Minister of Transport, Highways and Mass Media, Dr. Bandula Gunawardena said that restructuring Sri Lanka’s foreign debt has been very effective in reviving the country’s economy.
The Minister was addressing undergraduates at the Eastern University.
The Minister shared his analysis on how Sri Lanka came out of a severe economic crisis and on to successfully restructuring its foreign debt under the leadership of President Ranil Wickremesinghe.
The Minister’s analysis in full: “Some say that this was so simple and that anyone could have done it. It’s really depressing to hear this, because after the country’s Independence, the policies that hoodwinked the people caused an unbearable Budget deficit and Budget gap. In the external economy, there was a huge deficit in the current account of the Budget and the deficit in balance of payments. A great effort was made by the Government when the country faced the risk of debt repayment. When institutions such as Fitch and Moody’s downgrade us internationally, they send a warning to parties dealing with the country.
No simple solutions
After President Gotabaya Rajapaksa took office with a large mandate, financial advisors and international advisors told him that he should solve the issue of debt sustainability since it is the main national problem. There are no simple solutions when a country collapses without being able to pay its debts. President Gotabaya Rajapaksa called for applications from people with specialised experience, expertise and know-how on recovering countries that had collapsed. Twenty-eight companies with international expertise came forward, out of which 20 were qualified to submit proposals.
The Cabinet appointed a Cabinet Sub-Committee to hand over this responsibility to one of those 20 companies. Prof. of Law, Cabinet Minister G.L. Peiris acted as its chairman. The Sub-Committee presented a list based on talents, skills, creativity and success of those 20 companies from each country. In the end, France’s Lazard agency was chosen as the suitable candidate, which was approved by the Cabinet.
A country cannot function without paying its international debts; we get sued if we don’t pay up. There is currently a case for US$ 250 million filed by the Hamilton Reserve Bank in the US. Due to our lack of experience in international legal matters, we appointed Clifford Chance for this with Cabinet approval. When President Wickremesinghe addressed the nation about the foreign debt restructuring process, I mentioned the France’s Clifford Chance and Lazard.
Those foreign institutions have been working as the representatives of the Government for a long time, holding discussions, conferences and workshops with the creditors. At this point, I must say that the Gotabaya Rajapaksa administration was unable to enter into an agreement with the International Monetary Fund (IMF) to achieve political flexibility even though it did act in accordance with the technicalities.
Minister of Transport, Highways and Mass Media, Dr. Bandula Gunawardena, State Minister Sivanesathurai Santhirakanthan, Ministry Secretary Ranjith Ganganath Rubasinghe and Vice-Chancellor V. Kanagasingham inaugurating the upgraded internal road in the university
Several Ministers in our Cabinet who are very patriotic but have no in-depth grasp of the situation not only protested against going to the IMF, but those like our learned colleague Vasudeva Nayanakkara stood up and said, “If you go to the IMF, I will not stay for a moment”. He was ready to quit. As a result, the Gotabaya administration could not come to an agreement with the lender of last resort, the IMF. It was not possible to pay the loan instalment interest, as no bank in Sri Lanka had dollars. Foreign reserves were down to just US$ 200 million. Ships carrying LP gas were diverted and we had twelve-hour blackouts. Oil queues and riots resulted in the deaths of several persons. Civil unrest was rife and violent mobs were threatening to burn down Parliament.
At that time, when no one came forward to take over, Ranil Wickremesinghe, who had a lot of experience as Prime Minister, accepted the challenge and we soon entered a comprehensive loan agreement with the IMF until 2027. This time it was very difficult because we had violated the IMF agreements 16 times. President Wickremesinghe personally engaged in a very tiring process as he holds the position of Minister of Finance and Minister of National Policy Planning.
Thanks to that IMF loan agreement, Sri Lanka can finally breathe freely. If not, no one would give recognition and respect to our Letters of Credit (LCs). Then we could not have imported LP Gas, food, medicine, machinery and equipment. Since we are not a self-sufficient country in all respects, we must issue an LC according to the system of settlement of transactions to import goods from abroad.
Without the international credibility of LCs, no matter who is in-charge, international transactions will not take place. According to the international standard of those transactions, if the IMF Agreement is violated, the country cannot sustain for even two weeks. That is why it was agreed to provide the financial resources to maintain the day-to-day economy every year under a loan agreement that lasts until 2027.
The Budget for 2025 should be prepared in a few months. Salaries and pensions of public servants can be paid only if the Budget is passed. It is only if the Budget is passed that the poor can receive welfare and subsidies and broken infrastructure such as roads, electricity and water systems can be repaired. Without IMF support, we cannot prepare a Budget document until 2027. For example, in the year 2025, it has been estimated that there will be a shortfall of US$ 5,018 million in the Budget process and the country’s international relations.
IMF supporting Budget
Our country has international reserves of US$ 5.5 billion dollars. But that is not enough for us next year. This is how we have signed the agreement. The IMF is supporting this Budget by giving Sri Lanka US$ 663 million. Maybe a new government will prepare the Budget. But US$ 700 million should be given to the financial fund. The World Bank has allocated US$ 400 million and the Asian Development Bank (ADB) is lending US$ 300 million. It is expected that a loan relief of US$ 3,655 million will be received. Next year’s Budget will be prepared this way. No matter who takes over the reins, money is definitely needed to pay salaries, pensions and subsidies of Government employees.
For example, in the year 2027, there will not be a resource gap of so many billions. It is US$ 3,911 million, US$ 629 million of which is given by the IMF under the Extended Fund Facility (EFF). We will get US$ 300 million from the World Bank and US$ 300 million from the ADB. There will be a loan relief of US$ 1,482 million. Even in 2027, we will face a shortage US$ 1.5 billion US dollars.
To get that US$ 1.5 billion we have to go to the international market. These days, no matter what the Government is, no matter how they talk, no International Sovereign Bond (ISB) will be bought in Sri Lanka. We will be allowed to issue bonds for US$ 1.5 billion only if our country’s reserves increase to US$ 14 billion by that time. We can remain debt free until 2027.
Lazard, Clifford Chance, and other experts, including the Secretary of the Ministry of Finance of Sri Lanka, Treasury Secretaries, Governor of the Central Bank of Sri Lanka (CBSL), CBSL experts and all our Ministers including Ministers Ranjith Siyambalapitiya and Shehan Semasinghe are making a great effort for economic recovery.
To obtain politically necessary agreements, the President has gone to India and held many separate discussions with India’s Minister of Finance Nirmala Sitharaman and the Minister of External Affairs Dr. S. Jaishankar regarding the debt repayment. He went to China and met with Chinese President Xi Jinping and the state leadership and discussed how to restructure the loans given to Sri Lanka.
He went to Japan and discussed with the Japanese Government and asked for support for this recovery because Japan is Sri Lanka’s friend. Also, as a result of him going to the French joint aid group (Paris Cub) and shouldering the recovery of Sri Lanka, the Treasury Secretary, Minister Shehan Semasinghe and the Central Bank Governor signed these agreements recently. Sri Lanka signed agreements separately with China, Japan and India. After the debt repayment agreements with the bilateral creditors, the negotiations on ISBs are now coming to an end.
Highly skilled experts
We have signed these agreements with highly skilled experts in the technical and financial fields. Since there is nothing to hide, the President addressed the nation and explained and presented it to Parliament. If anyone dreams of running the country and saving our people without following this program which was unanimously approved by honouring international agreements, they can forget it. Sri Lanka can never be fixed without these connections.
By reading the world economic outlook 2024 publication, among the reports sent to the world about the situation, readers can get a tangible understanding of where Sri Lanka stands with other countries in the world.
