Bandula Gunawardane, the Colombo District MP of the United People’s Freedom Alliance (UPFA) discusses the current status of the economy. Mr. Gunawardane who briefs the media about economic affairs on behalf of the party, said debt servicing would be a challenge for any future government.
Excerpts:
Q As the main opposition, how do you view the current status of economy in the aftermath of the Easter Sunday attack?
Long before the attack, in my budgetary speech, I mentioned clearly that doom had been spelt on the economy. People had lost sufficient returns from their bank deposits, investment in assets and livelihood activities. The growth rate plummeted, and the agriculture, industrial and service sectors declined. Debt burden had worsened in an unprecedented manner. The rupee value depreciated to the lowest level in history. Foreign reserves had eroded. Some people had lost employment. It was the end result of the downward spiral of economy that started in 2015. The government was compelled finally to reach an agreement with the International Monetary Fund (IMF) in 2016 over the crisis triggered after 2015. Investors started withdrawal of their money invested in sovereign bonds, the rupee value dropped. Foreign Direct Investment (FDI) did not flow into the country. If there had been a smooth sail for the economy, the need would not have arisen for the government to strike a conditional agreement with the IMF.
The government was tied up to the IMF conditions- that is to release US $ 1.5 billion in six tranches within a span of three years. One condition is to reduce the budget deficit to 3.5 as a percentage of the Gross Domestic Product (GDP). The second is to open up the exchange control. The Central Bank cannot intervene in this case.
The public enterprises – the Ceylon Electricity Board (CEB), the National Water Supply and Drainage Board, SriLankan Airlines etc- are supposed to be restructured by the present government as stipulated by the IMF. Also, IMF stipulated that the government should increase its revenue by way of increased tax rates. The economy has to be liberalized. Subject to such conditions only, the IMF approved this financial facility. The government had to succumb to the IMF pressure because then Finance Minister Ravi Karunanayake engineered the economic crisis soon after he assumed office.
After Easter Sunday’s attack, it only took a turn for the worse. In fact, it is proverbially similar to an ox striking a man immediately after he fell from the tree. The Easter Sunday attacks are not the sole cause of the present economic ills. In fact, the economy had been on a downward spiral for a long time under the current regime.
The Govt. was compelled finally to reach an agreement with the IMF in 2016 over the crisis triggered after 2015
The largest ever financial fraud of Sri Lanka occurred on February 27, 2015. It was the CB bond fraud. Nobody has assessed the opportunity cost of this fraud
The Easter Sunday attacks are not the sole cause of the present economic ills. The economy had been on a downward spiral for a long time under the current regime
Q There are economic challenges. The country is bound to lose foreign exchange in terms of revenue from the tourism industry. It will affect debt serving. How will you revive the economy if you return to power?
People have lost faith in the government’s ability to restore democracy. After this government came in, the National Executive Committee was formed to execute the 100 day programme. It consisted of Prime Minister Ranil Wickremesinghe, former President Chandrika Bandaranaike Kumaratunga, JVP leader Anura Kumara Dissanayake, Dr. Wickramabahu Karunaratne etc. They carried out what they called a ‘100-day revolution’.
Ironically, during this period, the largest ever financial fraud of Sri Lanka occurred on February 27, 2015. It was the Central Bank bond fraud. Nobody has assessed the opportunity cost of this fraud. It is a continuous haemorrhaging of the economy. The opportunity cost must be as high as Rs. 2000 billion. The actual loss is now known. But, the opportunity cost is much higher. The interest rate shot up to double-digit levels after the scam. Foreign investors withdrew their money invested in government bonds. It weakened the strength of the local currency. When the rupee value dropped, the rupee component of foreign borrowings rose. When taking into account all these factors, the opportunity cost must be as high as Rs. 2000 billion. It eroded confidence in the country’s banking and financial systems.
Q I am asking what you would do to correct the situation if you won power?
First of all, we have to ensure national security and instil confidence about it in all quarters. We have to instil full confidence about our economic, fiscal and banking systems. Otherwise, we won’t be able to deliver despite being restored back in power. National security is fundamental to everything.
The Executive, Legislature and Judiciary are three pillars needed for any healthy society to flourish. Today, all these three pillars are not trusted. Their credibility has suffered. President Sirisena vows to carry out the death penalty, whereas the Prime Minister is opposed to it. Court case after court case is filed against former Defence Secretary Gotabaya Rajapaksa at a special trial-at- bar. But no such special trial-at-bar is established to hear cases against those responsible for the Easter attacks. A Parliamentary Select Committee (PSC) is trying to absolve those responsible for the attack. Some MPs such as Dayasiri Jayasekara decline to testify before the committee citing it as something contrary to the Standing Orders. The entire system is in disarray. No one in the government is listening to each other.
There is serious concern about judicial independence. There is a case filed questioning the legality of the Financial Crimes Investigation Division (FCID). Hearings have been completed, but the judgement is reserved. These are the problems.
We have to resuscitate the small and medium industries. We have to work tirelessly for three years without any corruption and fraud to revive the economy. That is the only option to bring back the economy to what it was before 2015. Then, we will be able to attract tourists and investors.
There is a black economy that has grown in an unprecedented manner. There is a lot of ill-gotten wealth in terms of commissions, unlawful transactions, drug trafficking etc. Some people have stashed their unlawful wealth elsewhere outside the country. Also, some local people have been victimized by unbearable taxation. They do not invest their earnings. We have to make this black economy white. For that purpose, we have to introduce tax-free concessions for them to invest their money. Then, it will contribute to the increase of our foreign reserves.
- Debt component has to be rescheduled under a future government
- Gotabaya is people’s choice for presidential candidacy
- People have lost faith in Govt
- Work tirelessly without any corruption and fraud to revive the economy
- Ordinary people have bad experience about private finance institutions
Q Debt servicing is bound to be a challenge for Sri Lanka. How would you face it?
The present government did not have any debt crisis during its first three years starting from 2015. It started in 2018 only. Debt servicing and the fuel import bill are the biggest drain on foreign exchange. During the period of the former government, the oil bill was as high as US $ 5 billion due to spikes in the world mark. In 2015, it dropped to US $ 2.5 billion. So, the government could save a lot of foreign exchange. The government failed to capitalize on this. We started issuing sovereign bonds in 2007. Up to 2014, we had issued sovereign bonds to the tune of US $ 5.2 billion. The present government has issued sovereign bonds amounting to US $ 10 billion. We have to make bullet payments. We cannot delay these payments. It will be a shock to the economy in the future.
The government has made huge borrowings under the provisions of the Active Liability Management Act. We need to increase FDI. Also, we have to manage our debt. We have to reschedule our debt component seeking a longer period for repayment.
Q What is your position on the move to restructure State banks?
We are opposed to the privatization of State banks. The Opposition Leader has made that clear. Ordinary people have bad experience about private finance institutions after the collapse of Golden Key, Sakvithi and EAP. Some depositors even committed suicide. We need to increase the capital of the State banking system, but not privatize them. The present government publicized banking service more than ever.
Q I would like to talk a bit about politics. Who is your presidential candidate?
It is very clear that people are asking for Gotabaya Rajapaksa as their leader who will not partition this country, come what may. Also, he is fully trusted by the people for his strong leadership. They expect him to contest since Opposition Leader Mahinda Rajapaksa cannot contest due to constitutional barriers. That is the demand of the MPs who stood by Mr. Rajapaksa even after he was defeated. There may be other aspirants, but the people ask for Gotabaya.
