Foreign Minister Ali Sabry, PC, fresh from an official visit to Dubai with President Ranil Wickremesinghe for the COP28 Climate Summit, explains the importance of reinforcing the country’s international links and also the significance of receiving the second tranche of the International Monetary Fund (IMF) Extended Fund Facility in terms of economic recovery in an interview with the Sunday Observer. Minister Sabry says the present economic path will have to be followed by several more years to emerge out of the crisis Sri Lanka is facing.
The following are excerpts from the interview:
Q: The President has undertaken several official foreign trips recently. What positive responses have we garnered on the international front?
A: The most significant positive international response we have received thus far is the agreement to debt restructuring by 14 countries of the Paris Club, along with countries such as India, Japan, and China. The completion of a lengthy process in a remarkably short time is a significant triumph for our country.
Moreover, we have successfully fostered positive bilateral relations with Western countries like France and Germany, as well as with Middle Eastern nations such as Iran, Saudi Arabia, and the United Arab Emirates (UAE).
This has not only led to the creation of job opportunities but has also initiated discussions on potential investment opportunities.
The President is adeptly managing these international affairs. His leadership skills, knowledge of international law, and experience in international relations have been instrumental in effectively handling these matters.
Q: What notable advancements were achieved during the recent visit of the President to Dubai for COP28?
A: The trip yielded numerous benefits for us. While Climate Change is widely acknowledged as a significant concern, concrete solutions have been elusive. We put forward the idea of establishing a Climate Justice Forum (CJF) to address this issue. The proposed Forum aims to unite countries, allowing them to collectively advocate for Climate Justice. As a nation with a strong voice dating back to before 1983, this trip provided an opportunity for us to reclaim a substantial role in such initiatives.
During the visit, we garnered positive attention from the global community. Engaging in discussions with several world leaders, including the Presidents of Brazil, Greece and France and regional leaders, further strengthened our diplomatic ties. Additionally, productive dialogues with the investment communities in Dubai allowed us to elaborate on the investment opportunities present in Sri Lanka.
Q: Has the Government successfully concluded the second phase of negotiations with the International Monetary Fund (IMF), and when is the expected release date for the second loan installment?
A: I am optimistic that the second loan installment from the IMF will be received this month. This is expected to instill a greater sense of confidence in our country within the international community.
A comparative analysis with the preceding year will serve as a gauge to assess the effectiveness and correctness of the path we have chosen. We have successfully managed to control inflation, eliminate queues, and reopen opportunities for tourists to visit. When comparing these outcomes, it appears evident that we are moving in the right direction.
Q: How positively has the Official Creditor Committee responded to the restructuring of Sri Lanka’s foreign debt, and to what degree can this be considered a successful outcome influenced by the second installment of the IMF?
A: From the initial loan installment to the second, our journey has been exceptionally challenging. Nations such as Venezuela, Argentina, Zimbabwe, and Lebanon, which underwent similarly difficult paths, experienced an economic collapse lasting approximately 10-15 years. Considering our successful navigation of this demanding journey through prudent management, we have fared well in comparison.
Q: What economic benefits and support does our country expect to receive from the second loan tranche provided by the IMF?
A: Firstly, the receipt of the second IMF tranche sends a message globally that our country is on the right economic path. Subsequently, upon receiving these funds, the World Bank and the Asian Development Bank (ADB) are likely to follow suit, providing additional financial support. This, in turn, allows for a portion of the funds to be utilized in supporting the National Treasury’s budget. If successful, this approach could mitigate the need to purchase high-interest Bonds, enabling the acquisition of loans at a more favourable rate.
Subsequently, the expectation is that market loan interest rates will experience a significant decrease. With interest rates potentially reduced to 10-11 percent, businesses could seize the opportunity to secure loans and initiate new ventures through available financial facilities. The second loan installment is seen as a substantial aid in fortifying and revitalising the economy.
Q: How is the current process of restructuring foreign debt unfolding, and what is the global response to it?
A: The response has been positive thus far. Domestic Debt Restructuring (DDR) has been completed. Encouraging responses have also been received regarding the management of bilateral credit, representing two major categories of international credit. The second category involves discussions about loans secured from the private sector in Sri Lanka, facilitated by Lazard, our financial advisor.
The debt restructuring is expected to be completed by the first quarter of the upcoming year, allowing the country to resume foreign debt repayments and potentially emerge from financial distress. Information received thus far indicates a strong willingness from Japan and some other countries to make significant investments in our country.
Q: Can the Government announce a specific timeframe regarding the repayment of the loans?
A: Following debt restructuring, the priority is debt repayment. The aim is to conclude the debt restructuring by the first quarter of next year, initiating bilateral debt repayments in the second quarter.
The approach involves prioritising low-interest payments and gradually settling the agreed-upon loans. This strategy is anticipated to contribute to the reduction of the overall debt, with the ultimate goal of revitalising the economy for a substantial and long-term recovery.
Q: The Opposition claims that the Government is imposing various hardships on the people under the guise of IMF conditions. Your comment?
A: Whether or not the IMF conditions are imposed, our options are rather limited. When income does not align with expenditure, the only recourse generally is currency devaluation.
This is indeed exemplified by the rise of the US Dollar from Rs. 200 to almost Rs. 400 in just over one year. Inflation surged, and the economy faced collapse, forcing us into taking challenging decisions. Despite Opposition criticism, the question remains: what viable alternatives do they propose?
Q: Is the Government on track to achieve its goal of boosting State revenue through an increase in income tax?
A: That is our aspiration, albeit a challenging one. However, it is crucial to reach the desired tax targets. Failing to establish the necessary foundation for a sustainable economy could lead to the collapse of our economy. To safeguard our country, certain sacrifices may be inevitable.
Q: Do you share the perspective that, irrespective of the Government in office until 2027, a certain economic direction is unavoidable, as asserted by economic experts who contend that there might be no feasible alternative?
A: Expert economists emphasise that deviating from the current path could lead to an economic collapse, potentially worse than anticipated. The consequence might involve public dissatisfaction, manifesting in street protests similar to those witnessed last year. Making challenging decisions is deemed necessary to guide the country in the right direction.
Q: What recent decisions have been made regarding future Foreign Direct Investment (FDI)?
A: Following any investment, the anticipation is for a return in profits. Recognising this situation, the President has taken steps to prepare the required groundwork. Amendments are being made to facilitate this process, with an expectation that the essential groundwork will be established through the second installment of the IMF.
Translated by Maneshka Borham
