likely to further delay the order from being placed and the next shipment of crude oil will arrive in the country only by 23 January 2022.
The Energy Ministry had stated that tenders have been called for several alternative varieties of crude oils that can be used in the Sapugaskanda refinery in place of Murban crude oil and could be delivered within a short time after placing the order.
The refinery earlier halted operations on 15 November and recommenced on 7 December.
Energy Minister Gammanpila, meanwhile, held a discussion with Nigeria last Monday to obtain crude oil on long term credit.
The Minister stated in a tweet about the meeting he had with Nigerian High Commissioner to Sri Lanka Ahmed Sule.
Minister Vasudeva Nanayakkara has been quoted in the media last week saying that a fuel coupon system should be implemented to reduce the fuel usage in the county due to the current foreign currency shortage the country is going through.
The Minister had previously proposed that a special fuel tax must be imposed for luxury vehicles and that relief must be provided to motorcycle and three-wheeler owners, and fishermen.
Reserves situation
Until the promised dollar inflows reach the country’s reserves, the situation continues to look dire for Sri Lanka.
It is in such a backdrop that Minister Wimal Weerawansa made several public statements last week that Sri Lanka was to receive an inflow of $ 1.6 billion from China to the country’s foreign reserves.
The CBSL issued a statement last Wednesday (22) reiterating the Governor’s statements on the country’s foreign reserves, saying: “The measures being taken at present will ensure that by the end of 2021 official reserves will remain above $ 3 billion.”
“As articulated in the six-month road map, a number of foreign exchange inflows are envisaged in the very near term. Major foreign exchange inflows to the Central Bank include swap facilities with Middle Eastern and other regional central banks amounting to about $ 2 billion,” the CBSL stated.
The Central Bank further pointed out that the Government is also in the process of securing government-to-government financing, and syndicated loans, as well as loans from multilateral organisations. In addition, the expected foreign exchange facilities that were negotiated during the high-level visits abroad made by authorities are also progressing well.
“Further, the interventions made by the Central Bank on several facets of the foreign exchange market, such as an incentive scheme introduced for workers’ remittances, and the repatriation and conversion requirements on account of exports proceeds will improve the liquidity in the domestic market, thereby enabling the Central Bank to build up official reserves further. With the recent rise in departures for foreign employment and exponential growth observed in tourist arrivals, the external sector is expected to recover well in the period ahead and the pressures observed at present are expected to moderate with increased inflows to the economy,” the CBSL added in the statement.
However, remittances by Sri Lankan migrant workers, one of the main sources of foreign currency exchange for Sri Lanka, had seen a further decline in November 2021.
The CBSL reported that Sri Lanka witnessed a total of $ 271.4 million in foreign remittances in November 2021.
This is a significant drop of 55.6% in remittances in comparison to the $ 611.7 million that was recorded in November 2020.
Sri Lanka had seen a 17.9% drop in foreign remittances after it reported a total of $ 5.1663 billion in the first 11 months of 2021, in comparison to the $ 6.2912 billion reported during the corresponding period in 2020.
In October 2021, Sri Lanka had reported foreign remittances worth $ 317.4 million, in comparison to the $ 630.7 recorded in October 2020, which is a drop of 49.6%.
The Central Bank recently urged Sri Lankan migrant workers to use formal channels for remittances, adding that the use of informal methods, knowingly or unknowingly, will be considered as engaging in illegal activities.
Nevertheless, several leading business chambers in the country last week issued a fresh warning to the Government that businesses could be compelled to relocate operations if the current detrimental economic condition continues.
A joint statement was issued by 10 business chambers urging the relevant government authorities to speed up recovery efforts before it is too late.
“We wish to urge the relevant authorities in the Government to take quick remedial action to avoid the negative consequences as outlined above and put Sri Lanka back on track to stage a strong post-pandemic recovery to reach vistas of prosperity and splendor as envisioned,” the joint statement had noted.
The statement had further stated that the private sector was struggling to obtain foreign currencies to finance the much-needed imports.
According to the chambers, it is imperative for the ease of doing business to improve, as failing to do so will constrain the ability of the industries to attract foreign direct investments (FDIs).
Battle for survival
The country is also facing an increasing level of inflation, with the overall rate of inflation – as measured by the National Consumer Price Index (NCPI) in November – moving to the double-digit level for the first time in over a decade.
The Department of Census and Statistics (DCS) stated that November inflation at 11.1%, was an increase from 8.3% in October. The DCS stated that it was mainly due to the higher price levels prevailing in both food and non-food categories. The Year-on-Year (YoY) inflation of the food group has increased to 16.9% in November from 11.7% in October and the non-food group rose to 6.2% from 5.4%.
With the November inflation figure, the country has effectively ended the impressive track record of single-digit inflation by multiple governments for the past 13 years.
The spike in November comes despite CBSL’s recent monetary tightening measures through which it has attempted to pre-empt any build-up of inflationary pressures in the medium-term.
The November inflation rate was reported before last week’s fuel price revision, the impact of which will be felt in the coming weeks and months. However, the Central Bank is said to have maintained that fuel hike impact on inflation will be minimal.
While the Government is busy searching for much needed inflows to the country’s foreign reserves, masses at large continue to face the rising food commodity prices. Last week saw yet another increase in vegetable prices.
All-Island Economic Centre Collective President Aruna Shantha Hettiarachchi told the media last week that there was a shortage of vegetables in the market, resulting in a difficulty in meeting the increasing demand during the festive season, resulting in further price hikes.
He further explained that wholesale traders were purchasing vegetables directly from the farmers for exorbitant prices.
According to Hettiarachchi, traders were paying between Rs. 320-480 per 1 kg of carrots, cabbage was selling at Rs. 230-250 per head, leeks at around Rs. 260, beetroot at Rs. 370, tomatoes at Rs. 270, capsicum for Rs. 700, beans at Rs. 370, and green chillies about Rs. 800 per kg.
Apart from the continuously increasing prices, there is also a shortage of certain vegetables more commonly used during the festive season.
Meanwhile, Trade Minister Dr. Bandula Gunawardana last week launched a programme to distribute a special relief package of goods prepared by Sathosa for the upcoming festive season.
“These goods are priced at Rs. 2,751 at one retail outlet in the market and priced at Rs. 2,489 at another. Through Sathosa we are providing it for Rs. 1,998. We are planning to deliver these items to homes. This way we can eliminate the concern that these items were not available in Sathosa,” he told the media.
The public can order this relief pack by calling 1998. Sathosa had arranged for the distribution to begin last Monday.
The special relief pack includes 10 kg of samba rice, 2 kg of brown sugar, a 400 g packet of noodles, a 100 g packet of tea, 400 g packet of salt, 200 g of sprats, 2 bars of soap, a packet of papadam, and three facemasks.
Amending Yugadanavi?
The Cabinet of Ministers last Monday had yet again avoided discussion of the controversial Yugadanavi agreement signed between the Treasury and the US-based New Fortress Energy Inc. (NFE) for the third week in a row.
It was Minister Weerawansa who had raised the issue of the Yugadanavi deal. The Minister had asked the President if the agreement would be taken up for discussion in the Cabinet.
The President had responded saying that the issue needed to be discussed once the Finance Minister returned to the country.
Minister Weerawansa stated that the three Cabinet Ministers who have continuously opposed the Yugadanavi agreement had handed over amendments to be included in the agreement.
Meanwhile, during a political interview on television last week, Weerawansa alleged that a clause has been included in the Yugadanavi agreement where certain sanctions could be imposed on Sri Lanka by the US, the UK, and the EU if NFE becomes an aggrieved party in the agreement. However, independent analysts failed to find any such language in the version of the agreement that had been made public.
More details would be known once the Cabinet of Ministers discusses the agreement in detail. The Supreme Court hearing of the fundamental rights petitions filed against the Yugadanavi agreement is to recommence on 10 January 2022.
SLFP gets tough
The Government’s main coalition party, the Sri Lanka Freedom Party (SLFP), continues to take a firm stand against the governing Sri Lanka Podujana Peramuna (SLPP).
Former President and SLFP Leader Maithripala Sirisena recently told the party’s newly appointed organisers that the party would contest future elections separately and not in alliance with the SLPP.
The senior SLFP members have recently discussed that the party needed to strengthen itself and continue to build on its policies to face the next election.
However, the party seniors have decided to keep a close watch on the latest developments and to make a final decision on its next political move accordingly.
As a first step, several SLFP ministers have discussed the possibility of rejecting ministerial portfolios if a Cabinet reshuffle is held next year as currently speculated.
Meanwhile, backbench MPs of the SLPP have informed party seniors that they could no longer remain silent when the SLFP continues to criticise Government policies.
The backbench MPs have asked the government seniors to call on the SLFP seniors to stop the public criticism of the Government’s actions.
Increasing internal dissention
While the SLFP and SLPP continue to lock horns, several senior SLPP ministers continued to express their frustrations by publicly criticising the Government’s policies.
State Ministers Susil Premajayantha and Vidura Wickramanayaka are two recent government members to criticise the Government’s actions.
Premajayantha said the Government would not have had to face the challenges currently faced by it if the people with experience in the relevant fields were appointed to the proper positions.
He was critical of the many government members who had decided to travel overseas for the holiday season when the country was faced with a massive dollar shortage and unable to even make payments for essentials.
“They may be in possession of dollars. Although there’s no money to buy milk powder, LPG, fuel, and medicines, they may have gained access through banks or maybe they have other means of gaining access to dollars. I think this matter should have been discussed when the Government was being formed and not now. If persons with knowledge of the relevant subjects were taken into account, this situation would not have arisen. It is very clear now. We have also held several ministries and we know,” Premajayantha said.
State Minister Wickramanayaka meanwhile criticised the controversial Yugadanavi deal with US-based NFE.
He told the media recently that rather than speak of the violation of the collective responsibility of the Cabinet of Ministers, there needs to be a closer look at the Government’s failure to honour its pledge to the people. According to Wickramanayaka, the Government has not talked about the sale of public assets in its “Vistas of Prosperity and Splendour” policy manifesto.
A group of 10 (G-10) governing alliance leaders have already formed a People’s Council to take their objections over the Yugadanavi agreement to the public, while Ministers Wimal Weerawansa, Udaya Gammanpila, and Vasudeva Nanayakkara have already made submissions to the Supreme Court through a private counsel against the Yugadanavi deal.
Meanwhile, State Minister Premajayantha had also told the media last week that people should not hesitate to vote for the Janatha Vimukthi Peramuna (JVP). “They (JVP) are a clean party. They will build the country if people vote for the party. We have worked with them on several occasions. Although they left the Chandrika Government at the time, they did not work in a manner to dissolve the Government by allowing the UNP to gain control. It is only the JVP that is properly carrying out the role of the Opposition,” Premajayantha had said during a recent media interview.
NPP to the fore
The JVP last week turned a new chapter in its political path with the National People’s Power (NPP) led by the JVP holding a national convention last Monday in Pelawatte to present its proposals to salvage the country from the multiple crises faced by it.
NPP Leader MP Anura Kumara Dissanayake told the gathering that a collective struggle is needed for the recovery of Sri Lanka, akin to the ”Sammodamana Jataka” (tales of the Buddha’s past lives) tale of the birds who worked together to escape the net they were trapped in.
“All disasters that could possibly happen to a country have happened to this country. The economy is destroyed. There is a huge shortage of essential items. Over 1,500 containers carrying essential goods are stuck at the Colombo Port. It is doubtful whether we can pay our loans next year. Daily life is a question now. What is the point of a political and economic path that cannot uplift the daily lives of the people? We need a collective struggle to change this path. In the famous Jataka story, birds were stuck in a hunter’s net. Even though the birds tried to fly away one by one, they could not escape the net. In the end, one bird, who was a previous incarnation of the Buddha, told the birds that to escape the net, the birds must struggle together. That is what we must do as well,” he said while addressing the convention.
He stressed that the current disaster is a result of decades of traditional politics and economics that the country has adhered to.
“Traditional politics have not been able to change this country or develop this country. Why should you trust traditional politics anymore? This is not a natural disaster. This is the result of traditional politics. We have to implement a correct economic system in this country. There are many who want to leave the country, who however already have a good income, house, social standing, profession, and a vehicle. They are not leaving in desperate need of a job. They are leaving in search of social stability. They want to secure their children’s futures as they have no faith in the future that this country can give their children anymore. We need a collective struggle. The NPP stage is filled with those who are honest, committed, brave, and eager for this collective struggle. We are ready to take over this country and develop this country,” Dissanayake observed.
He said that Sri Lanka is not a country that should fall in this current manner and emphasised the need for its recovery, by denying the corrupt politics that have “dragged the country here”.
“Can corrupt politicians ever develop this country? Corruption’s impact is not temporary – the long-term impact is heavy as indicated by such projects as the Mattala Airport.”
He also outlined the NPP’s plan for economic recovery.
“We need to develop local production. The need for this is more evident than ever. When containers of imported goods are stuck at our ports, we have no milk powder or sugar in this country. Secondly, we must involve the public in this economy – a large percentage of this country is mere dust in this economy. They need to be involved in the economy.”
He also said that the country needs to fairly distribute its wealth as the top 10% currently enjoy 38.4% of the country’s wealth whilst the bottom 10% only have access to 1.1% of the wealth. “Is that just?” he questioned.
“Our geopolitical position is crucial for developing this country as an important economic hub. We have natural resources – an ocean eight times the size of this country, with a pristine coastline. We have a certain amount of resources in fossil fuels, three main climatic conditions, monsoon cycles for agriculture, and soil rich in nutrients. We have a huge population and that is the main resource we have. We must develop this resource through education, health, and sports,” he said.
Minority parties unite
Meanwhile, a group of Muslim and Tamil political parties met last Tuesday (21) to sign a joint letter on the areas to be covered in the proposed new Constitution.
Accordingly, a final agreement was reached on the common proposals on the devolution of power, and the document will be signed over the coming few days, according to Samagi Jana Balawegaya (SJB) MP and Tamil Progressive Alliance (TPA) Leader Mano Ganesan.
“We did not sign the document yesterday as we took some time to come to a common agreement, which took into account all aspects of the concerns of all the relevant parties. The written document will be compiled tonight and it will be signed in a couple of days, after which we will tell the media what exactly the common proposals are,” Ganesan had told The Sunday Morning.
He has said this document is not one that is signed “against the Sinhala population”, but one that seeks to ensure that the Tamil-speaking population of the country gets to live in a dignified political environment where their rights are protected.
Thamil Makkal Thesiya Kuttani (TMTK) Leader and Parliamentarian C.V. Wigneswaran, Tamil National Alliance (TNA) Leader and MP R. Sampanthan, Sri Lanka Muslim Congress (SLMC) Leader and MP Rauff Hakeem, Ganesan, and eight other minority party leaders were present at the discussion.
On 12 December, Ganesan said the aforementioned document will be handed over to the Government of Sri Lanka and to the international community, especially India.
Govt. asked to reflect
Meanwhile, the Global Tamil Forum (GTF) has called on the Government of Sri Lanka to reflect on recent messages conveyed by the US and the wider international community through the newly imposed sanctions by the US State Department on two former Sri Lankan Army officials.
“Sri Lanka is in the midst of many crises. The trajectory it is on – increasing authoritarianism and militarised governance; further marginalisation of Tamil, Muslim, Hindu, and Christian communities; and the debilitating financial crisis and the economic challenges engulfing the people – has the potential to seed new conflicts in the country. Marking Human Rights Day on 10 December, the US Government has imposed human rights-related sanctions on two Sri Lankan military officials. The US sanctioning these two officers appears more for the message it conveys to the Sri Lankan leadership, than for its direct impact on the individual officers,” the GTF said in a statement last week.
The US State Department sanctioned Sri Lanka Navy Intelligence Officer Chandana Hettiarachchi and former Sri Lanka Army Staff Sergeant Sunil Ratnayake for “their involvement in the gross violation of human rights” on Human Rights Day on 10 December.
The GTF noted that Hettiarachchi was spared from prosecution and that Ratnayake was pardoned after his conviction and called these “actions that are not consistent with international standards and expectations”.
“The Human Rights Day statement from US State Secretary Antony Blinken, articulated the Biden administration’s intent to put human rights at the centre of their foreign policy and their preparedness to use appropriate tools and authorities to draw attention to and promote accountability for human rights abusers and violators the world over. Clearly, the world is entering a new era where the regimes dependent on authoritarianism, militarisation, human rights abuses, and state-sanctioned violence can be expected to be checkmated on many fronts,” the statement added.
The US House of Representatives Committee on Foreign Affairs wrote to Blinken earlier this month, urging the State Department to focus on a “durable political solution” in Sri Lanka. Whilst the Foreign Affairs Committee emphasised that it is the Sri Lankan people who should lead the debate on the matter, supported and facilitated by the US, the outcome must meet the “needs of all Sri Lankan citizens, including Tamil and Muslim people”.
The letter came following a recent visit to the US by Tamil TNA MPs M.A. Sumanthiran PC and Shanakiyan Rasamanickam, along with representatives of the GTF, who met with a number of senior US political figures, including members of the Foreign Affairs Committee.
Commenting on the letter, the GTF claimed that it is evidence that Sri Lanka is on the “international radar”.
“Through its recent engagements with several countries, the GTF found the same sentiments and the willingness to play a constructive role in resolving many issues afflicting Sri Lanka. Their interests and commitments cover all aspects – promoting human rights and accountability, playing a supportive role in resolving the decades long political conflict, and embarking on impactful initiatives to help the people overcome their crippling economic challenges – whilst appreciating the strong interconnections among all. Presently, this appears to be the only silver lining in the dark clouds hovering over Sri Lanka. The GTF calls on the Sri Lankan people, civil society organisations, and their political leadership to deeply reflect on the messages directly or indirectly conveyed by many countries, particularly the US, and to appreciate the need for meaningful course correction with the long-term interest of all the peoples at the core.”