• Govt. expects to conclude debt restructuring programme during first quarter of 2024
• Negotiators Lazard continuing negotiations with private creditors to reach agreement
• Govt. yet to give ok for Chinese vessel Xiang Yang Hong 3 to visit Sri Lanka in January
• Uncle-nephew moniker pays dividends; Japanese Finance Minister to visit next month
• Wimal pushes SJB, Opposition MPs to walk out, creating quorum issue during VAT debate
• Govt. members hold urgent meeting in Speaker’s office; RW says VAT amendment key
• Govt. parliamentary group opposes VAT increase; Mahindananda clashes with Chinthaka
• Shehan tells RW vote on VAT without debate suitable; Susil says debate in House a must
• SJB-led alliance hits a snag over deputy leader; UNP says any SJBer can re-join but Sajith
• SJB allies displeased over Sajith’s denial of talks to unite Sajith and Ranil; warn Sajith
• Basil moves out of SLPP National Organiser post; Roshan says ready to contest Prez Polls

President Ranil Wickremesinghe and his Government were on a victory lap last week after the Executive Board of the International Monetary Fund (IMF) approved the second tranche of $ 337 million under the Extended Fund Facility (EFF) while the third reading vote of the Government’s 2024 Budget was passed last week.

Approving the second tranche for Sri Lanka, the IMF stated: “Sri Lanka’s agreements-in-principle with the Official Creditors Committee and Export-Import Bank of China on debt treatments are consistent with the EFF targets.”

The IMF also stated: “To ensure a full and swift recovery, sustaining the reform momentum and strong ownership of reforms is of paramount importance. Key priorities include advancing revenue mobilisation, aligning energy pricing with costs, strengthening social safety nets, rebuilding external buffers, safeguarding financial stability, eradicating corruption, and enhancing governance.”

Meanwhile, the third reading of the Appropriation Bill for the fiscal year 2024 was passed in Parliament with a majority of 41 votes on Wednesday (13). Accordingly, 122 MPs voted in favour of the Budget 2024, while 81 MPs voted against it, and one MP abstained from voting. 

Earlier in November, the second reading of the Appropriation Bill for the fiscal year 2024 was passed in Parliament with a majority of 45 votes. 

Be that as it may, the Wickremesinghe Government’s victory lap could be premature given the challenges that will fall before it come 2024 in a few weeks’ time.

Apart from the growing public dissension over the increasing cost of living, the IMF has also set out a clear work target for the Government before the next review of the EFF takes place in June 2024. “A swift completion and signature of the Memoranda of Understanding with the official creditors is important. Timely implementation of the agreements, together with reaching a resolution with external private creditors on comparable terms, should help restore Sri Lanka’s debt sustainability over the medium term.”

The Government is hopeful of completing the debt restructuring programme during the first quarter next year. Sri Lanka’s negotiator, Lazard, is continuing with negotiations with private creditors and the talks are expected to conclude during the first quarter, followed by the finalisation of bilateral and private debt treatment.

IMF negotiations

Meanwhile, the main Opposition Samagi Jana Balawegaya (SJB) has urged the Government to minimise the pressure on ordinary people by its new fiscal policies.

According to the SJB, the current IMF EFF agreement will be renegotiated under a future SJB Government in order to make it favourable for the country’s ordinary people. SJB and Opposition Leader Sajith Premadasa had stated this in Parliament in response to a statement by State Finance Minister Shehan Semasinghe.

Premadasa had alleged that the only reason the global lender allowed for its disbursement was due to the increase in electricity tariffs, Value Added Tax (VAT), and other taxes, which only further burdened the public. “This might be the only way out for the Head of State (President Wickremesinghe) who is part of the Sri Lanka Podujana Peramuna (SLPP) gang that led this country to bankruptcy with the blessings of the Rajapaksas,” Premadasa had claimed.

However, President Wickremesinghe had emphasised on the critical role of the Government’s programme, backed by IMF assistance and debt restructuring to rebuild the country’s economy.  The President had further warned that deviating from this path could lead to another economic collapse, urging caution against the allure of political fairy tales.

Another Chinese vessel

Meanwhile, the Government is once again facing a geopolitical issue with Indian media reporting that after Chinese research survey vessel Shi Yan 6 completed its survey off the coast of Sri Lanka and reached Singapore on 2 December, Beijing had sought permission from Colombo and Malé to allow another research survey vessel to dock at their ports and conduct a deep-water exploration of the South Indian Ocean from 5 January till late May 2024.

The Hindustan Times had stated that while India had already raised objections with both Sri Lanka and the Maldives and asked them not to allow the Chinese vessel to conduct exploration of the Indian Ocean for future military operations, the vessel Xiang Yang Hong 3 is currently off the coast of Xiamen in the South China Sea and will travel via Malacca to these countries after securing permission.

The Indian media states that Indian concerns over Chinese ballistic missile trackers and research surveillance ships being allowed by Sri Lanka and now with a pro-China Government in the Maldives are over Beijing using these vessels to spy on India in the name of marine exploration.

However, it is learnt that the Sri Lankan Government is yet to grant permission for the Xiang Yang Hong 3 to visit Sri Lanka, stating that permission can only be granted once the country puts in place a proper monitoring mechanism to monitor the foreign vessels visiting Sri Lanka.

Uncle-nephew link

Meanwhile, the much-discussed uncle-nephew moniker had paid dividends for President Wickremesinghe recently. 

The United National Party (UNP) has been dubbed by many of its opponents as the ‘Uncle-Nephew Party’. With current Leader and President Wickremesinghe being the nephew of former UNP Leader and President J.R. Jayewardene (JRJ), this tag has been prevalent for some time. However, this past week it had paid dividends for the party during a meeting with Japan International Cooperation Agency (JICA) Special Advisor Dr. Shinichi Kitaoka. 

Discussing the future plans of Sri Lanka’s economic recovery, the President had stressed that Japan’s support was integral. It was at this point that Dr. Kitaoka had taken the opportunity to remember and appreciate the assistance extended by JRJ during the San Francisco Peace Conference, which saw Japan re-admitted to the world order. He had further commented that President Wickremesinghe being the nephew of JRJ had been highlighted by his commitment to deepening ties between the two countries. 

It was last year that President Wickremesinghe travelled to Japan and apologised on behalf of the people of Sri Lanka for the mistreatment of Japanese investments by the former Rajapaksa Government. Sri Lanka has since seen Japan play an integral role in its recovery. 

Japan’s Finance Minister Shun’ichi Suzuki is expected to visit Sri Lanka early next month.

VAT impact

However, the Wickremesinghe Government is bound to see another round of displeasure being echoed by the general public from next month due to the increase in goods and services as a result of the increase in VAT.

State Finance Minister Ranjith Siyambalapitiya had noted that the VAT increase to 18% from January 2024 onwards along with the reduction of VAT threshold to Rs. 60 million and removal of VAT exemptions for 97 items out of 138 goods is expected to increase inflation by 2.5%.

He had added that Short Message Service (SMS) in fixed telephone networks would also be subjected to VAT, given the increased number of text messages being sent.

Presenting the proposed VAT to Parliament, the State Minister had made these remarks, as per the information from the Economic Research Unit of the Central Bank of Sri Lanka (CBSL).

He had said the Treasury was expecting 0.15% growth in Gross Domestic Product (GDP) or a Rs. 40 billion addition to State revenue by bringing the VAT threshold to Rs. 60 million from Rs. 80 million. He had noted that from increasing the VAT to 18% from 15% there would be an increase in revenue by 0.72% of GDP or Rs. 227 billion to the State. Siyambalapitiya had further said that with the expected increase in inflation by 2.5%, inflation would surpass the CBSL target of 5% as inflation in November stood at 3.4%.

However, he had added that the Government was expecting a revision of fuel prices in the next month relative to the drop in global oil prices and a revision of electricity rates as the Ceylon Electricity Board (CEB) had maximised the use of hydropower in power generation in the past few weeks, which would balance off the increase in inflation due to VAT.

The IMF meanwhile has stated that increasing State revenue is of “paramount importance” for Sri Lanka as the country continues to be an economy with “exceptionally low” tax revenues.

Senior Mission Chief Peter Breuer had emphasised last week that revenue was needed for the Government to provide the essential services and without such revenue it was impossible for the authorities to provide the services that the citizens expected from the Government. “Raising revenue continues to be of paramount importance in Sri Lanka. Despite all these measures that have been taken, there is still a long road ahead.”

Meanwhile, independent think tank Advocata Institute’s Chief Executive Officer (CEO) Dhananath Fernando had observed that the VAT hike would further contract the economy, increase interest rates, and push back the Government’s efforts to stabilise the economy.

He had said that the VAT hike would result in high goods and services prices, leading to an increase in inflation, which may slow down the economy. 

Quorum issues

The special Parliament session that was held on Sunday (10) to debate the second reading of the VAT (Amendment) Bill and the Finance Bill was adjourned till the following Monday (11) due to the lack of participation from MPs. 

Once House proceedings commenced, members of the Opposition had noticed that there were only around 12 legislators present from the Government side. 

It was SLPP dissident Wimal Weerawansa who had first noticed that there were only a few legislators on the Government side. There had been around 40 MPs on the Opposition side. Weerawansa had realised that in the event the members of the Opposition walked out of the Chamber, Parliament sessions would not be able to proceed without a quorum.

Weerawansa had informed this to Chief Opposition Whip Lakshman Kiriella, who in turn had noticed that the Leader of the House and the Chief Government Whip were also not present in the Chamber although the debate on the VAT amendment had commenced.

Once Kiriella had explained the situation to Opposition Leader Premadasa, Premadasa had agreed that the Opposition legislators should walk out of the Chamber so that the debate could not continue.

SJB MPs in the Chamber had also been asked to check in the Government lobby and restaurant if there were more Government members in those areas. When it was learnt that there were only around five more Government members in these areas, which would not constitute the required quorum of 20 members, SJB MP Nalin Bandara had been tasked with speaking to Opposition members representing other political parties about the situation and ask if they were agreeable to walk out.

Once the other members in the Opposition had also agreed, first the SJBers led by Premadasa and later the rest of the members in the Opposition had walked out of the Chamber.

Once a majority of the members in Opposition had walked out, SJB’s Nalin Bandara had asked Deputy Speaker Ajith Rajapakse to ring the quorum bell since there was no quorum to proceed with the session. 

Bandara at that time had seen several members of the Tamil National Alliance (TNA), who were not present when he had approached the rest of the Opposition members, seated in their seats. The SJBer had then explained to them about the Opposition plan and the TNA members had also agreed and walked out.

Once the quorum bell was rung, the five Government members who were outside the Chamber had walked in and taken their seats, bringing the number of legislators in the Chamber to 17. 

The SLPPers in the Chamber had then tried to call other SLPPers in close proximity to Parliament to immediately arrive in the House to ensure a quorum to proceed with the session. However, when several SLPP MPs had arrived in the House, the Deputy Speaker had already adjourned the House till the following morning after ringing the quorum bell for five minutes. 

However, Chief Government Whip Prasanna Ranatunga had told SLPP MPS that the VAT Bill would be debated and passed in Parliament on Monday. He had further told the media that the Government spent approximately Rs. 10 million for one day of Parliament sittings and that Parliament employees had worked continuously for 10 days in view of the debate.

Urgent meeting

Soon after the House was adjourned, a meeting was held in the Speaker’s Office by Prime Minister Dinesh Gunawardena, Leader of the House Dr. Susil Premajayantha, Chief Government Whip Ranatunga, and State Finance Ministers Ranjith Siyambalapitiya and Shehan Semasinghe. President Wickremesinghe had by then been informed of what had happened in the House by Semasinghe.

The President had then informed Semasinghe that it was of utmost importance to get the VAT Amendment Bill and the proposed financial regulations passed. Semasinghe had been told to make arrangements to somehow get the proposed regulations passed in the House on Monday even by suspending Standing Orders.

Accordingly, the Speaker had been informed by the Government members that it was important to get the financial regulations passed on Monday since the IMF Board was meeting on Tuesday to approve the second tranche under the EFF programme.

The Speaker had then noted that there was no need to suspend Standing Orders on Monday since the VAT amendment and the financial regulations had already been tabled and taken up for debate and that the regulations could be debated and passed in the House.

Govt. MPs object

Given these developments, the Government parliamentary group meeting on Monday became a decisive one for the Government.

Many Government legislators, who had earlier not received an opportunity to express their views on the Government’s move to increase the VAT percentage by January, had decided to take up their concerns during the group meeting. Government members had expressed their displeasure over the VAT increase.

“Mr. Prime Minister, we cannot agree with the Government’s decision. How can we go back to our constituencies? First it was the cricket issue and now it’s the VAT issue, which is even worse,” SLPP MP Sarath Weerasekera had said.

The Prime Minister and State Minister Siyambalapitiya had admitted that the general public would be impacted by the VAT increase, but that there was no other option for the Government given the current situation. 

Minister Manusha Nanayakkara had also expressed objections to the increasing of VAT: “I also agree with the rest of my colleagues here. I cannot agree to this increase. There are so many ways to charge taxes. Instead of doing that, some officials at the Treasury keep issuing gazettes. Please ask officials from the Treasury to come and respond to these concerns.”

SLPP MP Jagath Kumara had also objected to the VAT increase.

Then a verbal clash had also taken place between SLPP’s Mahindananda Aluthgamage and Chinthaka Mayadunne. Aluthgamage had said that while he agreed with the rest of the SLPP MPs, they should still approve the proposed amendments since it was needed to get IMF approval for the second tranche under the EFF. Mayadunne had objected to Aluthgamage’s statement, saying that regardless of what anyone said, he would not vote to impose more burdens on the general public.

Aluthgamage had then claimed that members of the Government parliamentary group could not take unilateral decisions on the vote and should support the party stance. “You cannot work according to personal agendas. You had not voted with the Government on a previous occasion as well,” Aluthgamage had claimed. Mayadunne had hit back at Aluthgamage saying that he had not worked for personal agendas although some SLPPers had done so.

Seeing the clash between Aluthgamage and Mayadunne getting out of hand, other SLPP MPs had intervened and the clash had been stopped, with Aluthgamage saying there was no need for them to clash among themselves.

The group meeting had ended once the Parliament bell announcing the commencement of sittings started to ring.

Pushing the vote

The main responsibility of getting the VAT amendment passed in the House rested largely on State Minister Semasinghe and he was seen trying to balance the Government side speakers’ list for Monday since the usual budget head debate scheduled for last Monday was also taken up along with the VAT amendment and financial regulations. 

Towards Monday afternoon, Semasinghe had seen that there were around 80 Government MPs in the House while there were around 40 members in the Opposition. He had then asked Chief Government Whip Ranatunga if the vote on the VAT amendment could be held at the time without waiting for the VAT debate.

However, Leader of the House Premajayantha had pointed out that the VAT amendment had to be debated and put to a vote since it was a financial regulation.

Semasinghe had also taken the matter to President Wickremesinghe, who had been in his office in Parliament since the Cabinet gathering for that day was held in the Parliamentary Complex, and asked whether the vote on the VAT amendment could be held without a debate. The argument put forward had been that the whole of Sunday had been assigned for the debate and that since the Opposition had scuttled the process, there was no need to allocate further time from House proceedings on the Budget debate. 

The Government on Monday evening announced to the House that a vote would be taken on the VAT Amendment Bill. The bill was passed with a majority of 45 votes.

Namal joins Opposition

Meanwhile, SLPP Parliamentarian Namal Rajapaksa refrained from voting at the VAT vote. Prior to the commencement of the debate, Namal stated that he would not be voting with the Government on the proposed VAT Bill.

He explained that he could not agree with the increase in the VAT percentage as it would further burden the general public. Namal proposed that the Government should look at widening the country’s tax net rather than increase the percentage of existing taxes. “There’s no point in increasing taxes without taking measures to widen the tax net,” Namal added.

The Sri Lanka Freedom Party (SLFP) also announced that it would vote against the VAT increase when it was taken up for a vote in the House. However, the SLFP’s stance put the SLFPers in Government in a tight spot. Nevertheless, the SLFPers in Government voted in favour of the VAT increase.

The SJB, SLFP, TNA, National People’s Power (NPP), and SLPP dissidents’ group Freedom People’s Alliance voted against the VAT Bill.

RW’s justification

Meanwhile, President Wickremesinghe justified the VAT increase to 18% from next year, noting that even India charged 18% Goods and Services Tax (GST), especially from the IT sector. “It is our policy to increase VAT to 18%. Therefore, it should be imposed on all sectors. You cannot exempt some services and make other sectors liable,” he had said.

“Some in the IT sector are shouting about the increase of VAT to 18%. However, they can survive even with an 18% VAT rate as most of them are export-oriented. Those in the IT sector who provide their services overseas are exempted from income tax. Therefore, they can benefit,” Wickremesinghe had added.

RW-Sajith drama

Amidst the ongoing chaotic political drama, reports of talks being initiated to unite Premadasa and Wickremesinghe to form an alliance targeting the Presidential and General Elections did the rounds last week.

Reports stated that Premadasa had consented to the move at the last moment, with several SJB seniors pushing for unity talks. These seniors, it is learnt, had warned Premadasa that they would be forced to support Wickremesinghe in his campaign if Premadasa was not agreeable to bury the hatchet.

The discussions had reportedly taken place with the aim of reaching an agreement on making Wickremesinghe the presidential candidate while Premadasa would be the prime ministerial candidate. However, Wickremesinghe and Premadasa had not met for a one-to-one discussion on the matter.

Interestingly, the latest turn of events is likely to cause a new alliance between the UNP and SJB or cause a split in the SJB. However, Premadasa had refuted reports of talks to unite him with Wickremesinghe, saying that such an eventuality would never happen.

Anyone but Sajith

Meanwhile, UNP General Secretary Palitha Range Bandara had last week responded to Premadasa’s denial of reports of talks to unite him and Wickremesinghe by telling the media that the UNP was engaged in discussions with members of the SJB with the aim of reconciling differences and creating unity among members of the two parties.

However, Bandara had added that the UNP did not want Premadasa back in its fold but would welcome other members of the SJB.

Deputy leader issues

It is in such a backdrop that the SJB is continuing with its path of forming a broad political alliance that will include a group of SLPP dissidents.

It is learnt that there is a proposal to set up a leadership council for the SJB-led Opposition alliance, which, according to the SJB, is to be launched next month. The proposed leadership council is to assist the alliance leader, SJB and Opposition Leader Premadasa.

However, the proposed Opposition alliance has hit a snag following a proposal by a group of SLPP dissidents to appoint SLPP dissident MP Dullas Alahapperuma as its deputy leader. SJB General Secretary Ranjith Madduma Bandara is expected to be the general secretary of the alliance as well. However, a group of senior SJBers, it is learnt, has objected to the proposal to give Alahapperuma the post of deputy leader of the alliance.

Meanwhile, the SJB has also stated that the party will not form any alliances with individuals who are connected with the SLPP, which it said was responsible for causing the country to go bankrupt. Madduma Bandara has stated that the SJB would not engage in politics with such individuals.

Allies displeased

The SJB camp was nevertheless in disarray this past week, with several members voicing concerns over Premadasa publicly refusing to reunite with Wickremesinghe. It is a well-known secret that several members of the SJB are in direct discussions with Wickremesinghe over re-joining the UNP and extending support to the President. 

Premadasa’s statement in Parliament had taken many SJBers by surprise, with several questioning Premadasa on why he chose to make such an announcement since there had been no public request made for a reunification. 

Two SJB members were seen being questioned by several SLPP members in Parliament as to whether they would now join the Government. The Opposition MPs had laughed off the suggestion, but were seen complaining to SJB seniors about Premadasa’s outburst shortly after.

Interestingly, Sarath Fonseka, who has made no attempt to hide his desire to take over leadership of the SJB, was seen visiting President Wickremesinghe’s office in Parliament on the day of the Budget vote last week. The President had entered the Chamber shortly after Fonseka visited him, but Fonseka was not seen leaving the President’s office for several minutes afterwards.

SLPP convention

The ruling SLPP meanwhile held its second convention at the Sugathadasa Stadium on Friday (15), where former President Mahinda Rajapaksa (MR) was re-elected as the Party Leader. 

Meanwhile, Basil Rajapaksa, who served as the party’s National Organiser, had moved out of the post. According to SLPP MP Namal, the party has decided to leave the post of national organiser vacant for the time being while Basil will be the Founder National Organiser of the SLPP.

Basil made a tough speech last week by issuing a warning calling on detractors to refrain from attacking the party or its members. Basil noted that the next government elected to power would be an SLPP-led government. “We are like the lion. If a stone is thrown at us, we will turn back and see who it is. Don’t throw stones at us. We will take care of it in the future,” he warned.

Responding to reports about planned attacks on SLPPers who attended the event on their way back from Colombo, Basil said security measures had been taken and urged participants to exercise extra caution to avoid any mistake on their part. While asking his supporters to be patient, Basil said others should not consider it as cowardice.

Another candidate

Meanwhile, another candidate for the Presidential Election was seen last week when a question was posed to former Sports Minister Roshan Ranasinghe. He had said he would not hesitate to accept if it was proposed for him to contest the Presidential Election in 2024 as a common candidate.

Ranasinghe had said that if such an offer was made, he would take responsibility and accept it. “I am not someone who hides from responsibilities. I will accept the offer and take up the responsibility. We can rebuild this nation,” he had added.