All parties must commit to current monetary program:
Only this path can be taken regardless of party in power:
Minister of Transport, Highways, and Mass Media, Dr. Bandula Gunawardena, said that due to the prevailing circumstances, Sri Lanka cannot access the international monetary market until 2027.
In a candid address at the first diploma awarding ceremony of the Lake House Media Academy held at the BMICH on Thursday, Dr. Bandula Gunawardena said that issuing International Sovereign Bonds (ISBs) and seeking additional loan funds is also deemed unfeasible within this timeframe.
“The biggest economic crisis in the history of Sri Lanka (2022) has been attributed to the persistent current account deficit in the balance of payments.
Since gaining Independence in 1948, the outflow of foreign exchange from the country has consistently surpassed the inflow, leading to a prolonged deficit in the current account.
This alarming trend signifies an inability to generate sufficient foreign exchange income to meet the country’s needs for goods and services annually.
In addition to addressing the local Budget Deficit, covering the deficit in the balance of payments has necessitated seeking foreign loan assistance. In the past, this imperative has arisen to cover daily import expenses through foreign loans, exposing the nation to various financial challenges.”
Highlighting the gravity of the situation, Dr. Gunawardena said the country had to inform the world about its inability to settle debts since last April. In other words, it declared bankruptcy.
This dire circumstance has stemmed from the over-reliance on foreign loans, reaching a critical point where repayment became untenable, signaling a significant turning point in the nation’s economic trajectory from 1948 onwards.
The Minister disclosed a comprehensive six-year plan to address Sri Lanka’s financial challenges from 2022 to 2027. He highlighted that the country has been navigating without the payment of foreign debt for the past two years, necessitating a major initiative with the International Monetary Fund (IMF) and bilateral creditors to restructure foreign debt.
As part of the restructuring program, the Government has meticulously outlined plans to compensate for the financial gaps until 2027. The Minister said that this strategy, developed in collaboration with the IMF, is imperative to steer the nation away from defaulting any more on foreign debt.
Addressing recent claims by MP Namal Rajapaksa, Dr. Gunawardena affirmed that this year’s budget document indeed mirrors the previous year’s, citing a consistent approach mandated by the existing economic recovery program. Regardless of the governing party, he clarified that adherence to this plan is imperative until 2027, as the borrowing limit set by Parliament is contingent on this structured procedure.
Dr. Gunawardena provided an optimistic outlook, projecting that by diligently implementing the program, the country’s gross foreign assets could exceed US$ 14 billion by 2027 from the paltry US$ 3.5 billion at present. This milestone would potentially enable Sri Lanka to secure a substantial sum from the international monetary market.
Foreign resources
“In the projected scenario for 2027, the nation faces a deficit of US$ 3,911 million in foreign resources. The IMF’s Extended Fund Facility (EFF) is expected to contribute US$ 329 million to mitigate this shortfall.
Further financial support includes US$ 600 million from the IMF for Budget financing, US$ 300 million from the World Bank, and an additional US$ 300 million from the Asian Development Bank (ADB). The total loan concession is estimated at US$ 1,482 million. In parallel, ISBs amounting to US$ 1,500 million could be secured,” he said.
The Minister underscored the imperative for public scrutiny and Parliamentary consensus on this crucial economic strategy.
He called upon Opposition leaders and other party members to seek clarification from the international community on whether the proposed program will be implemented from 2027 onwards.
Minister Dr. Gunawardena said that irrespective of any changes in Government or Finance Ministers, the nation’s economic trajectory must remain aligned with the outlined program until 2027 and even beyond.
He urged political figures on all sides to acquaint themselves with the statistical intricacies of the plan and engage in an honest dialogue to secure the nation’s economic stability for the next generation.
The Minister said that once the IMF issues the second loan installment probably next month, it will pave the way for the resumption of all stalled development projects.
Minister Dr. Gunawardena said the State Budget’s current account deficit and the international balance of payments’ current account deficit were pivotal factors leading to the country’s financial crisis. He revealed that the failure to meet IMF criteria during the respective periods as a contributing factor to the current crisis.
To navigate the country out of the current crisis, a strategic approach involves focusing on four key aspects. Firstly, there is an imperative to enhance government revenue. Secondly, it is essential to curtail both recurrent and capital expenditures of the Government.
The third element involves boosting foreign exchange inflows while concurrently minimising foreign exchange outflows.
Lastly, the goal is to establish a current account surplus in the balance of payments. The budget presented by the President for 2024 is aligned with these crucial objectives.
The existing national debt stands at approximately US$ 36 billion. Only 37 percent of this debt is slated for payment within the next five to six years, with 51 percent of the loan amount scheduled for repayment between six and 20 years.
Governing party
The remaining 12 percent is earmarked for settlement after the 20-year mark. It is crucial to acknowledge that irrespective of the governing party, the country is obligated to service this debt until the year 2048.
Avoiding loans from global entities and defaulting on payments poses a critical challenge, as the current international system relies on this financial mechanism. In addition, refusal of other nations to accept letters of credit issued by Sri Lanka would hinder the importation of vital commodities such as petroleum, gas, medicines and essential food items.
Consequently, political solutions prove ineffective in addressing this predicament; instead, the imperative lies in implementing an economic solution to navigate through these challenges.
President Ranil Wickremesinghe assumed responsibility amid financial management challenges. A resolution was achieved through debt restructuring, involving consultations with leaders from creditor states, including India, China and Japan.
Following the budget, the IMF is expected to issue the second loan tranche. Successful refinancing of the debt would provide ample resources to execute all the proposals outlined in the budget. Subsequently, the revival of all stalled development projects becomes feasible.”
