• IMF team in Sri Lanka to hold discussions with line ministries and stakeholders
• Financial advisor Lazard’s team arrives in Colombo, commences discussions
• Govt. briefs creditors on IMF deal; ISB holders seek restructuring of local debt
• Govt. tells ISB holders ready to consider local debt restructure, no specifics still
• Japanese envoy says Japanese businesses are losing confidence in Sri Lanka
• RW and Kanchana outsmart CPC TUs, prevent fuel queues with price drop
• SLPP seniors under pressure to oppose suspension of SLPP TU Leader at CPC
• MR distances himself from campaigns launched against ‘sale’ of national assets
• RW looks at new Cabinet appointments amidst rumours of defections from SJB
• EC says no legal action against Prez. and Treasury Secy., Govt. Printer says no polls

Last week marked the first anniversary of a milestone event in Sri Lanka’s history – the Aragalaya people’s protest movement – that resulted in the ousting of a President, Prime Minister, and the Cabinet of Ministers. Launched during the height of the country’s unprecedented economic crisis, the Aragalaya movement resulted in the country experiencing many changes, some for the better and some not so.

Along with the ousting of President Gotabaya Rajapaksa, the ascension of President Ranil Wickremesinghe, one of the most unlikely candidates to assume office at the time, were two of the main political changes that were brought about by the Aragalaya protest campaign.

Looking back at the past 12 months, it is evident that Sri Lanka and its people have once again shown resilience and the ability to keep rising.

Twelve months later, Sri Lanka under the governance of President Wickremesinghe is heading down a long, pot-holed road of economic recovery to get the country back on track after the devastating impact suffered during the economic crisis.

Wickremesinghe, despite many shortcomings on his part, has so far managed to steer the country in an able manner – while it is not completely out of the economic mess, he has kept the country and its people afloat without drowning. 

The Wickremesinghe Government managed to secure the $ 2.9 billion Extended Fund Facility (EFF) of the International Monetary Fund (IMF), aimed at salvaging the country from its state of bankruptcy, and give a confidence boost to multilateral donors and investors to re-initiate programmes with Sri Lanka.

The Government, it is learnt, is hopeful of obtaining around $ 1.36 billion in funds from major multilateral agencies, including the IMF, World Bank, and Asian Development Bank (ADB) this year – two tranches from the IMF ($ 660-670 million) and World Bank ($ 600 million) and social security funding from the ADB.

A team of IMF representatives is currently in Sri Lanka holding discussions with local stakeholders to discuss the implementation of the reforms programmes, the feedback, and to prepare for the feedback sessions. The IMF team had held several rounds of discussions last week with several line ministries and key departments.

Also, representatives of Sri Lanka’s financial advisor, Lazard, are also in town to engage with the country’s debt restructuring programme that is to be finalised since the IMF has set an end April deadline to receive the debt restructuring plan.

Nevertheless, the Wickremesinghe Government has managed to earn the wrath of pro-nationalist elements and trade unions in implementing its aggressive economic revival programme that entails reforming and restructuring the public sector, especially State-Owned Enterprises (SOEs). The move has been met with agitations and protests by State sector trade unions and is being backed by the nationalist camp as well as some Opposition political parties.

Trade unions, in order to fight back against the Wickremesinghe Government, are now gearing to form a collective to launch a general strike with the aim of bringing the country to a standstill to make the authorities listen to their demands. A decision on this is to be made during a meeting of a group of trade unions to be held tomorrow (3).

The President however has been resolute in his stance that the Government’s reforms progress will have to move forward for the country to survive and reach the next phase of its revival.

Curbing agitations

One of the key agitations against the Government’s reforms programme was launched last week by the employees of the State-owned Ceylon Petroleum Corporation (CPC), an SOE tipped to undergo reforms. The trade unionists agitated against what they claimed to be a move to privatise the CPC and threaten the country’s sovereignty and energy security. 

The Cabinet on Monday (27 March) approved a proposal to permit three new foreign players to enter Sri Lanka’s retail fuel market. Accordingly, China’s Sinopec, Australia’s United Petroleum, and US’ RM Parks received the Cabinet nod to commence operations in Sri Lanka. Each of the companies are to receive 150 fuel sheds each from the remaining 450 fuel stations after the entrance of Indian Oil Company (IOC) to Sri Lanka in 2003.

However, on Tuesday (28 March) CPC trade unions announced a decision to boycott fuel distribution work and launch a satyagraha against alleged moves to privatise the CPC. The announcement led to the public once again turning towards panic buying, resulting in the formation of long queues outside fuel stations islandwide. It was a moment of déjà vu since it was around the same time the Aragalaya was launched 12 months back at the height of the power and energy crisis that saw long hours of power cuts and long fuel queues.

The Wickremesinghe Government that has responded to protests and agitations with the use of law enforcement and sometimes the use of excessive force decided to take matters under control before the public commenced any form of agitations.

Power and Energy Minister Kanchana Wijesekera made the first call out to the trade unions to return to work without disrupting the country’s economic activities at a time of revival. Once the trade unions refused to budge from their stance, the President directed that the forces be mobilised to re-commence fuel distribution since the energy sector has been declared an emergency service.

By Tuesday evening, military personnel were mobilised at the Kolonnawa Installation for fuel distribution while Minister Wijesekera announced the Government decision to send on compulsory leave the trade unionists and others engaged in blocking the work operations at the Kolonnawa facility.

Although the military assisted the fuel distribution process that re-commenced on Wednesday (29 March) at 6 a.m., long fuel queues were still witnessed in many parts of the country, especially in Colombo. Realising that it would take the entire day to ensure normal fuel supply to fuel stations and that the vehicle queues outside fuel stations would continue to get longer until then, the Government decided to make another key decision.

The fuel price formula that is applied once a month was to come into effect in early April. However, the President, following a discussion with Wijesekera, decided to bring forward the fuel price revision and announced the reduction of prices of all fuel items from midnight on Tuesday. As soon as the announcement was made, the long vehicle queues outside fuel sheds vanished within minutes.

Meanwhile, the 20 trade unionists sent on compulsory leave started to express their displeasure and one of the key individuals to feel the pinch was a senior member of the ruling Sri Lanka Podujana Peramuna (SLPP) at the CPC since he too was sent on compulsory leave.

Minister Wijesekera, who is also an MP of the SLPP, defended the decision to send home those he termed as individuals disrupting the operations of the CPC, saying that he did not care about party politics. He added that separate charge sheets would be given to each of the employees.

MR’s turn

However, the SLPP, which is the key coalition member of the Wickremesinghe Government, was not too pleased that a member of the party’s trade union wing had been sent on compulsory leave and was to be issued a charge sheet. When party member Minister Wijesekera was approached by the SLPP trade union wing, he had informed them that he was unable to do anything about the SLPP trade unionist since he could not apply double standards.

Interestingly, the governing SLPP seems to also support President Wickremesinghe’s proposed State sector reforms programme, with Party Leader and former Prime Minister Mahinda Rajapaksa (MR) opting to remain silent without making critical comments of the plan. However, there has been continuous pressure from certain sections of the SLPP, especially the trade union wing, for the party seniors to raise a voice against the SOE reforms programme as well as the action being taken against trade unionists.

It is in such a backdrop that MR had recently denied plans to attend an event organised by a trade union collective against the Government’s alleged move to sell national assets. A post of the event that was circulated on social media with MR’s image stated that it would be held today (2) at the S. De S. Jayasinghe Hall in Kalubowila. However, MR’s official Facebook page last week claimed that the post being shared of the event with MR in attendance was a fake one.

Nevertheless, the Rajapaksa-led SLPP had on many occasions campaigned against governments led by Wickremesinghe’s United National Party (UNP) and the last Yahapalana Government, accusing of attempts to sell national assets of the country.

It is learnt that the Rajapaksas have this time around agreed that public sector reforms including that of the SOEs are a necessity for the country’s economic revival. Hence, it is learnt that a decision has been reached among senior SLPPers that while they (Rajapaksas) will not openly support Wickremesinghe’s reforms programme, they will not overtly object to it either. 

Talk on local debt

While the Wickremesinghe Government is busy dousing fires on the local front over the SOE reforms programme, discussions continue on the debt restructuring programme.

The Government held a virtual presentation on Thursday (30 March) to update its commercial creditors and investors on the latest situation following the finalising of the IMF deal and the final stages of the debt restructuring programme. The investor and creditor presentation was held on Thursday morning, chaired by Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe and Finance Ministry Secretary Mahinda Siriwardana. 

The presentation had outlined the EFF-supported programme’s objectives, as well as the next steps with regard to engagement with creditors. The Government had reiterated that Sri Lanka was fully committed to successfully completing its IMF programme, adding that it had embarked on “an ambitious reform agenda” to ensure fiscal consolidation, boost tax revenues, rebuild its foreign reserves, improve economic governance, and strengthen the Central Bank’s independence.

However, holders of International Sovereign Bonds (ISBs) had asked the Government representatives whether the country’s rupee debt would also be restructured. It was evident that the ISB holders required a Government response on the matter to move forward with confidence. It is learnt that the Government had noted that it was willing to look at including the rupee debt also in the debt restructuring programme, but had refrained from making any definitive statement on it.

Dr. Weerasinghe and Siriwardana had stated that only Treasury bills held by the CBSL would be considered for treatment to create some fiscal space for the Government. Their presentation had also noted that a voluntary Domestic Debt Optimisation (DDO) operation without coercion was envisaged for Treasury Bonds.

It had further stated that the Sri Lankan Government and its advisors would initiate consultations with major Treasury bond holders to gauge options and constraints. “We envisage to finalise Domestic Debt Optimisation by May 2023 and external debt restructuring by September 2023,” Dr. Weerasinghe had reportedly stated. 

Principal haircut

Meanwhile, a recent report released by Barclays has stated that holders of Sri Lanka’s ISBs face a 20% principal haircut in the country’s debt restructuring as well as maturity extensions and a reduction in coupons.

Investors’ focus has shifted to the restructuring of Sri Lanka’s $ 13.4 billion sovereign dollar bonds after the IMF deal.

Barclays has estimated that investors holding the country’s sovereign bonds could see a recovery value – the percentage they recoup on their investment – in the mid-40s, while noting that exit yields could range from 12-15%. “Board approval of the IMF facility paves the way for bondholder talks and start of a debt restructuring process,” Avanti Save at Barclays had written in the note to clients.

Meanwhile, it was recently reported in the media that the Government is contemplating setting up an Irish-style implementation unit with special powers to implement the mutually-agreed targets and structural benchmarks within stipulated timelines. 

The IMF’s Irish Alternative Executive Director had reportedly briefed the Central Bank Governor, Secretary to the Treasury, and President’s Chief of Staff on the implementation unit that was set up in Ireland when the global financial crisis hit Ireland, which compelled the country to reach out for an IMF programme.

Meanwhile, former Deputy Governor of the CBSL Dr. W.A. Wijewardena has stated that Sri Lanka could end up repaying the $ 2.9 billion EFF by the IMF at an interest rate of over 8% after 2026 as a result of surcharges and continuous hikes in US interest rates.

Speaking at a webinar held by CMA Sri Lanka on Monday (27 March), he said that repaying the IMF facility was not costless to Sri Lanka, as the interest rate on the EFF was a variable interest rate subject to the basic rate of charge applicable to SDRs plus another margin of 100 basis points. 

He said that the present basic rate of charge applicable to SDR was about 3.363% and when another margin of 1% was added to it, the basic rate of charge would go up to 4.363% annually. Moreover, he said that since another 50 basis points were charged as a service charge on each fund drawing and there were two drawings each year, Sri Lanka would have to pay a total of 1% as a service charge annually, taking the total basic rate of charge to about 5.363% annually.

Losing confidence

However, it was Japan’s Ambassador to Sri Lanka Mizukoshi Hideaki who made the most startling statement last week when he stated that despite the decades-long diplomatic and trade ties between the countries since 1952, Japanese businesses had currently lost confidence in Sri Lanka due to the abrupt and arbitrary policy changes that have been made by the Sri Lankan Government.

Ambassador Hideaki has been quoted in the media as saying: “On the governance and transparency of the economic policies, in the past, there have been very frequent changes of policies that have caused the loss of trust by Japanese businesses.” 

He had made these remarks during the Q&A session of the Ceylon Motor Traders’ Association (CMTA) stakeholder meeting on Wednesday (29 March) while responding to a question raised by the moderator of the session on Japan’s outlook on the Sri Lankan economy and the island’s economic revival.

The envoy had further emphasised that other than the improvement of policies related to rooting out corruption and narrowing of the income gap, improving the efficiency of the SOEs to become investor-friendly was looked forward to by Japan since Sri Lanka’s Government permission procedures were “slow”. 

“It hinders the appetite for Japanese investments,” Ambassador Hideaki had said. 

He had also added that the Japanese Government was supportive of Sri Lanka’s efforts to meet the conditions of the IMF.

New appointments

Talk in the political circles last week saw attention being focused on the appointment of new members to the Cabinet and the news that several key Opposition parliamentarians are expected to join the Government side in the coming weeks. 

Several key Samagi Jana Balawegaya (SJB) MPs are said to be among the Opposition members to join the Government and the new Cabinet. Several media reports last week claimed that SJB MPs Kabir Hashim, Eran Wickramaratne, and Dr. Harsha de Silva are among the members likely to join the Government. However, the three MPs who have been named have been critical of the Government while also commending the good work carried out by it. Several senior SJBers, it is learnt, are currently engaged in discussions with the SJB MPs they believe may make a shift to the Government side.

It also learnt that the SLPP has submitted a new list containing the names of six SLPP MPs to be appointed to the Cabinet while UNP MP Vajira Abeywardena and Sri Lanka Freedom Party (SLFP) MP Duminda Dissanayake are also being tipped to be appointed to the Cabinet.

Committee for LGs

While the country continues to focus on economic revival, Opposition political parties continue to push for the holding of the delayed Local Government Elections.

With the Local Government bodies now defunct, President Wickremesinghe has appointed a committee headed by Prime Minister Dinesh Gunawardena to look into the functions of the defunct bodies. The committee is expected to monitor the functions of the Local Government bodies that are now being carried out by officials of the respective bodies and to ensure that the public are provided with a continuous service by the Local Government bodies.

State Minister of Provincial Councils and Local Governments Janaka Wakkumbura, the State Finance Ministers, provincial governors, and the chairpersons of the District Coordinating Committees are the other members of the committee.

The decision to appoint the committee headed by the Prime Minister was reached following concerns raised by a group of MPs in the SLPP parliamentary group during a recent meeting about the difficulties faced by the public when getting their work done through the defunct Local Government bodies.

The President has also appointed another committee headed by United National Party (UNP) MP Vajira Abeywardena to oversee the operations of the defunct provincial councils that are now under the control of the provincial governors. 

Meanwhile, SLPP MP Prof. G.L. Peiris claimed on Monday (27 March) that the committees appointed by the President and Minister Wickremesinghe to look into the affairs of the Local Government authorities and provincial councils had no legitimacy according to the Constitution.

Speaking at a media briefing held in Colombo, he also said that the Government did not have a single argument left to postpone the Local Government Elections as it already had sufficient money to hold the election after receiving the IMF bailout.

“The President has recently appointed a committee chaired by MP Vajira Abeywardena to look into the affairs of provincial councils, which are now being operated under the control of governors. Another committee chaired by the Prime Minister and Minister of Provincial Councils and Local Government Dinesh Gunawardena was appointed to perform the tasks attached to the Local Governments. It is also composed of state ministers, governors, and chairpersons of District Coordination Committees. This is not legal. According to the Constitution, these Local Government bodies must be controlled by members and councillors elected by the people for the particular government body,” Peiris said.

Special commissioners

Meanwhile, the proposal mooted by SLPP National Organiser Basil Rajapaksa to get the former councillors of the Local Government bodies that are now defunct to continue to serve in their capacity as special councillors in the Local Government bodies has been shot down by the Election Commission. 

The Election Commission has stated that if there is any preparation to appoint candidates who are contesting for the upcoming Local Government Elections as special commissioners of the Local Government bodies of which the terms of office have ended, it will make the necessary interventions to prevent it.

Election Commission Chairman Nimal Punchihewa has said: “If former Local Government members and councillors who are also contesting for the upcoming Local Government Elections are to be appointed as special commissioners of the Local Government bodies, we, as the Election Commission, will oppose it. If such appointments are made, it will create a problematic situation. It is something that cannot be done according to the Election Law.”

He has further pointed out that appointing someone who is contesting the polls would lead to incidents of public property being misused and the commission would therefore intervene and prevent such appointments from being made according to the relevant legal provisions.

No action yet

The Election Commission meanwhile has said it is unlikely to initiate legal action against the Finance Minister, President Wickremesinghe, and Treasury Secretary Siriwardana over the non-release of funds to hold the Local Government Polls.

Election Commission Chairman Punchihewa has also told the media that it is not possible for the commission, which is an independent commission, to obtain support from political parties or lawyers associated with them. The comment was made in response to a statement by the Janatha Vimukthi Peramuna (JVP)-led National People’s Power (NPP) that the party had informed the Election Commission that it was ready to provide legal assistance for the commission to go before court against Wickremesinghe and Siriwardana.

The commission had on Sunday (26 March) requested a meeting with Prime Minister and Minister of Public Administration, Provincial Councils and Local Government Gunawardena to discuss the situation which has arisen with regard to the Local Government Elections. The commission had requested a meeting with Gunawardena to discuss matters pertaining to the Local Government Elections, including the procurement of necessary funds and the possibility of paying salaries to public servants who are contesting the elections.

Meanwhile, speaking in Parliament on 24 March, Gunawardena said that he expected to summon Election Commission members in the coming days, to discuss the uncertainty which has emerged regarding the Local Government Elections.

“I hope to summon the Election Commission members and discuss this uncertainty. When we summon the Election Commission members, there may be allegations that we are attempting to interfere in its affairs. I do not know if all Election Commission members will accept my invitation too. However, I hope to discuss this matter with them,” the Prime Minister had said in response to a question raised by Opposition and SJB Leader Sajith Premadasa.

MP Peiris meanwhile called on Speaker of the Parliament Mahinda Yapa Abeywardena to pave the way for strict action against Siriwardana over the non-release of funds allocated for the Local Government Elections through the 2023 Budget.

“Samagi Jana Balawegaya General Secretary and MP Ranjith Madduma Bandara recently handed over a complaint to Abeywardena. He has raised a matter concerning the privileges of the Parliament through that complaint. He said that the Parliament allocated a sum of Rs. 10 billion last year (2022) for the Local Government Elections. That sum was allocated only for that purpose and nothing else. However, Siriwardana is not releasing that sum now. He disrupts its release and it is an unfair and unjustifiable challenge to parliamentary privileges.”

No ballot papers

However, it is the Department of Government Printing that has once again indicated that the Local Government Polls will not be held this month although the Election Commission is yet to make a formal announcement in this regard.

The department last week stated that due to the non-release of the required funds by the Treasury so far for the printing of ballot papers for the Local Government Polls, there was no possibility under any circumstances to print the ballot papers before 25 April, which has been set out by the Election Commission as the date for polls.

Government Printer Gangani Liyanage has said: “There is no way that we can finalise the printing of ballot papers so as to hold the elections on 25 April. It will take about 25-30 days to finalise it, so under no circumstances will we be able to do it before 25 April.”

MR’s prediction

MR meanwhile stated last week that he believed an election would take place before December 2023.

Speaking to the media at the Abhayarama Temple in Colombo on Monday (27 March), Rajapaksa said that the SLPP was prepared to face any election regardless of whether it was Local Government Polls or a Presidential Election. He also said that the SLPP was closely monitoring the economic developments in the country.

MR last week also had to intervene to placate former Moratuwa Mayor Saman Lal Fernando following his recent clash with Basil that resulted in an audio clip of the verbal encounter being shared widely on social media.

Fernando’s son had last week called State Minister Sanath Nishantha and expressed the family’s displeasure over the manner his father was being treated and the embarrassment faced by his father since the audio clip was widely shared on social media. The son had also said that Fernando was contemplating holding a press conference and leaving the party. Nishantha had told Fernando’s son not to make any hasty decision and had then called Namal Rajapaksa and briefed him of Fernando’s situation.

Nishantha together with another SLPP member had then gone to Fernando’s house. A disgruntled Fernando had explained his service to the party and loyalty to the Rajapaksas. Nishantha had once again asked Fernando to be patient and to make a call to MR.

Fernando had called MR and explained the incident involving Basil and said that he could no longer serve in the party. MR after listening had said that he had heard of the incident and had asked Fernando to be patient and remain in the party and that he (MR) would sort out the issue.