The inaugural All-Party Conference (APC) convened by President Gotabaya Rajapaksa to discuss short and long term strategies to stabilise the economy and find immediate solutions to the difficulties faced by the people was held on Wednesday.
Representatives from 17 political parties presented proposals to overcome the current economic crisis resulting from the prolonged Covid-19 lockdowns, contraction of the global economy and the Russia-Ukraine war. The APC was held at the President’s official residence in Fort.
The SJB, NPP, CWC and political parties led by Wimal Weerawansa, Udaya Gammanpila were notable absentees. However, Prof.Tissa Vitharana from the LSSP and Ven.Athuraliye Rathana Thera from Ape Janabala Party took part in the meeting moderated by President Rajapksa and presented proposals on behalf of the Group 11 - the rebels within the SLPP.
“We are here to discuss ways to ease people›s burdens and overcome the current economic crisis. Our presence here will in no way mean that our policy to sit independently in Parliament has changed,” the duo said.
President Rajapaksa, explaining the objective of the conference, said it was a genuine effort to find solutions to the current crisis and not an attempt to gain cheap political mileage.
He invited all the parties who were absent there to join with a sense of collective responsibility to ease people’s burdens and find lasting solutions to the challenges faced by the country. The party representatives agreed that the APC should be continued until a collective approach is devised to overcome the challenges facing the country.
Effects of Covid-19 lockdown
By the end of 2020, GDP dropped to US$ 80 billion. It further aggravated the crisis. In 2021, an improvement was recorded, but the current economic crisis is not easy to reverse.
At the outset everyone said saving lives from Covid-19 was more important. Thus lockdowns were imposed in 2020 and 2021. Industries and businesses faced a huge crisis. Small and medium scale businesses were the worst hit. Now, we have realised that although it was vital to save lives, saving livelihoods were equally important. Lockdowns have put a tremendous pressure on the country and its economy and resulted in the current crisis.
In 2020, the economy contracted and in 2021 the economic growth was only 4 percent. Despite the meagre state income, the government was compelled to offer incentives to sustain the businesses and other sectors. Relief measures for the people became another burden on the economy.
In early March, the Central Bank presented eight proposals for urgent implementation, to the Government to overcome the challenges. These included discouraging import of non-essential and non-urgent items; fuel and electricity price hikes to avoid huge state losses; encouraging FDIs and foreign remittances; promoting sustainable energy projects and conservation of energy; tax reforms to increase state income; deferring non-urgent capital projects such as infrastructure development.
Need to seek IMF assistance
There is the need to acquire more international financial assistance in the near future to ensure financial stability. It requires policy and structural reforms in the system. The Government hopes to get IMF assistance in this regard.
The Government’s interaction with the IMF will help boost investor and lender confidence among other things.
Bid to revise 2022 Budget
The Government will take steps to revise the 2022 Budget, ahead of the April festivities, to offer relief measures to the masses to ease the cost of living and other hardships faced by them today, Finance Minister Basil Rajapaksa at the All- Party Conference.
It was a proposal discussed by the UNP, SLFP and several other parties at the APC, he said.
“The Government’s stance is that we will not depend on any external entity or country for power generation. Although we have not started extracting our own crude oil yet, we have three sources - wind, solar and hydropower - to become self-sufficient with the expansion of the renewable energy sector shortly.”
“If we depend on external sources for power generation, our sovereignty will be at stake. The other matter is food security. These two sectors are crucial to maintain our independence and sovereignty. Our party, the SLPP, will ensure that these sectors are protected with utmost dedication.
There were many comments on getting IMF assistance. That is not a new thing. They have an office in the country. They issue annual reports on Sri Lanka’s economy, Rajapaksa said.
“I was questioned on that report here. We have received the draft of that report. There will be amendments to the draft and once the final report, after amendments, is ready, as a responsible Finance Minister, I can submit it to Parliament. That is not a new development; all the parties in Parliament will get a copy of the report,” he said.
“This is the first time in our history that we will be having discussions to reschedule our foreign debts. For that, the Cabinet took two decisions (last week). We will appoint a new technical committee with international expertise to engage with the IMF to manage our debts. This is a new area and we believe the Central Bank needs external advice to handle it. There will be transparency in this process.
Foreign Affairs Minister Prof. G.L.Peiris, Justice Minister Ali Sabry, Central Bank Governor Nivad Cabraal and Finance Ministry Secretary S.R.Attygalle are involved in this process, he said.
The cabinet paper was submitted as a proposal from the Economic Council chaired by the President, he said.
“We are glad that most of the Tamil and Muslim parties representing the North and the East are here at the APC. As a party, SLPP will support the collective decisions taken at this conference.
“Majority of the voters who supported us were Sinhala Buddhists, but I must emphasise that the SLPP is not a Sinhala Buddhist party. We represent all communities and religions in the country.
All the proposals made at the conference will be taken on board and the President will discuss them further, Rajapaksa said.
UNP Leader and former Prime Minister Ranil Wickremesinghe
It will take at least five years for Sri Lanka to emerge from this crisis. The two critical issues we face today are to stabilise the economy in the next two years, and to consolidate economic recovery.
The reversal of economic policies has shaken the confidence between foreign and local investors. The parties in Parliament must reach a national consensus on the short term, medium term and long term policies for the country. This must be an open dialogue, where the Government should take the lead, while the Opposition must be ready to respond. We have not seen any transparency and commitment from the Government. They have failed to provide us with the data nor have they tabled the full IMF report in Parliament.
The Government’s economic policies during the past two years have seen a reversal of the free-market economy. Nearly 25 percent of Small and Medium Enterprises are shutting down. The country is facing widespread unemployment and a rising cost of living.
This has resulted in many of our youth leaving the country. The only way to reverse the damage is to have a consensus on the principles of an economic policy. Political parties must operate within this framework.
The two immediate tasks should be to address foreign exchange deficit and rescheduling our foreign debts.
This will be the first time negotiations for re-scheduling foreign debt will happen. We must hire two leading international firms which can provide the expertise in the financial and legal spheres. We also require the services of experts in financial analysis. The selection process of these firms must be done in a transparent manner, with the involvement of Parliament.
Parliament must also be granted a supervisory role over the Central Bank to prevent arbitrary action on international debt financing that is in place.
State banks and private banks holding foreign loans are facing a crisis due to the depreciation of rupee against the US Dollar. The banking sector is on the verge of collapse. The Government must ensure a safety net to prevent such a calamity.
2022 Budget is no longer relevant to the country. Evaluate non essential expenditure. 2022 will not be a year of development. Instead this must be a year of relief. Negotiations with the IMF will take a minimum of six months. The relief benefits from Indian Credit Lines will not go beyond May. The Government must find funding for the remaining four months, until an agreement with the IMF and International Sovereign Bond holders is reached. We have only one option. That is to approach a few friendly nations that can form a consortium and request financial assistance and help implement a new economic plan. These countries must include India, Japan, China, and the European Union (EU). The Government must also revive strained bi-lateral relations with some of these countries including China. Our foreign, economic and trade policies must work towards a common goal.
SLFP Leader and former President Maithripala Sirisena
Majority of our proposals are short term ones. Based on the progress of their implementation we will submit medium and long term solutions. There must be strategies for six months, one year and two years. For debt restructuring, the Government must seek assistance from a trustworthy foreign state agency or a foreign Government. The fertiliser policy must be revisited for export crops and other essential sectors.
The price formula for fuel must be reactivated. The daily demand for power is 2,500MW and the daily combined generation capacity of our power stations is 4,000 MW, Therefore, the current power crisis has no basis. This needs to be investigated. The Government must formulate policies to bridge the gap between the rich and the poor.
We think a donor summit of friendly nations is a need of the hour to seek economic assistance and other relief.
LSSP Leader and MP Tissa Vitharana
The Government must seek a debt moratorium for at least five years. There must be strict controls on fuel distribution, with priority given to public transport. Tax structure must change. There has to be strict controls on non-essential imports. The tax regime must undergo drastic changes to reduce indirect tax to relieve the lowest income earners and introduce direct tax to gap the shortfall. Tax burden must be on big earners and not on the average people. Prices of essential commodities must be controlled and correspond to income. A proper incentive scheme should be introduced.
We would like to propose the income tax as follows: up to Rs.100,000 no tax, 100,000 to 200,000 – 20 percent, 200,000 to 400,000 – 30 percent, 400,000 - 1 million – 40 percent Income over one million – 75 percent.
The Government must go for more foreign loans only after a proper review, as this could aggravate the current situation. We are against seeking international expertise to overcome the economic crisis.
Ape Janabala Party Member Ven. Rathana Thera
We don’t know if the Government has a clear understanding of the country’s situation, or if there has even been a proper study. We must embark on a new approach to overcome this situation. Traditional strategies cannot resolve the issues. Creating awareness among people is a must to prevent a public uprising.
We must review our economic policy. Successive Governments have obtained staggering amounts of foreign loans in an inappropriate manner. We are currently facing the bad effects of those actions. Speaking of global conditions as the cause for this crisis is a joke. Crushed by economic woes, we see people on the road behave instinctively. The Government must be flexible, open for views from all parties and be genuine. The country is in a state of anarchy.
We need to expeditiously formulate a National Power Generation Plan, something that we are currently lacking. All stakeholders as well as the public and the civil society must have a say in the plan.
No one can still predict how the Ukraine war will affect the Indo-Pacific region or where it will take us. Maintaining a neutral foreign policy is a must. Our sky, ocean, land and ports must not serve anyone’s purpose in this war.
Wider transparency is needed on bilateral agreements signed with the US, India and other countries. The Government must not dishearten the forces that helped it to get elected to office. We welcome this conference.
SLMC MP Naseer Ahamed
We think the country’s economic woes are far worse than what the Government has admitted to. Sri Lanka is on the threshold of bankruptcy. We need a well considered interim proposal to address the urgent issues.
The Government can turn to Middle East countries for a bailout plan. It has not reached the oil rich Middle East on an economic platform. Bangladesh is currently reaping benefits from such arrangements.
TNA MP M. A. Sumanthiran
The ITAK handed over a proposal signed by 12 MPs, to the Government discussing a way forward to overcome the economic crisis some time ago as well. With regard to the talks with the IMF, the Government must present its plan for restructuring debts and bring in economic reforms for growth or else we will be given a prescription by the IMF. International expertise should be sought to re-negotiate our debts. The whole budget needs to be re-done. We must suspend development work and introduce a relief budget for 2022.
Sixteen people from Mannar and Jaffna have fled to India citing economic issues. They have been arrested. The situation in the country is dire. This must be acknowledged. As MP Diana Gamage said, the Tamil diaspora is willing to invest in the country›s development. We are willing to be a mediator, but the political issues of Tamil people must be addressed. We will discuss with the president a way forward to contribute to the development of the country.
Moves to stabilise economy
Central Bank Governor Ajith Nivard Caabral presenting an overview of the current economic situation of the country, at the outset, said Sri Lanka’s economy was currently at crucial crossroads.
The decisions the Government will reach, within the next few weeks, might not be to the liking of the people, but they will have a long term effect in stabilising the economy. He said they will define the future of Sri Lanka.
“This crisis is not unique to Sri Lanka. The difficulties faced today are common to all. Many countries are affected by these adverse global conditions. “For us it became a bigger issue because the economy was already in bad shape when the Covid 19 pandemic unleashed its full force on the world in 2020. But some countries were on a highly stable financial footing. The impact for them was less.”
From 2015 to 2019, Sri Lanka’s economic growth gradually dropped from seven percent to two percent. International debt increased from US$ 15 billion and foreign reserves dropped drastically. The Easter Sunday terror attacks in 2019 dealt a devastating blow to our tourism sector. The annual external debt service payments increased from US$ 2 billion to nearly US $ 6 billion. The US dollar exchange rate shot up from Rs.131 to Rs.182.
This was the plight of our economy when the Covid-19 hit us in 2020.
The Government had to allocate massive funds for vaccination despite the national income drastically reduced due to long term lockdowns. The annual US $ 4.5 billion income from tourism ceased.
The Ukraine war is threatening to exacerbate our problems. The oil prices have sky rocketed. The post-pandemic tourist arrivals to Sri Lanka from Russia, Ukraine, Poland and other countries in this region topped the list. Russia is among the top three tea buyers from Sri Lanka. On top of that, the world has recorded the highest inflation rate in four decades.
Reduction in hydropower generation and the fuel shortage resulted in intermittent power cuts. Essential imports such as food, medicine, fuel, gas and coal from 2021 August to date has cost a whopping US $ 1,800 million.
During 2015 – 2019, external debts had gone up from US $ 23 billion to US $ 38.7 billion. It is an increase of 65 percent. The increase in commercial debt is the worst - international sovereign bond debts have increased by 200 percent from US $ 5 billion to US $ 15 billion. In contrast, the GDP growth was a mere 5.8 percent from US $ 79.4b to US$ 84 billion (5.8 percent). Due to this massive mismatch, it became a huge challenge for the Government to raise the required US$ six billion for annual debt servicing.
Ranil and Cabraal squabble
Responding to the statement by the Central Bank Governor, UNP Leader Ranil Wickremesinghe said, “We have come here to discuss this acute problem faced by the country. We did not come here to play party politics.
This was organised by the President in response to a request by the SLFP. Minister Nimal Siripala rang me and said, ‘please come to this conference for old friendships’ sake if nothing else.’
“I am sad that this began by pointing fingers at the previous Government. If we indulge in a blame game, we can trace the roots for the current mess back to Prince Vijaya. If he had not arrived in Sri Lanka, none of this would have happened. Therefore, we should not go there,” the UNP Leader said.
President Rajapaksa responding said, the Central Bank Governor made that statement not to accuse anyone, but to explain the current state of the economy. “The things that happened during the past 74 years have gradually contributed to the current crisis. We are here to find solutions, wholeheartedly, to overcome the crisis. This is not a political attempt. And if it caused any heartache, I beg your pardon,” he said.