- Cabraal says GoSL does not need IMF to establish fiscal discipline
"It’s not a question of whether you have $ 1 or $ 25 to repay. What is needed is the ability to repay. We have given a very firm assurance that we can repay and the amount of foreign currency reserves that we have is sufficient to do that. Having said that, I’m not satisfied with the amount of reserves we have" Money and Capital Market and State Enterprise Reforms State Minister Ajith Nivard Cabraal[/caption]
Economists have said that Sri Lanka has $ 6 billion of debt serving/repayments to do this year including sovereign bonds, currency swaps, development bonds, and the principal and interest of loans. Is this $ 6 billion figure accurate?
It’s not a question of whether you have $ 1 or $ 25 to repay. What is needed is the ability to repay. We have given a very firm assurance that we can repay and the amount of foreign currency reserves that we have is sufficient to do that. Having said that, I’m not satisfied with the amount of reserves we have. In 2014, when I was the Governor of the Central Bank, we had $ 8 billion of foreign reserves. The governors who came after me borrowed $ 10 billion, so that together should have been $ 18 billion. But what we received, once we came back to power, was only $ 7 billion – less than what I had left (at the end of my term). So that means we have to now again regroup and accumulate. This $ 6 billion or $ 5 billion is not the criteria for me now. We need to accumulate to come to at least $ 10-15 billion. We need to have $ 15 billion in our reserves, but not by borrowing. If we don’t have that, we will be always left behind. That's why we are doing a massive operation now to increase our inflows by increasing exports and by reducing our imports; increasing our non-good exports like services, tourism, and remittances. You would have noticed that we are giving Rs. 2 per dollar for remittances so the people will be inclined to send it back here. All this is done in order to increase our reserves. I’m confident that when these things are moving this way, we will be in a position not to talk about $ 6 billion but probably about $ 16 billion, which is the influence that we should have, and our country can attract that if we do it diligently.
Several economists have said that Sri Lanka will not be able to repay the $ 6 billion without an International Monetary Fund (IMF) programme or debt restructuring. Do you agree?
It’s not $ 6 billion, it’s about $ 4.5 billion. I don’t agree at all. We can do it without the IMF. The Opposition is saying that based on the same model that they followed during their Government. That is the problem. They just followed a model which was creating debt. They had no imagination. They did not know how to manage it. They depreciated the rupee and increased the interest rate. Everything that shouldn’t have happened in an economy happened, so that is why they got into that serious trouble. Fortunately for this country, they were defeated and now we have an opportunity to put things right. They don’t have the ability to understand the way it can be done. We know how to do it and we will do it. We have taken some tough decisions. We even went to the extent of curtailing some imports, but that was the strategy in order to get through this period. Once we get through this, we will be on much better footing, but for the time being, we have to strengthen ourselves.
Have you decided that you will not turn to the IMF no matter how desperate Sri Lanka’s economic situation gets?
Very clearly, we don’t need to go to the IMF. It’s not that we cannot. I went to the IMF at that time during the world crisis (the financial crisis of 2007–2008). We have no qualms about going to the IMF. But at the moment, we have no reason or necessity to go. People must understand that we also have teams of people who have some knowledge about this. They took this country from a $ 24 billion dollar economy to a $ 79 billion economy in just nine years. In five years, the former Government brought it down from a $ 79 billion economy to an $ 82 billion economy. So obviously, there is something lacking in what they have been thinking and doing. I don’t like to criticise them, but they haven’t been able to deliver as much as we have. We have delivered. So we know exactly what to do now, and going to the IMF is not what we need now. What we need now is to improve our inflows, which is what we are doing. We will get through this period and settle the debt, increase the inflows, and bring back stability.
We said we would reduce the interest rates. We did that. We said we would keep the rupee stable, we have done that. The previous Government said they would reduce the interest rate and keep the rupee stable, but they could not. They did something wrong and we have done something right. I suppose that’s what these people have to understand – that we know how to handle the economy and we will handle it that way and the results will be seen.
Are you opposed to the IMF? If so, why?
No, I’m not opposed. I just don’t want to go to the IMF. If you don’t want to go to a particular hotel, it’s not that you have anything against that hotel. You just don’t need to go there.
Is it because the IMF insists on fiscal discipline and responsibility and this Government does not want to be fiscally disciplined and responsible?
We have a certain level of fiscal discipline that we have put in place. We didn’t even take the loan from Japan to build the LRT (Light Rail Transit) because we had fiscal discipline. We didn’t want to borrow just because we can borrow. The previous Government went and borrowed $ 10 billion dollars, and our total borrowing was only $ 5 billion. They made it $ 15 billion and that does not show fiscal discipline. We have shown our fiscal discipline and we are not unnecessarily borrowing. Our borrowings are at much lower rates than at which the others borrowed. That is fiscal discipline. Whether you go to the IMF or not, is the kind of decision we can take. I have nothing against the IMF, but the IMF is not something which is an option for us. Some people are fixated on that. They do not understand because they have not run an economy. They think that the IMF is a mantra and that it will come in and fix everything. The IMF’s prescriptions have not helped a single country to go up to a better level. We are the only country that went through a programme and tasted success in 2009 and 2010, and that too only because we did it our way. But most countries have failed after they went to the IMF. We have provided economic stimulus and made sure the government is running. Discipline is visible from the actions. Have we defaulted on a single payment? We pay Rs. 245 billion of the last Government’s arrears to contractors. Is that an action of a government which is not having fiscal discipline? We are not allowing unnecessary expenditure to take place. We are carefully handling it. We are careful about borrowing. All this is due to the discipline that we have inculcated in ourselves. It is not imposed by some colonial power. Maybe this IMF mentality is because some people want to have a colonial hand to come and give us guidance. We are a mature nation and we will manage it.
You have said India will support Sri Lanka financially, but they have insisted on an IMF programme in order to provide any further support. So why are you so confident that India will provide support without us seeking the IMF?
There was a discussion going on with India about a currency swap, but with Covid, India is also going through a difficult period. So, when another country is going through a difficult period, they have their own priorities. They asked for the money that they had given, and we promptly repaid. I think it’s not fair for us to ask for any assistance of that nature at this time. We fully understand their situation.
With the relationship between India and Sri Lanka being damaged over the past few weeks, do you think India will support us at all?
What happened was that an alternative solution was offered to India. Overall, there has been an element of concern, which I appreciate, but that is now behind us. We have a cordial relationship and I have a feeling that we have a lot of work that we need to do with India and we are confident that we can do all that with India. In fact, we are bringing a lot of vaccines from India shortly and India has been generous enough to provide us with the vaccine before their people are fully vaccinated. That is a good sign and we appreciate that.
The European Union (EU) a few weeks ago said that trade is not a one-way street and that Sri Lanka can’t continue to maintain import restrictions and expect other countries to buy Sri Lankan exports. Is there a danger of other countries banning our exports?
There was no talk about banning. When you talk about concerns, every country likes to have their exports bought by someone else. Sometimes, if we don’t have enough items to buy from them, we may not import from them. We have lost out on certain markets in Europe as well because some of those companies that were importing have now gone bankrupt. This is how the world works. Although we may express hope that there will be more people coming and goods being imported and exported, it doesn’t work that way in the context of the global situation.
The US is our biggest export market. Are you sure that they will not impose sanctions on Sri Lanka because of our human rights issues?
Absolutely not. The US Government itself last year called the UNHRC (United Nations Human Rights Council) a cesspool of corruption. They are not driven by the actual truth. We will explain our position clearly. I don’t foresee it going beyond that. Sri Lanka has also shown maturity in handling this issue in a diplomatic manner. I have a very strong feeling that we will be able to get past this without any of these things hanging over us.
The Budget was not very specific on the revenue measures of the Government. Could you spell out your plan to generate revenue in light of the Covid situation in the country?
The first few months after Covid were a big challenge. There was a lockdown and we experienced 16% negative growth. But the next two quarters were actually good. We had positive growth in the third quarter. In the fourth quarter, also, we had reasonably good growth, and as a result, we will end the year with about 3% negative growth, which is not great, but in the circumstances, one of the better growth rates in the world.
Going forward, we would need to get new avenues of growth going. My understanding of this is we have to make the cake bigger. Then only the pieces of a reasonable size can be cut. The previous Government’s idea was, even if the cake is getting smaller, the Government should still take big pieces for itself. So what was left for people was much smaller and that’s not a formula that works well. Our philosophy is to grow the economy, then take a suitable portion for the government. Then both the government and the people will have enough money to make their reinvestments. One of the key ingredients of this policy is consistency. Every year, if we come up with something and then change it, chop it, and do all kinds of things, people get concerned. We have achieved consistency to a great extent by maintaining the tax rate. The (value of the) rupee has not changed. So, going forward, we will benefit from that. More investors will come and that will definitely lead to growth and with that, we will have enough money for the Government as well as in the hands of people. Then, further growth can take place.