Sri Lanka’s recent economic crisis, the worst the island nation has faced since Independence from Britain in 1948, was the result of poor policy making, pandering to populist ideals, lack of transparency, and accountability in governance of the resource rich island. Sri Lanka has sought the assistance of the International Monetary Fund (IMF) seventeen times before, when it was in trouble and needed a bailout.
It is clear that Sri Lanka kept repeating the same mistakes over and over again, if not one or two IMF bailout programmes would have pushed the Island on to a right economic trajectory. Sri Lanka has in the past, been happy to pat ourselves on the back mid-recovery and conveniently forget to follow through on relevant reforms and good governance measures, once the economic situation becomes ‘manageable’. It seems that we are getting ready to make the same mistake again.
Addressing the Parliament yesterday (2), President Ranil Wickremesinghe informed the Legislature that on 26 June, the Government reached an agreement with the islands official bilateral creditors regarding the repayment of the loan. Wickremesinghe said that officials authorised by the Cabinet signed the agreements and contracts with the relevant parties at the Paris Club and in Beijing. The road to reaching an agreement with bilateral creditors was a difficult one, and credit must be given where it is due; to the President, who is also the Minister of Finance, all organs of the Government involved, and a number of nations which looked upon Sri Lanka with understanding and aided in the effort.
Wickremesinghe and other opposition politicians such as Harsha de Silva and Eran Wickramaratne had raised red flags in 2020 that Sri Lanka was heading into a crisis. Had the Gotabaya Rajapaksa Government not been so pig-headed and explored IMF options, Sri Lankans would have been saved a great deal of suffering and trauma. According to Wickremesinghe our foreign debt amounts to US Dollars ($) 37 billion, comprising $ 10.6 billion in bilateral debt, $ 11.7 billion in multilateral debt, and $ 14.7 billion in commercial loans, including $ 12.5 billion in sovereign bonds. The President rubbished some criticism directed at the Government’s efforts of restructuring the island’s bilateral debt, reminding that “Official bilateral creditors never reduce the principal amount of a loan. What we can obtain are concessions such as extended loan repayment periods, grace periods, and reduced interest rates…We must recognize that such actions require mutual agreement. Creditors will not simply comply with our demands. These statements reveal a lack of understanding of international economic systems. Neither the creditor nor the borrower has the authority to make the final decision on the extent of debt restructuring. The International Monetary Fund (IMF) makes that decision,” the President explained. Yes, promoting unrealistic expectations regarding debt restructuring will not help the situation, it may mislead the public.
However, today we are still in the dark about the details of the agreements which have been reached between Sri Lanka and the bilateral creditors. There has been a lack of transparency and clarity from the state agencies and agents who negotiated with the Paris Club and Beijing regarding the process and what exactly it entails. In keeping the public in the dark, even after the negotiation process was complete, the Government is repeating past mistakes.
If Sri Lanka is to learn and not repeat its past mistakes, there must be greater transparency and accountability in governance, and that is an area, this Government, like many before it, are failing at. Further, there is serious concern about how the International Sovereign Bonds (ISB) commercial debt will be restructured. The Head of the parliamentary watchdog, Committee on Public Finance (COPF) on yesterday refused a request by the President for COPF to approve the bilateral debt deal, so that it can be voted on in Parliament. “The reason is the Finance Ministry refused to release the agreement. Can’t approve unknown! Thus no debate, no vote. All else is fiction,” MP de Silva said on social media platform X. The public has a right to know what we have signed on to and the details of it, because it is the hard earned money of the taxpayer which will eventually pay debt and interest.
As such, the Government must not act with more accountability and clarity, there is a need for transparency, and it is needed today. That is the change, along with better policies which will keep Sri Lanka from spiralling back to bankruptcy.