FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com


Join the forum, it's quick and easy

FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com
FINANCIAL CHRONICLE™
Would you like to react to this message? Create an account in a few clicks or log in to continue.
FINANCIAL CHRONICLE™

Encyclopedia of Latest news, reviews, discussions and analysis of stock market and investment opportunities in Sri Lanka

Click Link to get instant AI answers to all business queries.
Click Link to find latest Economic Outlook of Sri Lanka
Click Link to view latest Research and Analysis of the key Sectors and Industries of Sri Lanka
Worried about Paying Taxes? Click Link to find answers to all your Tax related matters
Do you have a legal issues? Find instant answers to all Sri Lanka Legal queries. Click Link
Latest images

Latest topics

» LOLC Group's stunning performance goes beyond numbers!
by Riz123 Yesterday at 1:19 pm

» Will CEYLON TOBACCO COMPANY PLC (CTC.N0000) delist from the CSE?
by rajithasahan Yesterday at 10:40 am

» UNION ASSURANCE PLC (UAL.N0000)
by ErangaDS Sun Mar 03, 2024 10:30 am

» CSE ready for another Downtrend?
by D.G.Dayaratne Sat Mar 02, 2024 9:25 pm

» EXPO.N - Expo Lanka Holdings De-Listing
by smallinvestor Fri Mar 01, 2024 4:50 pm

» ලොව වැඩිම පොලී ගෙවන රට බවට ශ්‍රි ලංකාව පත් වෙයි
by Beyondsenses Fri Mar 01, 2024 3:43 pm

» Suspension of Parate Execution: Impact to Banking Sector Shares
by God Father Fri Mar 01, 2024 7:15 am

» TAFL is the most undervalued & highly potential counter in the Poultry Sector
by atdeane Thu Feb 29, 2024 10:33 pm

» Excellent Report pending From CTC (Keep eye on CTC )
by ddrperera Thu Feb 29, 2024 7:11 pm

» Ceylon cold stores
by Beyondsenses Thu Feb 29, 2024 11:21 am

» Investor Alert: Sri Lanka Stock Brokering Mafia Strongly Active!
by D.G.Dayaratne Thu Feb 29, 2024 6:29 am

» CENTRAL INDUSTRIES PLC (CIND.N0000)
by D.G.Dayaratne Wed Feb 28, 2024 9:39 pm

» What are the key aspects of the Online Safety Act?
by God Father Tue Feb 27, 2024 10:35 pm

» How to defeat Ranil Wickramasinghe at the next Presidential Elections
by empire Sat Feb 24, 2024 10:34 am

» FINANCE AND LEASING SECTOR
by ApolloCSE Sat Feb 24, 2024 1:35 am

» Why Foreign Sales have gone up during last few days
by D.G.Dayaratne Fri Feb 23, 2024 10:21 am

» Market Performance (2022-2024)
by D.G.Dayaratne Fri Feb 23, 2024 6:10 am

» Richard Pieris Exports PLC (REXP.N0000) future looks bleak!
by God Father Wed Feb 21, 2024 3:34 pm

» ANALYSIS: Sri Lanka Car Market 2024
by D.G.Dayaratne Mon Feb 19, 2024 11:14 am

» RED ALERT!! from Richard Pieris and Company PLC
by ChooBoy Sun Feb 18, 2024 10:28 pm

» Sri Lanka: China EXIM Bank Debt Moratorium to End in 2024
by God Father Sun Feb 18, 2024 8:29 am

» IPO Failures in Sri Lanka
by God Father Sun Feb 18, 2024 8:21 am

» HOTEL AND TRAVEL SECTOR
by ErangaDS Sat Feb 17, 2024 9:57 pm

» Treasury Bill is an option of Fixed income
by ResearchMan Sat Feb 17, 2024 2:31 pm

» CONSTRUCTION SECTOR
by Gaudente Thu Feb 15, 2024 7:40 pm

LISTED COMPANIES

Submit Post
ශ්‍රී ලංකා මූල්‍ය වංශකථාව - සිංහල
Submit Post


CONATCT US


Send your suggestions and comments

* - required fields

Read FINANCIAL CHRONICLE™ Disclaimer



EXPERT CHRONICLE™

ECONOMIC CHRONICLE

GROSS DOMESTIC PRODUCT (GDP)



CHRONICLE™ YouTube

Disclaimer
FINANCIAL CHRONICLE™ Disclaimer

The information contained in this FINANCIAL CHRONICLE™ have been submitted by third parties directly without any verification by us. The information available in this forum is not researched or purported to be complete description of the subject matter referred to herein. We do not under any circumstances whatsoever guarantee the accuracy and completeness information contained herein. FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner whatsoever. Trading or investing in stocks & commodities is a high risk activity. Any action you choose to take in the markets is totally your own responsibility, FINANCIAL CHRONICLE™ blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. The information on this website is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.

Further the writers and users shall not induce or attempt to induce another person to trade in securities using this platform (a) by making or publishing any statement or by making any forecast that he knows to be misleading, false or deceptive; (b) by any dishonest concealment of material facts; (c) by the reckless making or publishing, dishonestly or otherwise of any statement or forecast that is misleading, false or deceptive; or (d) by recording or storing in, or by means of, any mechanical, electronic or other device, information that he knows to be false or misleading in a material particular. Any action writers and users take in respect of (a),(b),(c) and (d) above shall be their own responsibility, FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental violation of securities laws of any country, damages or loss arising out of the use of this information.


AI Live Chat

You are not connected. Please login or register

Sri Lanka’s economic crisis: Beggars can’t be choosers: Economist

Go down  Message [Page 1 of 1]

CHRONICLE™

CHRONICLE™
Admin

Sri Lanka’s economic crisis: Beggars can’t be choosers: Economist Z_p45-Beg1

The upcoming months will be tough until Sri Lanka has an International Monetary Fund (IMF) programme and bridging finance in place, says Economist and University of Colombo Department of Economics Lecturer Umesh Moramudali.

“We will have to be on a ‘live by the day’ strategy to make sure we get essentials. We will have to cut down on all other expenses,” he asserted, in an interview with The Sunday Morning.

As for ensuring matters progress smoothly with the IMF and other lenders, he emphasised on the importance of having a good macroeconomic framework in place to indicate Sri Lanka’s commitment to bring in the necessary macroeconomic reforms.

Moramudali also pointed out that Sri Lanka’s short-term economic trajectory would depend on China and India as well: “China holds a major share of Sri Lanka’s debt and India is providing Sri Lanka with a major share of the essentials. We need both to get through this crisis.”

He added that Sri Lanka’s position was now so bad that it had come to a point where “beggars can’t be choosers” and the country would have to accept assistance from any quarter – even at questionable cost.

Q: Prime Minister Ranil Wickremesinghe early last week said that the next few weeks would be very difficult and that Sri Lanka would need five billion dollars this year to pay for essential goods. How do you see Sri Lanka managing this situation, especially in the weeks ahead?

Firstly, when we say we need money, we mean that we need money to import. We then go back to the question of Sri Lanka not having sufficient reserves; in fact, we don’t have any reserves. This means some dollars have to come to strengthen the reserves position through a dollar loan or we need more export earnings or worker remittances coming into the banking system. One would expect this to provide some sort of a breather, but that is not going to be enough.

The other alternative is credit lines. We don’t have dollars right now so we are purchasing goods on a credit basis. That is the arrangement we have with India, it is how we have been getting fuel. In fact, we have been getting fuel from India for quite a while now and as a result, there is a limit to how long we can go on doing this. That is why the coming weeks are going to be tough, as the PM mentioned. We won’t be able to import as much as we would like to, even when it comes to the essentials. Sri Lanka will have to consume fuel carefully, because we simply do not have enough forex to import fuel. That is one side of the story.

The upcoming months are going to be tough until we get an IMF programme and bridging finance from other countries. We will have to be on a ‘live by the day’ strategy to make sure we get essentials. We cannot afford to spend any money on non-essentials and the figure the Prime Minister mentioned is for the essentials. These have to be prioritised, which means we will have to cut down on all other expenses. Things are going to be tough.

Another aspect is that things are bad because of global conditions. Globally, fuel prices are rising because of the Russia-Ukraine war and there are export bans to consider, which have disrupted the global food supply. For example, India banned wheat exports and Indonesia banned palm oil exports. We are dealing with two problems; we have a huge domestic economic issue that has come at a time when the global economy has also taken a significant hit. That means it’s very difficult to make ends meet, which is why things are going to be tough in the upcoming months.

It all depends on how much we are going to get from India. We already have a $ 1 billion credit line, most of which has been spent. The Government is negotiating another $ 500 million credit line with India for fuel. Due to the constraints, it also means that power cuts are inevitable. There has to be a compromise from both ends – electricity and transport.

In addition, fertiliser prices are high, due to the Russia-Ukraine war. There is also a huge food supply problem even if we import and domestic food production has been highly disrupted. The times ahead are going to be tougher; things depend not only on what we do domestically, but also on how global actors react to the situation.

There’s a new Government in place and we’ve gone to the IMF for assistance, as recommended by experts long before things unravelled this badly. What does Sri Lanka need to prioritise now to ensure that the assistance we need will be extended to us?

What the IMF and World Bank have been very clear about is that they need Sri Lanka to have a macroeconomic framework in place which will outline the way in which the country will get out of this crisis. On the other hand, in order to obtain bridging finance, an IMF agreement is also important as it gives Sri Lanka credibility. Without the IMF coming to an agreement, it will be very difficult to build trust with other countries for the debt negotiation process.

The key thing is to have a good macroeconomic framework and indicate our commitment to bring in the necessary reforms, which has been a topic of discussion for years. For example, there were certain changes to the tax regime, which is good. Then we also see tax concessions being given to the Port City, which doesn’t tally with the kind of programme the IMF would anticipate Sri Lanka having in terms of a good macroeconomic framework. What we promised earlier is that we would not give arbitrary tax concessions, and that tax concessions would be based on rationale.

We must have a clear macroeconomic framework on how we are going to recover, with feasible and realistic targets – how much tax we will raise in the upcoming years, how we will do it, what expenditure will be curtailed, how we will reduce losses of State-Owned Enterprises (SOEs), and what we are going to do regarding loss-making SOEs, like SriLankan Airlines.

We have to have a clear macroeconomic framework on what we are going to do and the legislative changes we hope to bring in. For example, are we going to bring in a more advanced version of the Monetary Law Act to provide more independence to the Central Bank? We have to also make sure there is a properly functioning Government and an independent Central Bank. That’s largely what the IMF, the World Bank, and most international lenders expect Sri Lanka to do at this point.

What roles do you see China and India playing amid Sri Lanka’s ongoing crises?

Their roles are very important and will determine how we can manage domestically. For example, we have been managing the fuel and electricity supply largely because of Indian credit lines. If not for those credit lines, the situation would have been much worse. India has been consistently supporting Sri Lanka, largely through credit lines, and there was a currency swap obtained in January as well.

Of course, India has its national interests at play – you see Adani Group coming here and there is talk about wind power plants going to them. Obviously, India is using this situation to its advantage as well, as any country would do, but it has been playing a crucial role. Sri Lanka’s position is now so bad that it has come to a point where beggars can’t be choosers. Whoever offers help, we will have to take it; sometimes the cost will be problematic.

In terms of China, it has been fairly silent in the last few months as opposed to the support it provided earlier. China provided support during the early pandemic period, in 2020 and 2021, subsequent to which it has not given any direct support in terms of loans or credit lines. It has given some aid but the magnitude of the crisis is such that credit lines or term loans – what China has been providing to Sri Lanka in the last couple of years – would be very useful at this point.

Another reason for the importance of China’s role is that it owns about 20% of Sri Lanka’s outstanding foreign loans. This means China plays a big role in the debt negotiation process and is a key factor in how the debt negotiations will work and how successful they will be. The Chinese method is that it doesn’t usually restructure debt. China prefers refinancing loans. It gives loans to repay existing loans rather than taking haircuts or restructuring loans.

This is a global issue as well now – you see India and the G7 insisting that China be treated in the same way by Sri Lanka. How China and India interact with Sri Lanka in the upcoming year or two will determine how Sri Lanka’s survival will take place. The country’s short-term economic trajectory will be largely dependent on these two countries, in addition to the IMF and World Bank.

China holds a major share of Sri Lanka’s debt and India is providing Sri Lanka with a major share of the essentials. There is a rivalry between these two countries and I don’t know how that will play out, but we need both the countries to get through this crisis in the short term.

Things have been sliding from bad to worse, with law and order falling apart. Even as shortages increase and queues lengthen, violence, robberies, break-ins, and killings are on the rise. What are your thoughts on the current ground situation in Sri Lanka? What do you see as the key reasons for this unravelling?

When a country has severe shortages, as we are experiencing, and when there is a significant increase in price levels, society resorts to these things. The job of a government is to do whatever it takes to prevent such a situation, by providing those who are in need with cash transfers in the short term and making sure their income streams are not heavily disrupted.

Take farmers, for example. They don’t have adequate fuel or fertiliser to carry out cultivation. Even if they are available, the prices are very high. How are they going to cultivate? Then take fishermen – they can’t engage in fishing due to the lack of kerosene. The Government’s job is to make sure that there are no shortages and that essentials like petrol, diesel, kerosene, and fertiliser are provided so that people can engage in their income generation streams, and also provide them with cash transfers.

When those things don’t happen quickly, people get agitated and some resort to looting and so on. There is a real risk that this could get worse in the months ahead and immediate actions are required.

Another thing I see – and this is from the side of the people – is that there is a lot of hoarding. People are acting with too much self-interest. Sometimes people hoard fuel, or have two or three gas cylinders at home; they engage in stockpiling. Some people then sell fuel or other items at a much higher price. These are the kind of activities that led to this crisis; carried out on a small scale and also on a large scale by big businesses. This also means that there is no productivity-generated profit; profit is generated through rent-seeking. As a society, everyone needs to understand that this has to stop. If we continue to do these things, we will actually not have essentials. We are running on a very tight forex situation. Everyone will have to squeeze their consumption and understand that we are in a crisis; we can’t have the lifestyle we used to have anymore.

The response to this question also draws back to how the Government has been reacting. The people’s demand has not been met. Their demand is clear – they want President Gotabaya Rajapaksa to go home, but he has not done so. Then he went on Bloomberg and said he has no intention of going. This is completely contrary to what the people have been demanding. When such things happen, it is very difficult to get their support for the reforms that need to be done.

People are already struggling and getting through the day is difficult. In such a situation, when your demands are not met and when you frequently hear about how politicians are prioritising their own interests, it further agitates people. The Government needs to get its priorities right.

I personally don’t think the President should continue to serve. We can’t have an election at this point, but after a while he should consider resignation or calling for an election as soon as possible. The Government has lost legitimacy and people don’t take it seriously anymore.

An interim budget is to be unveiled next month. What areas should it prioritise?

Even before an interim budget, we have seen certain tax changes being announced. What an interim budget will do is bring some of these changes into legislation. We would also expect to see a reduction in public infrastructure projects; anything that is not urgent will have to be halted. There was a circular by the Finance Ministry to this effect but I think it has to come from the interim budget, where you say ‘this is where we are channelling the money right now, we are prioritising medicine’ and so on.

Our room to cut expenditure is not significant, so whatever reforms should largely be based on taxes. But we have to cut expenditure wherever we can – do we need such a large military, do we need Government construction to go on, do we need new roads? I don’t think so.

What about protecting the most vulnerable in society? Looking after the poor even as more people fall into poverty?

That’s why I mentioned the cash transfers. Apart from Samurdhi being given to vulnerable people, now a lot more people need to get Government support as they have lost income streams. The Government needs to look at how much it is going to give these people and for how long. Due to high inflation, you can’t be giving a fixed amount. Cash transfers have to account for that as well. We anticipate that the budget for cash transfers will increase.

We saw the Prime Minister mentioning writing off the bad debt of small-scale farmers. Such statements that have been made in the last few months will come into Government accounting through the interim budget. We have seen statements about the need to give cash transfers and how World Bank funding has been provided for this purpose. All these cannot be suddenly given; you need Parliament approval. That’s what will be done through the interim budget.

Protecting the vulnerable with cash transfers, halting infrastructure and nonessential Government expenditure, specifics regarding the tax changes, what will be done about SOES, whether we will have a fuel pricing formula – we anticipate all this with the interim budget.

The recent appointment of the current Central Bank Governor was widely welcomed. However, there is speculation that the Prime Minister wants Governor Dr. Weerasinghe out and wishes to appoint one of his own men. What kind of an impact will such a move have at this point? What is the message it will send to the international community?

It will send a very bad message. We are currently in the process of negotiating our foreign debt. Having someone credible in the Central Bank, someone who can carry out Central Bank duties independently, is very important. That’s something the IMF would strongly advocate. It is also something that the debt negotiation process requires. It ensures that the Central Bank will have the independence to carry out its duties based on rationale without political interference. That seems to be the case with the current Governor. Any intervention will adversely affect the debt negotiations.

We have a Central Bank Governor who has been a Central Banker for decades, who has been welcomed by the local banking sector and is well experienced in dealing with the IMF. There is no need for change. If there is a change, it will mean that the change will be politically motivated, due to what the Prime Minister wants. I think that is a very bad precedent to follow that will have implications internationally. Bond holders, other bilateral lenders, and even the IMF might see it as an unnecessary intervention in the reform process.

Then you also have domestic resistance. Confidence in the domestic economy is very important and it has actually deteriorated significantly because the Government does not have legitimacy. The President does not have legitimacy and the Prime Minister doesn’t have a mandate.

Furthermore, given the Prime Minister’s history with appointing Central Bank governors, any move to replace the Governor could be detrimental to the economy because people and the business community had a very bad experience with Wickremesinghe’s previous recommendation to the Central Bank. Due to the precedent set by Wickremesinghe, such a move will not be welcome. Another aspect is how the Monetary Board members will react. If they react badly or step down, it could have an adverse impact on Central Bank policies. We also need to consider the signal that it will send to the international community. You have to act very cautiously on this matter.

https://newsin.asia/sri-lankas-economic-crisis-beggars-cant-be-choosers-economist-umesh-moramudali/

https://www.srilankachronicle.com

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum