An extensive discussion took place at the Government Information Department auditorium recently in which media chiefs were briefed about the International Monetary Fund’s (IMF) extended credit facility. The views of Minister of Highways, Transport and Mass Media, Dr. Bandula Gunawardana, Senior Economic Adviser to the President, Dr. R.H.S. Samaratunga and the Assistant Governor of the Central Bank of Sri Lanka Dr. Chandranath Amaraseka are published here.
I mentioned this crisis 35 years ago in my maiden speech during the Budget Debate. Two major crises were mentioned in the speech stating with the figures that the debt of the Sri Lankan Government has increased by 1,115 percent from the day the open economy started in 1977 until 1988. One is that there is an unsustainable budget gap regardless of who becomes President and who governs. In the last few decades, we have not received enough income to meet our daily expenses. Any Government has to pay salaries, pensions, Samurdhi allowances etc. Interest must be paid on the loans taken. These are recurring expenses according to economics, and no matter who governs, no money has been received to cover the recurring expenses.
Last year the Inland Revenue Department collected Rs. 1,550 billion, Customs Department – Rs. 923 billion, Excise Department – Rs. 169 billion, Motor Transport Commissioner Department – Rs. 20 billion, non-tax revenue – Rs.219 billion, grants – Rs. 16 billion, and various types of deposits collected Rs. 304 billion. Rs. 3,201 billion have been received by the Treasury in total. Simply put, the annual income of the Sri Lankan Government is Rs.three trillion. Rs. 2130 billion have been spent to pay government employee salaries, pensions and welfare subsidies. The interest paid is Rs. 2,264 billion. Recurring expenditure is Rs. 4,394 billion. Rs.four trillion is required for daily maintenance. Thus, in 2023, there was a shortfall of Rs.1.1 trillion. The current account deficit of the State Budget can be seen in any year. Due to this, remaining expenses are incurred and domestic and foreign loan instalments are paid from loans. When the amount of loan taken was not enough, money was printed.
President Ranil Wickremesinghe, who was Prime Minister at that time, tried to correct this situation for the first time. In 2001, this crisis in the history of Sri Lanka after independence was reversed. When the economic crisis worsened, a separate government was formed with President Chandrika Kumaratunga and Prime Minister Ranil Wickremesinghe.
In this case, we entered an agreement with the IMF. According to those agreements, many alternative measures were adopted to recover the economy. Therefore, it was possible to turn the negative economy into a positive economy.
Political scandals arose due to those changes. After this, it was decided to bring a law to stop the collapse of the country. The Fiscal Management (Responsibility) Act No. 3 of 2003 was brought. Prime Minister Wickremesinghe gave ideological leadership when this Bill was presented. A law was passed on what should be done for a bankrupt country to manage public finances.
It had three main objectives. By 2006, the budget gap should be five percent of the Gross Domestic Product and the Government that comes after that should maintain the budget gap below five percent. It also called for a passage of a law requiring total outstanding public debt to be reduced to 65 percent of GDP by 2013. When the Government of Sri Lanka guarantees loans, it should not be more than 4.5 percent of the GDP. If the subsequent Governments had fulfilled these three terms properly, this country would never have gone bankrupt.
Unfortunately everything ended with the election. At that time, the Secretary to the Ministry of Finance P.B. Jayasundara explained that people’s expectations cannot be fulfilled if they continue under the IMF agreement. Therefore, this Act should be changed, he argued. Parliament changed the clauses of this Act. The country went bankrupt. By 2022, President Gotabaya Rajapaksa, knowing that the debt payment crisis will intensify after becoming President, went to the IMF according to the advice of financial advisors.
Some in the Cabinet got up and left saying they could not go. At that time, when organisations such as Fitch and Moody, which deal with financial loans to the world, continued to drag Sri Lanka down, they called for suggestions from related experts to save Sri Lanka. Twenty eight companies gave proposals and 20 of them qualified. A cabinet sub-committee was convened to select one of the 20. Professor G.L. Peiris became its chairman. France’s Lazard was selected for the debt restructuring process. Clifford Chance Company became the representative of the Sri Lankan Government in legal matters. These two organisations are still doing this work today.
As the crisis escalated, it was not possible to go to the IMF or start the debt restructuring process. All reserves were exhausted. People were queuing without oil and gas. There were protests in the streets, blackouts, prices skyrocketed, the rupee collapsed, houses of 72 people, including mine, were burnt. When misinformation released, people vented out their hatred and it couldn’t be stopped. As far as I know, if the program of the IMF is changed even by a tenth, if the debt restructuring is not completed, whoever is President will not be able to govern for more than two weeks. There are no alternatives. Governments have only taken the known option. Therefore, if there is an alternative, it should be decided how to prepare the budget from next January.
Compiled by Subhashini Jayaratne, translated by Jonathan Frank
