Minister of State for Finance Shehan Semasinghe said that it would be possible to obtain the approval of the Executive Board of Directors of the International Monetary Fund before the end of the first quarter of this year.
Further, due to the assurance that Sri Lanka will follow a globally acceptable financial policy with other countries, the Minister of State also pointed out that the possibility exists for obtaining other bilateral and multilateral loans and money.
State Minister Semasinghe expressed these views during the special programme titled ‘Where is the country?’ discussion on the country’s economic and financial situation. This was organized with the coordination of the Presidential Media Unit.
The journalists who were present representing the television channels participating in the special programme ‘Rata Kothanada’ (Where is the country?) were allowed to pose questions independently, and in response to a question raised by a journalist ‘regarding the financial assistance proposed to be received from the International Monetary Fund’, the state minister said: Small groups who do not understand the intervention of the International Monetary Fund are talking about the 2.9 billion US dollars received over 4 years from this extended loan amount. But this matter does not stop there.
So far, many of the groups that are talking about this are groups that have not contributed to the programme carried out by the government and the programme carried out by the Central Bank and the Ministry of Finance.
Similarly, some groups believe that the foreign exchange crisis in the country should be resolved, but there is also a handful who say that the people should be allowed to suffer in this manner without solving it.
No one can go against the decisions taken by the government regarding the International Monetary Fund. I saw different groups, different institutions, and different people expressing their personal opinion on this matter. However, now we have reached the final stage.
There is a division in the government regarding whether or not to seek assistance from the International Monetary Fund. One group said that they should get the support of the International Monetary Fund, while another group discussed the management of the country’s economy through a local mechanism without seeking the support of the IMF. However, by March 2022, the government decided to seek the assistance of the International Monetary Fund and get their extended funding facility to find the necessary solutions to the crisis in the country.
Based on the situation we are in today, the loan repayment has been temporarily suspended. We are known in the world as a country that cannot pay its debts. Therefore, we must transform our country into a country with an economy that can pay off its debts.
The intervention of the International Monetary Fund is very important in this situation. If we look at the US$ 2.9 billion, this is between US$ 4-5 billion. It is not only the International Monetary Fund that intervenes here.
With the confidence we get, in the guarantee that is given, based on the assurance that the necessary reforms will be carried out in the country and we follow a financial policy that is acceptable to other countries globally, we will have the ability to get other bilateral and multilateral dues and possible funds.
Notably, the IMF is gaining confidence in Sri Lanka. Today’s rating agencies have rated the economy at a very low level. As a result, we are unable to obtain more funds and get financial support. That is why the President said that if we look at the past 7-8 months, no institution or country has provided any kind of financial support to Sri Lanka apart from urgent humanitarian assistance.
We are managing our foreign exchange locally on the policies adopted by the Treasury. The rating agencies will consider the country’s economic situation more positively based on the confidence in us internationally. Similarly, when implementing our financial policies, we look positively at the method of implementing these policies. Hence, the International Monetary Fund certification is very important for us to achieve debt sustainability.
The IMF’s assurance is very important for us to achieve debt sustainability. Therefore, we have discussed this with all bilateral creditors. Three rounds of negotiations have been held and we hope that we will be able to get the approval of the Executive Board of the International Monetary Fund before the end of this quarter after receiving the necessary financial certifications.
Therefore, the country’s economic stability that we have experienced so far to some extent is not the complete stability that the government is hoping for. We all should pay attention to this situation while we work.
I believe that where the parliament is considered, the ruling party members as well as the other members too have the same responsibility. Hence when expressing their views, it is very important to express their opinions in a manner that does not interfere with this positive programme because all citizens get the dividends of these programmes. Similarly, if the country cannot be stabilized, everyone will have to face the repercussions. Therefore, if any group interrupts the approval process of the International Monetary Fund (IMF) and stabilises the economy of the country, the economic situation in the country would become more serious than the situation in March 2022, and it would require a comparatively longer period to recover.
Therefore, no one should underestimate this programme and its benefits should not be limited just to USD 2.9 billion. By now, related countries and institutions have commenced discussions with us with their assurance to extend financial support as well as other support to us. Therefore, we believe that with the assurance we receive at the end of the first quarter, we would be able to bring our economy to the expected level of stability by the end of this year.
Responding to a journalist who queried if it were not the public who would have to bear the burden of an election expense, State Minister of Finance Ranjith Siyambalapitiya said during the last two years a massive movement created by the democracy was shattered due to the economic issues.
The President, who was elected with 6.9 million votes, had to resign due to the struggle of the people who could not bear the economic pressure. As a result, the Cabinet was rendered inactive. If the struggle had continued, the Parliament would have been inoperative. We still have the problem of whether this is a suitable year for an election. We are still in an economic crisis where some sectors are still in decline.
In some sectors, the decline of the economy is slowing down. Under such a situation, should we go for a so-called democratic election soon? It has been estimated that Rs. 12 billion would be spent on the election.
At present, the expenditure of the country has increased to 300 if the income is 100. We have had to find the deficit by way of loans or printing money.
If the election is held, the inflation rate would rise. If the funds for an election were taken out of the tax revenue, it would affect the poor. In such a situation, if we find the money for a local government election by printing money, it would make a world record. Democracy is important and I am saying it as a representative of the Treasury. But, I ask the public if this is the right time for an election. This is a time when the country’s democracy is being turned upside down by the country’s economic issues.
Another journalist questioned the Finance Ministry Secretary Mahinda Siriwardena about the budgetary allocation on the local government election and the financial capacity of the Treasury on paying the salaries of the public employees, paying pensions and grant subsidies in the future.
Secretary of the Ministry of Finance Mahinda Siriwardena:-
In general, we have problems in day-to-day financial management. Essential payments such as government employee salaries, pensions and subsidies have to be made. We have to proceed with those payments. Rs. 3 billion is required to pay government employee salaries, while Rs. 27.5 billion is needed for pensions. The government has to bear Rs. 11 billion for other allowances. Rs. 10 billion is spent monthly on medicines alone. In such a situation, only Rs. 10 billion would be spared from the income and hence we are in the depth of an economic crisis.
The amount we get from foreign loans is very limited. During 2020 and 2022, there has been an outflow of foreign currency from the country. If the interest rate in the banking system remains high, it is difficult for the general public to carry out their daily activities. In addition, the country is experiencing a USD crisis. Rs. 3 billion should be given to the State Pharmaceutical Corporation or there would be a shortage of medicine in the country.
In response to a question raised by a journalist, Central Bank Governor Dr. Nandalal Weerasinghe said:
When I assumed the post of Central Bank Governor, the economy of this country had collapsed. The treasury was at great risk. Even then, we saw that if the economy had continued as it is, the country was heading for a big economic crisis.
At that time, our effort was to address the situation in some way without taking such a risk. In short, an economy that is heading towards inevitable collapse is now stabilizing.
However, people are still experiencing the effects of the economic crisis.
It is because the economy contracted that there were some difficulties in the economy. A recent contraction of negative 7.5 means that economic activity is 7.5% lower than last year and inflation is high. Accordingly, it is evident that the economy has contracted and there has been some impact on the economy.
Yet, despite some contraction, the economy that was inevitably heading towards collapse has now been stabilized.
One of the main reasons for economic contraction is the lack of foreign exchange in the country. The economy began contracting by a negative 1.5 per cent in the first quarter of 2022. Thereafter, the situation continued to worsen, but now it has reached a stable level.
The best example is to look at the economy’s contraction for the first time in history before COVID in 2001. You might remember that it was from minus 1.5. There was a similar crisis then. Especially the lack of foreign exchange crisis. At that time, the economy was stabilized by obtaining foreign exchange assistance from the International Monetary Fund.
Therefore, foreign exchange should be stabilized in some way. If the country gets enough foreign exchange, the economy will be stable. So far what we have done is manage the limited amount of foreign exchange and spend it only on essential items.
When there was no economic system in the country, for example, there were huge fuel and gas queues from March to July. If that situation continued, the country’s economy would have crashed. That would have created a situation where no one would have been able to engage in any local industry or export.
However, the primary requirement now is on how to manage the amount of foreign exchange required to fulfill basic needs. So far, we have been able to manage it without obtaining any additional foreign loans.
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