“The worsening crisis cannot be solved only by meeting foreign loan obligations”
Tamil National Alliance (TNA) MP, MA Sumanthiran, PC, on behalf of several political parties represented in Parliament, has called on the government to delay repayment of foreign debt. Jaffna District MP and TNA spokesman Sumanthiran said he had launched an effort to seek consensus with his colleagues in his capacity as former chairman of the parliamentary public finance committee. The group questioned the government’s strategy to deal with the worsening financial crisis.
Here is the text of the statement entitled “A collective response to our economic crisis” issued yesterday: “Sri Lanka is in the midst of an unprecedented economic crisis, causing serious hardship to all segments of our society, especially our workers and to the poor.
There is no doubt that the government has an arduous task ahead of it and as a country we must all come together to overcome this challenge.
At the same time, the government’s approach to resolving the crisis raises serious questions. Its focus, almost solely on meeting foreign debt obligations, is draining the country of dollars needed to import essential goods for our people. The government’s emphasis on avoiding default at all costs seems to belittle a fundamental question: can our people eat? After all, the pride of a country rests not only on the repayment of its loans, but also on the fact that no citizen goes to bed hungry.
Recognizing this dire situation, a group of leaders from over half a dozen key political parties in Sri Lanka came together in a closed meeting on Thursday, January 27, 2022, to brainstorm ways to overcome this crisis. , given the responsibility we have towards the people of Sri Lanka.
I approached parliamentary colleagues and party leaders, in my capacity as former chairman of the public finance committee in Parliament. MPs gathered knowing that Parliament is supposed to have full control of public finances and therefore every MP also has the fiduciary responsibility to ensure the proper management of public finances in Sri Lanka.
The crisis, we noted, is on a historically unprecedented scale for many reasons:
(1) The country’s ratings have fallen to the level of a blacklist on international credit markets. As of April 2020, Sri Lanka is no longer allowed to borrow using International Sovereign Bonds (ISBs) in the international market
(2) Paying down debt in US dollars in this context means that usable foreign exchange reserves have fallen to less than a month of imports – the lowest since independence.
(3) The ratio of interest on debt to government revenue was above 70% in 2020, an all-time high for Sri Lanka and among the highest in the world.
(4) Sri Lanka’s public debt to value of domestic production (GDP) ratio is also the highest on record, at 120%. It has skyrocketed, almost 25 percentage points, over the past two years.
Each of these situations would in itself constitute a serious economic challenge. Occurring simultaneously, they threaten our short and long term future.
In this context, the Central Bank’s policy has been to hoard scarce dollars to pay creditors in full and on time. This has fueled a shortage of dollars for the needs of our own people and reduced imports of essential items such as food, medicine and fuel. We see the shortage manifesting itself in long queues for essential items and frequent power outages. The situation will only get worse as the year progresses, unless the government urgently shifts gears and ensures that sufficient dollars are available for the Sri Lankan economy.
Already, the government’s reckless chemical fertilizer policy has impacted farmers across Sri Lanka, leaving us with a looming food crisis. The government’s current debt management policy, like it was with the fertilizer policy, is exacerbating the crisis, with no sensible or viable solution in sight.
Our recent meeting provided a platform for political leaders to share their constituents’ concerns and identify critical issues that require urgent attention. It was widely recognized that the hoarding of dollars by the Central Bank to make lump sum debt payments was causing a shortage of dollars to procure essential supplies in the country. This causes severe economic hardship for the people of Sri Lanka and long-term damage to the economy, while providing windfall gains for Sri Lanka’s sovereign bondholders.
We agreed that Sri Lanka should take immediate action to protect the poor from the adverse effects of this economic crisis and postpone repayment of its debt as a first step. Participating MPs also felt that we need strong national economic policy reform to tackle the root causes of the crisis and ensure lasting solutions.
This group of political leaders agreed to continue to engage and work together to secure justice for the people of Sri Lanka, through durable solutions. We must lead the country out of this unprecedented economic crisis and forge a fair and just future for our future generations.