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RW Govt. gears to present 2024 ‘IMF’ Budget while debt talks on hold until China agrees to share

RW Govt. gears to present 2024 ‘IMF’ Budget while debt talks on hold until China agrees to share

05 Nov 2023 | By Capt. Vasabha

  • Paris Club consortium’s end Oct. deadline to conclude Sri Lanka’s debt talks further delayed
  • Paris Club asks for Govt.’s agreement with China’s Exim Bank before making final comments
  • Govt. seeks Exim Bank’s ‘ok’ to share document with Paris Club due to confidentiality clause
  • Exim Bank yet to give green light to Govt. while efforts underway to expedite the approvals
  • RW says salary hike for public sector in 2024 Budget; Ranjith says after ‘extensive analysis’
  • Ruling SLPP and Opposition oppose further burdening masses; MR advises Namal on actions
  • Sitharaman’s visit results in friction within CWC, up-country parties; some MPs boycott event
  • Last-minute inclusion of TN Chief Minister Stalin’s speech at ‘Naam 200’ results in controversy
  • SF clashes with SJB seniors, MPs try to make peace; Maithri says everyone is afraid of him

The Ranil Wickremesinghe Government, which is still awaiting a green light from the International Monetary Fund’s (IMF) Executive Board on the second tranche under the Extended Fund Facility (EFF) and a final outcome on the country’s debt restructuring programme that was scheduled for late October, is now gearing to present the 2024 Budget in Parliament.

The Paris Club consortium of Sri Lanka’s bilateral creditors was expected to finalise its debt restructuring proposal for Sri Lanka during the end of October. However, there has been no finalisation of the proposal.

It is learnt that the Paris Club consortium has requested the Sri Lankan Government to share the initial agreement reached with China’s Export-Import Bank (Exim Bank) on restructuring debt. However, a confidentiality clause in the agreement has prevented the Sri Lankan Government from sharing the document with the consortium.

It is also learnt that the Sri Lankan Government had sought permission from China’s Exim Bank to share the document with the consortium. The Chinese side, however, is yet to grant permission for the move.

The delay in submitting the documents on the agreement with China’s Exim Bank has therefore resulted in the overall delay in the Paris Club consortium finalising its debt restructuring programme with Sri Lanka.

The 2024 Budget is therefore expected to include a host of IMF revenue generation methods that could result in more hardships for the masses. The 13 November Budget presentation therefore has now become the focus of a nation waiting for some respite from the economic hardships faced for nearly two years.

However, on the issue of the Government’s delivery of budget promises, Verité Research, in its mid-year review of the 2023 Budget proposals and implementation, has alleged that the Government is refusing to inform the public on what it was doing with people’s tax money. 

Verité had observed 25 Budget promises for its review: 68% of these projects had offered inadequate data to the public, whilst 48% had no data on progress made. These 25 promises, or projects, had seen an allotment of over Rs. 49.3 billion and accordingly there was a lack of accountability for Rs. 47.7 billion spent, the think tank said. 

Verité had further reported that the National Budget Department at the Ministry of Finance could not list owners for 44% of the chosen programmes. This, however, was an improvement from 77% last year.

Contradictions on salary hike

Meanwhile, trade unions are already engaged in agitation campaigns demanding salary hikes for the public sector in the 2024 Budget.

It is in such a backdrop that President Wickremesinghe had told his Cabinet on Monday (30 October) that he would increase the salaries of all State sector employees in the upcoming 2024 Budget. While public sector trade unions have demanded a salary increase of Rs. 20,000, the Government however has refrained from responding to the demand.

The President had also requested the private sector to consider increasing salaries of private sector employees due to the rise in cost of living, but the issue did not receive as much media coverage as the public sector salary hike.

Wickremesinghe had also claimed that there was no truth to statements by the Janatha Vimukthi Peramuna (JVP) and other groups that they had influenced a pay hike for State sector employees.

Nevertheless, State Finance Minister Ranjith Siyambalapitiya has expressed more caution on the President’s promised salary increase to the State sector by saying that an extensive analysis was being carried out to determine a salary hike in the 2024 Budget.

The State Minister had said that a salary increase would definitely take place, but that an ‘extensive analysis’ to determine the relevant rates was currently underway. “In our country, there are 1.4 million public servants and 600,000 pensioners. Even if their salary is increased by Rs. 100, the cost to the Government is very high. Therefore, we need to do a serious analysis on how to do this. 

“However, given the difficult situation that we all faced in the past, the measures to increase their salaries are very progressive. The President has even decided to request the private sector to increase the salaries of private sector employees.”

Further burdens

Regardless of the statements being made by Government ministers, the bottom line is that the Government’s revenue generation methods will impose more burdens on the already-burdened masses.

Opposition Samagi Jana Balawegaya (SJB) Parliamentarian Eran Wickramaratne has pointed out that while the Government’s efforts to increase State revenue are acceptable, it should have a good understanding of which taxes should be increased and from whom the taxes should be collected.

He had told the media that people were being subjected to immense economic pressure due to the incumbent Government’s inabilities.

The office of the Opposition Leader had meanwhile stated that the previous Government in 2015 had been able to increase State revenue, which was 10% of the GDP in 2015, to 13% by 2019. State revenue should be 20% for the country to have sustainable revenue. “When Value-Added Tax (VAT) is increased from 15% to 18%, it will especially affect low-income earners. This will put more burden on the poor.”

Meanwhile, ruling Sri Lanka Podujana Peramuna (SLPP) Parliamentarian Namal Rajapaksa had also come out strongly against the recent price hikes and moves to further increase taxes. He had claimed that the Government was increasing tariffs and taxes in line with IMF proposals.

President Wickremesinghe meanwhile had acknowledged that the decision to increase VAT to 18% was a challenging one, driven by the need to maintain economic stability. 

“This step aligns us with the practices of countries like India and Pakistan. Such decisions are never easy for any government. However, failing to take these measures would cast a shadow on everyone’s future. Therefore, making the right choices becomes imperative. These decisions are necessary for the well-being of the country, even if they draw criticism from the public,” he had noted.

Advice to Namal

Meanwhile, Namal had last week received some advice from his father, SLPP Leader and former President Mahinda Rajapaksa (MR).

After hearing Namal’s public comments that he would support the Government’s 2024 Budget only if it provided relief to the people and of the recent meeting with a group of state ministers to discuss the party’s stance on the Government, especially on the 2024 Budget, MR had told Namal that he had the freedom to make decisions as a legislator according to his conscience.

However, MR had asked Namal to discuss first with party seniors as well as former finance ministers before making a final decision. It is learnt that Namal had agreed, saying that he would discuss with a cross-section of society before deciding.

Meeting party leaders

However, the challenges the Government will have to face following the 2024 Budget are seemingly not lost on President Wickremesinghe, since he has decided to meet with Parliament party leaders after presenting the Budget.

The President, it is learnt, is hoping to form some form of consensus among the parties represented in Parliament on the 2024 Budget and to get their support to pass the Budget proposals in the House.

Chamal blames MR

Meanwhile, former Speaker Chamal Rajapaksa, who is also the eldest brother of former Presidents Mahinda and Gotabaya Rajapaksa, had made an interesting statement over the difficulties faced by the people in paying their electricity bills.

Chamal had recently spoken of the financial burdens faced by the people and the reasons for it. According to Chamal, many people are facing difficulties in paying electricity bills since former President Mahinda Rajapaksa had given electricity to everyone. Chamal had also said that a person had recently met him with an electricity bill of Rs. 18,000 and sought financial assistance to settle it.

Call to get tough

While the Wickremesinghe Government seems to be trying its best to meet the IMF conditions, a former IMF official has stated that the fund should be “a lot tougher” on Sri Lanka’s structural reforms, as past IMF programmes had failed to address the country’s low tax revenue and State-Owned Enterprises (SOEs).

Speaking at a webinar held by the UK-based think tank Oxford Global Society recently, former Director of the IMF Institute of Capacity Development and former Deputy Director of the IMF Africa Department Dr. Sharmini Coorey had said that the IMF should have been a lot tougher on structural reforms in the past 17 programmes that Sri Lanka underwent.

“I think this is really critical and keeps coming up even in this programme. I can see them now going all soft on structural reforms, not macro. I would like to see an IMF that is tough on structural reforms,” she had said.

She had further stated that the IMF should step up more strongly in protecting debtor countries and get the money to the debtor as soon as they had agreed to a programme. “The fact that it (disbursing funds) took another six months was very painful for Sri Lanka,” Coorey had said. 

She had noted that the IMF should not apply a financial assurance policy on countries going through a crisis like Sri Lanka and proceed with the initial disbursement of funds until the debt negotiations worked themselves out.

External support

Meanwhile, a sovereign debt expert has noted that it is unlikely that Sri Lanka can support external debt of over 50% with a large fraction of its debt amortisation, thus needing to be refinanced in the market from 2027 onwards.

US-based think tank Council on Foreign Relations (CFR) Senior Fellow Brad Setser had noted that he had not seen a convincing analysis that Sri Lanka could support external debt-to-Gross Domestic Product (GDP) of 50% or more with a large fraction of its debt amortisation, thus needing to be refinanced in the market from 2027 onwards.

According to the Debt Sustainability Analysis (DSA) of the IMF, Sri Lanka should reduce its debt stock to 95% in 2032 from 128% in 2022, bring down Gross Financing Needs (GFN) to 13% of GDP in 2027-’32 from 34.6% in 2022, and reduce foreign debt servicing to 4.5% of GDP in 2027-’32 from 9.4% in 2022. At the end of 2022, external debt was at 70% of GDP.

Setser had said that Sri Lanka – which is above the low-income country threshold with its per capita GDP of about $ 4,000 – had been evaluated using the same metrics as advanced economies and was not provided a Nett Present Value (NPV) target for external debt to anchor its restructuring.

Standing for human rights

The President meanwhile last week expressed his stance on the application of international laws, especially on human rights. At an event in Welimada on Friday (4), Wickremesinghe took up what he deemed double standards when applying international laws. 

Speaking about the conflict in Gaza, the President stressed that several countries including the US and Canada had demonstrated that there was a difference in the application of the law depending on the country. 

Citing that Sri Lanka has been at the receiving end of UN Human Rights Council (UNHRC) resolutions in the past regarding alleged human rights violations, the President questioned why similar noise had not been made about the ongoing violence in Gaza. Wickremesinghe announced he would be seeking both international legal advice as well as the advice of the Supreme Court in the matter of the conduct of the UNHRC. 

He further stressed that he would honour the agreement reached in 2009 between President MR and UN Secretary-General Ban Ki-moon. Drawing attention to the recent incident in Batticaloa which saw a Buddhist monk threaten the Tamil populace with violence, the President urged that law and order be implemented, protecting all communities in the country.

Indian and EU visits

Be that as it may, last week also saw key visits by foreign dignitaries. One was the visit by Indian Finance Minister Nirmala Sitharaman, while the other was from the European Union (EU)’s South Asia Delegation of the European Parliament to Sri Lanka, headed by European Parliament Vice President Heidi Hautala.

With all focus on Sitharaman’s visit, there was much less news on the EU parliamentary delegation’s visit to Sri Lanka. 

World Bank Managing Director – Operations Anna Bjerde also engaged in an official visit to Sri Lanka, with a roundtable discussion held with President Wickremesinghe and officials on the way forward for Sri Lanka.

RW hosts dinner

As Sri Lanka prepares to embrace a post-debt restructuring economic recovery, Sitharaman’s visit was of greater significance. Sitharaman has been a vocal proponent of Sri Lanka’s recovery, having played an integral role in both securing IMF support for Sri Lanka, while also assisting Japan in debt restructure talks. 

Sitharaman was in Sri Lanka to attend the celebrations to mark 200 years since the arrival of the Indian origin Tamil community in Sri Lanka and had been personally invited by President Wickremesinghe. Following the celebrations, which were held at the Sugathadasa Indoor Stadium, the Minister was hosted by the President for a dinner at the President’s House. 

Discussions during the dinner had focused on the continued integration of the two economies, with both sides expressing a keen desire to see negotiations over the Economic and Technology Cooperation Agreement (ETCA) conclude swiftly. Observers noted that the dinner lasted well beyond three hours, which was unusual for such official programmes.

As Wickremesinghe continues his ambitious plans to open the economy and develop greater links within the region, this building of close ties between India and Sri Lanka is expected to go a long way. 

Sitharaman had on Thursday (2) also visited Sri Lanka’s Eastern port town of Trincomalee where she opened a branch of the State Bank of India and appreciated its role in supporting corporates in international trade.

CWC issues

While the President and his team were left satisfied with Sitharaman’s visit, other sections of the political circles in Sri Lanka were less impressed. 

The Ceylon Workers’ Congress (CWC), which was the main proponent of the visit, saw its leadership divided over how the party would be represented. While it was accepted that CWC General Secretary, Minister of Water Supply and Estate Infrastructure Development Jeevan Thondaman would welcome the Minister upon arrival in Sri Lanka, it was the role of CWC Leader and Eastern Province Governor Senthil Thondaman which raised questions. 

It is a well-known secret that the cousins do not always see eye-to-eye over some political matters. However, Senthil had also participated in the welcome party at the airport along with Jeevan when Sitharaman had arrived in Sri Lanka.

It is learnt that the young Minister had been apparently less impressed when he had learnt that Senthil would play the lead role during the Indian Minister’s visit to Trincomalee, which falls within his purview.


MPs boycott

Sitharaman attended the event ‘Naam 200’ that was organised by the CWC and Jeevan at the Sugathadasa Indoor Stadium in Colombo.

Sitharaman had stated that the Indian Government had given its special focus on providing educational support to the Malaiyaha community in Sri Lanka as a part of its development partnerships, since the Indian Government believed that education was the only wealth which could not be destroyed by any force. She further stated that the Indian Government would be working to increase its funding offers to the Ceylon Estate Workers’ Education Trust and for the establishment of the Thondaman Vocational Training Centre (TVTC).

However, a group of main Opposition SJB Members of Parliament (MPs) representing the estate sector community had boycotted the ‘Naam 200’ event graced by Sitharaman stating that it had been organised in a manner to promote Minister Thondaman’s image.

Tamil Progressive Alliance (TPA) MPs Palani Digambaram, Mano Ganesan, and V. Radhakrishnan had not attended the event. 

Stalin’s speech drama

Another interesting incident that had taken place during the ‘Naam 200’ event was objections being raised by the Indian Government side to the last-minute inclusion of a speech by Tamil Nadu Chief Minister M.K. Stalin at the event.

It is learnt that the agenda for the event that was graced by Minister Sitharaman had been formulated weeks ahead and had received the approval from the Indian side as well. However, on the day of the event, a few hours prior to commencement, the organisers (CWC) had informed the Indian visitors that a statement by Tamil Nadu Chief Minister Stalin would also be played at the event.

The last-minute inclusion of Stalin’s speech had resulted in a controversy since the Indian side was unable to submit the revised agenda for approval from the Indian Government.

Finally, the CWC organisers had been informed by the Indian side that Stalin’s speech could not be included in the agenda due to the difficulty in receiving approval for the revised agenda.

MR, GR and Basil

Meanwhile, the ruling SLPP celebrated its seventh anniversary on Friday at the party’s Nelum Mawatha Headquarters. A religious ceremony was organised at the Party Headquarters to invoke blessings on the party, its members, and the country. 

The event saw MR, former President Gotabaya Rajapaksa, and SLPP National Organiser, former Minister Basil Rajapaksa seated together and participating in religious observances. Prime Minister Dinesh Gunawardena and Government ministers were also present at the event.

Pressure for another reshuffle

However, amid the continuing cold war between the SLPP and the Wickremesinghe Government, rumours of yet another reshuffle of ministers have emerged again.

Following President Wickremesinghe’s recent mini Cabinet reshuffle, the SLPP has openly expressed its displeasure over the President’s action. It is learnt that some SLPPers, who have made representations to the President to resolve the ongoing clash with a group of SLPP seniors, have proposed the inclusion of a few new faces to the Cabinet.

It is also learnt that the SLPP group discussing with the President had not pushed for the 10 new portfolios that were earlier being pushed and had only proposed a few names for appointments.

Another proposal made to the President is the changing of secretaries of some ministries, especially state ministries, where the subject ministers have already expressed their displeasure.

The SLPPers have pointed out that these measures will address some of the grievances of the disgruntled SLPPers and secure their support for the passage of the 2024 Budget since some of them have warned of voting against the Government’s Budget.

Sagara slams RW

Meanwhile, SLPP General Secretary Sagara Kariyawasam, who has been openly expressing his displeasure over the President’s recent mini Cabinet reshuffle, last week openly slammed Wickremesinghe.

Kariyawasam had said that President Wickremesinghe was a leader who had not supported ending the war and kept silent when the Central Bank bond scam took place.

However, he had further noted that the SLPP had made the correct decision when the party chose a leader to govern the country by protecting the country’s rule of law and save it from falling into a state of anarchy during last year’s Aragalaya period.

The SLPP General Secretary had further stated that the party had also remained silent when Wickremesinghe, after assuming office, had appointed individuals who had worked against the SLPP into the Cabinet, thinking of the greater needs of the country. He had also noted that he hoped the President remembered that it was the SLPP that had appointed him to the office of the President.

Kariyawasam had further noted that the country had faced its golden age during the presidency of Mahinda Rajapaksa and that the people were still with the SLPP.

Another swipe

The widening gap between President Wickremesinghe and the SLPP was further witnessed when the SLPP alleged that the reason Wickremesinghe is withholding funds for Local Government bodies is not due to a lack of funds but to prevent the SLPP from regaining its popularity.

The SLPP claims the party has been requesting the President to facilitate the holding of Local Government Elections for a long time but that there has been no positive response to the request. The SLPP has also expressed doubts over the Government’s claim of not having Rs. 10 billion in funds to be allocated to hold the delayed Local Government Elections.

“Now there are reports that salaries of public servants are to be increased through the upcoming Budget. We always believe that relief should be given to the people. The people’s salaries should be raised and electricity tariffs and all other tariffs should be reduced. These are all true. However, when the Government states that it has the capacity to raise public servants’ salaries, can we believe that there is no way to find Rs. 10 billion for LG Elections?” a senior SLPPer had said.

SJB vs. SF

The main Opposition SJB is currently embroiled in a dispute with Party Chairman and MP, Field Marshal Sarath Fonseka, with speculation that the SJB is looking at removing Fonseka from his position in the party.

Fonseka’s recent public comments and actions have been viewed by many SJBers as being against party decisions. However, it is learnt that one of the key issues that had caused concerns among SJB seniors was Fonseka’s expression of interest to contest at the next Presidential Election as the party’s candidate.

Fonseka had reportedly told several SJBers who had met him recently that he had doubts over backing the candidacy of the SJB leadership at the next Presidential Election. The party leadership, it is learnt, had informed Fonseka that the party’s decision-making body had already decided on the SJB’s candidate for the next Presidential Polls.

Despite speculation that Fonseka will be replaced as the SJB Chairman, the party’s General Secretary Ranjith Madduma Bandara has said that the party had not made any decision on Fonseka although there were concerns over his actions. Madduma Bandara has further noted that several SJBers had held several discussions with Fonseka to resolve the issues, which had not yielded positive results.

SJB National Organiser Tissa Attanayake is also engaged in discussions with Fonseka and has expressed confidence that Fonseka will return to the fold.

Fearing Maithri

Sri Lanka Freedom Party (SLFP) Leader, former President Maithripala Sirisena had recently observed that everyone (politically), was afraid of him. He had said this following last week’s court directive for him and several other respondents to submit their assets and liabilities declarations to court.

Sirisena had said that there were no issues with regard to his assets declarations and that he had already submitted them but would submit them to court as well. According to Sirisena, people should understand why he is being hunted in this manner and that it is all politically motivated. “Everyone is scared of me,” Sirisena had said.

Shi Yan 6 data

Meanwhile, weeks of speculation and geopolitical tensions over China’s Shi Yan 6 research vessel and its visit to Sri Lanka concluded after the vessel was provided with replenishment and a study was conducted on the seas off Sri Lanka’s western coast.

The National Aquatic Resources Research and Development Agency (NARA) had last week noted that the Sri Lankan Government would have access to and ownership of the data collected by the research conducted with Shi Yan 6.

Following the Chinese vessel being authorised by the Government to jointly survey the island’s ‘western waters,’ NARA launched a two-day survey on the western coast in collaboration with the Chinese group of researchers that commenced on 30 October.

NARA Chairman Prof. Jayantha Wijeyaratne had said that the research would be carried out on water columns of the western and southern parts of Sri Lanka and four Sri Lankan researchers representing NARA would be joining the two-day survey. Permission was received for the study from the Government of Sri Lanka and the Sri Lankan Navy.

When asked about accessibility and ownership of the data collected by the survey, Prof. Wijeyaratne had said that all data would belong to the Government and would be monitored by domestic institutions.

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