• President seeks support from Germany and France to expedite debt restructuring
• RW’s official visit to China between 16-19 October to push for China’s commitment
• Stage being set for China visit, RW continues with pro-China talk at international fora
• Push by some creditors to reach deal to restructure debt without China’s participation
• Govt.-China stalemate continues on Shi Yan 6; US fears allayed, India also considered
• Sajith tells IMF will review current deal, notes importance of people-centric clauses
• Portfolio blues hit the SLPP despite RW expressing no intention of expanding Cabinet
• CBK-Maithri reunion amidst SLFP crisis; Dayasiri can return but no posts, says Maithri
• SLPP dissidents’ alliance gathers steam with advocacy work continuing among SLPP MPs

Sri Lanka continues to be on a precarious economic path, with the Ranil Wickremesinghe Government still grappling to bring the country out of the woods. The outcome of the recent review of the International Monetary Fund (IMF) on Sri Lanka’s economy and governance as part of the fund’s Extended Fund Facility (EFF) for Sri Lanka is a clear indication that all is not fine in the paradise isle.

The ‘Black Box’ last week noted that Sri Lankans were currently facing a sense of false security where everything remained calm on the surface while underneath, the practical realities remained gloomy.

It is in such a scenario that the IMF delegation that was in Colombo to review the progress made by Sri Lanka under the EFF programme decided not to announce the disbursement of the second tranche. It is learnt that the IMF has expressed concerns over two key areas – revenue generation targets and the debt restructuring programme.

Highly-placed sources told ‘Black Box’ that the IMF had expressed concern over Sri Lanka’s failure to meet the revenue targets and the delay in reaching finality on the debt restructuring programme.

However, the IMF delegation, it is also learnt, had not set a timeline for Sri Lanka to address the two areas of concern to ensure the release of the second tranche.

While discussions are now ongoing to address the revenue shortfall, all eyes are focused on President Wickremesinghe’s impending visit to China this month, where he is expected to get some firm commitment from the Chinese side, apart from the usual “China will extend its fullest support to Sri Lanka to overcome its economic challenges”. 

The announcement of the IMF’s decision to hold back on the second tranche under the EFF will undoubtedly have an impact on Sri Lanka’s overall economy, especially on the front of foreign investments. The Government will also have to look at countering the negative impact the IMF’s recent message could have on the overall economy.

At the conclusion of the IMF review on Sri Lanka, the fund has stated that despite early signs of stabilisation, full economic recovery in Sri Lanka is not yet assured and the disbursement date of the $ 330 million second tranche of the EFF to Sri Lanka is not confirmed due to the Government falling short on revenue targets and lack of proper progress on external debt restructuring.

IMF Senior Mission Chief for Sri Lanka Peter Breuer has said that the IMF will need more time to have discussions with the Sri Lankan authorities on accomplishing the revenue objectives and bridging the gap between revenue and expenditure, as a revenue shortfall of 15% from initial projections is expected by the end of 2023. He has noted that discussions are focused on reaching the objective of 12% of Gross Domestic Product (GDP) revenue by the end of 2024 and avoiding another shortfall next year.

While the IMF has proposed further tax reforms, Breuer has been quoted as saying that tax reforms introduced last year by reversing the 2019 tax cuts itself are not enough for Sri Lanka to bridge the gap between revenue and expenditure.

President Wickremesinghe, who is also the Finance Minister, and Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe met the IMF delegation on Tuesday (26 September).

Meanwhile, Reuters had reported quoting two sources that the IMF was concerned and that the fund was likely to conduct further deliberations with Washington and then consider how to move forward.

With the Government facing challenges in achieving revenue targets, parliamentary Sectoral Oversight Committee on National Economic and Physical Plans Chairman Mahindananda Aluthgamage had recently underscored the need to establish a dedicated unit to oversee institutions responsible for generating tax revenue, including the Inland Revenue Department.

Pushing Paris Club

After meeting with the IMF delegation, President Wickremesinghe left for Germany on Tuesday (26 September).

The President attended the ‘Berlin Global Dialogue’ which was held on Thursday (28 September) and Friday (29 September).

During his visit to Germany, the President met with German Chancellor Olaf Scholz on Thursday as well. Wickremesinghe had spoken of Sri Lanka’s debt restructuring programme and had pushed for support to get the Paris Club to expedite Sri Lanka’s programme. 

The Paris Club has so far set the end of October for the conclusion of Sri Lanka’s debt restructuring programme, while Wickremesinghe is keen on finalising the programme prior to his visit to China in the middle of this month.

It is also learnt that the President is considering reaching out to French President Emmanuel Macron, who had expressed willingness to lend support to expedite Sri Lanka’s debt restructuring programme in the Paris Club, in order to further push the programme.

Debt restructuring

Meanwhile, Bloomberg News reported on Wednesday (27 September) that some members on the committee of Sri Lanka’s official creditors were pushing to reach a deal to restructure the country’s debt without the participation of China. The news report had cited people familiar with the matter.

The news report states that these members wanted the group of major creditors, including the US, Japan, and India, to sign a Memorandum of Understanding (MoU) with Sri Lanka around the time of the IMF and World Bank meetings scheduled for this month in Marrakesh, Morocco. 

China, however, isn’t a part of the group of creditors and is pursuing engaged bilateral talks.

According to Bloomberg, key debt holders excluding China are planning on putting together the draft outline and getting Sri Lanka’s consent prior to the Marrakesh meeting and there is some discord within the group.

Meanwhile, an official at the Paris Club, one of the largest debt holders, had said a timeline for the agreement could not be confirmed. 

It is in such a backdrop that a Fundamental Rights petition has been filed before the Supreme Court, challenging the Government’s Domestic Debt Optimisation (DDO) programme.

The petition was put forward by Opposition Parliamentarian Prof. G.L. Peiris and main parliamentary Opposition Samagi Jana Balawegaya (SJB) General Secretary and Opposition MP Ranjith Madduma Bandara on Tuesday (26).

Chinese conundrum

Be that as it may, China plays a key role in the making or breaking of Sri Lanka’s debt restructuring programme as well as the sustainability of the country’s economic future.

One of the key issues raised by the Chinese side is for the need for all creditors to Sri Lanka, including multilateral funders, to be included in the debt restructuring programme. This is an area that multilateral funders including the World Bank, Asian Development Bank, etc., are not comfortable to address.

With China remaining silent without making any firm commitment on Sri Lanka’s debt talks, it now seems to be a case of ‘wait and see’ among all key creditors to Sri Lanka.

President Wickremesinghe, in order to set the stage for his visit to China between 16-19 October, has been making statements positive towards China in many international fora. From stating that setting up AUKUS was a ‘misstep,’ Wickremesinghe last week went on to highlight the importance of China in the Asian region during his visit to Germany.

Ship saga continues

Meanwhile, the stalemate on the issue of the Chinese research vessel Shi Yan 6 continues, with the Government of Sri Lanka and the Chinese side still unable to reach a consensus on the timeline for the visit.

It is learnt that the Sri Lankan Government continues to maintain that Shi Yan 6 can only be given permission to visit Sri Lanka during the latter part of November, while the Chinese side had called for permission to dock during late October.

“There is still no agreement on the timeline and, therefore, the ship cannot visit Sri Lanka until permission has been given officially,” a senior Government source said.

Meanwhile, US Under Secretary Victoria Nuland, during a meeting with Foreign Minister Ali Sabry when the latter had visited to attend the UN General Assembly (UNGA), has reportedly raised concerns about Shi Yan 6’s visit to Sri Lanka.

Sabry had in turn briefed Nuland that Sri Lanka, as a neutral country, had worked out the Standard Operating Procedure (SOP) to be followed by foreign ships and aircraft in carrying out any activity in Sri Lankan territory.

The Minister had reportedly told the US official that Sri Lanka had been even-handed in its approach to all countries and could not therefore exclude China.

President Wickremesinghe has also been quoted in the media as saying that the SOP had been worked out for foreign vessels.

Sabry meanwhile had told the Indian media on Monday (25 September) that Sri Lanka had not given permission for a Chinese vessel to dock, adding that Indian security concerns were “important” to Sri Lanka.

When asked about reports regarding the Shi Yan 6 being scheduled to dock in Sri Lanka this month and India’s concerns regarding it, Sabry had said that they had a SOP and had consulted many friends, including India, on the matter. 

“That’s a conversation going on for some period of time. India has expressed its concerns over a long time, but we have come out with the SOP. When we were preparing the SOP, we consulted many of our friends, including India. Therefore, as long as it complies with the SOP, we have no problem. But, if it doesn’t comply with the SOP, we have a problem,” Sabry had told Asian News International (ANI).

ETCA with India returns

In a bid to further strengthen ties with India amidst the balancing act with China, Sri Lanka and India are looking at resuming negotiations on the stalled Economic and Technological Cooperation Agreement (ETCA). The talks are expected to resume towards the end of October.

The Sri Lankan and Indian negotiators, it is learnt, had held a virtual meeting on 19 September to discuss the resumption of ETCA negotiations, according to the President’s Media Division.

The two countries have held 11 rounds of bilateral talks from 2016 to 2019 with the aim of broadening the existing India-Sri Lanka Free Trade Agreement (ISFTA). However, these negotiations have been at a standstill for the past four years due to change in governments and other political developments.

Meanwhile, Sri Lanka has also sided with India in the ongoing diplomatic row between India and Canada. Foreign Minister Sabry had condemned Canadian Prime Minister Justin Trudeau’s recent statements, accusing him of coming out with outrageous allegations without any supporting proof.

Sabry has made this comment while speaking to Indian media ANI on the tensions between India and Canada. Sabry has also noted that some of the terrorists have found safe haven in Canada.

Stating that the Canadian PM had this way of just coming out with some outrageous allegations without any supporting proof, Sabry has said: “The same thing they did for Sri Lanka, a terrible, total lie about saying that Sri Lanka had a genocide. Everybody knows there was no genocide in our country.” 

Pointing out that the Canadian PM had given a rousing welcome to somebody who had associated with the Nazis in the past during the Second World War, Minister Sabry said: “This is questionable and we have dealt with it in the past.” 

“I am not surprised that sometimes PM Trudeau comes out with outrageous and substantiated allegations,” Sabry has added.

Repaying Bangladesh

However, amidst the ongoing complex economic environment in the country, Sri Lanka has paid off the entirety of the $ 200 million loan from Bangladesh, taken through a currency exchange agreement two years ago to survive the severe dollar shortage, according to the Dhaka Tribune.

The Dhaka Tribune had reported that in the last instalment, Sri Lanka paid about $ 50 million and $ 4.5 million in interest on the loan on 19 September, as confirmed by a senior official of the Bangladesh Bank.

Sri Lanka had taken the loan for a period of one year in May 2021. However, Sri Lanka had failed to repay the loan due to a worsening domestic economic crisis and the Sri Lankan Government declared itself bankrupt. Sri Lanka had then taken an extension to repay the debt several times.

According to Bangladesh Bank, Sri Lanka had initially repaid $ 50 million on 20 August. Then on 31 August, it had returned $ 100 million. Finally, they had returned the remaining $ 50 million on 21 September night.

Sri Lanka has paid off the loan taken from Bangladesh in three instalments.

Reviewing IMF deal

With the IMF taking centre stage last week with its review of Sri Lanka et al, a statement made by Opposition and Samagi Jana Balawegaya (SJB) Leader Sajith Premadasa also managed to steal the limelight. 

Premadasa had informed the IMF that the SJB would review the agreement reached between the fund and Sri Lanka if a new government led by Premadasa were to take office.

A group of IMF representatives had met Premadasa on Monday (25 September) at the Opposition Leader’s Office.

The discussion between Premadasa and the IMF team had focused on the current state of the country’s economy and the reforms process as well as the steps to be taken in future. Premadasa had further noted that the IMF agreement would be reviewed and clauses beneficial to the people of Sri Lanka would be included in the IMF agreement currently in place with the Sri Lankan Government.

The Opposition Leader had also informed the IMF representatives about the Government’s proposed domestic debt restructuring programme and its impact on the private sector employees’ retirement fund – the Employees’ Provident Fund (EPF).

IMF Senior Head of Operations Breuer, Deputy Head of Operations Katya Svirydzenka, Resident Representative Dr. Sarwat Jahan, Economic Expert Manavee Abeyawickrama, and Lan Huong Vu of the Communications Department had attended the meeting from the IMF side.

SJB Members of Parliament (MPs) Dr. Harsha de Silva, Kabir Hashim, Harshana Rajakaruna, and Sri Lanka Podujana Peramuna (SLPP) dissident MPs Professor G.L. Peiris, Dr. Nalaka Godahewa, and Velu Kumar had participated in the meeting along with Premadasa.

Meanwhile, the Janatha Vimukthi Peramuna (JVP)-led National People’s Power (NPP) last week claimed that a future NPP government would not hesitate to engage with the IMF.

NPP Executive Committee member Dr. Nalinda Jayatissa had told reporters that the NPP would deal with the IMF while respecting the people’s mandate and would be committed to implementing the proposals agreed to by the mandate.

As for the current IMF deal with Sri Lanka, Jayatissa had said: “We will review the IMF programme agreed upon by the present Government. We will discuss with the IMF and implement only the proposals that suit our mandate. Any institution will honour the mandate of a government.”

Cabraal slammed

The SJB meanwhile had criticised former Governor of the CBSL Ajith Nivard Cabraal for blaming incumbent CBSL Governor Dr. Weerasinghe and Treasury Secretary Mahinda Siriwardana for the country’s bankruptcy.

Dr. de Silva had told the media that he had come to learn that Siriwardana had lodged a complaint with the Defence Ministry and the Police, claiming that a statement made by Cabraal to the special Parliamentary Select Committee (PSC) to probe the country’s financial bankruptcy was a threat to him and his family.

“We all know who should be responsible for the ongoing crisis. It was the then Government and the then CBSL Governor who hampered the IMF process intentionally, but now some are trying to whitewash those people, blaming incumbent Governor Dr. Weerasinghe and Secretary Siriwardana, who actually steered the country during economic hardships. They blame Siriwardana for declaring bankruptcy, which was his duty and the most suitable thing at that point, so we stand with them and urge the Government to protect them,” de Silva had added. 

Portfolio blues

However, amidst the country’s economic blues, the political landscape is no better, with members of the ruling SLPP once again being hit by portfolio blues.

With talk of President Wickremesinghe’s intentions to carry out a reshuffle of State ministers in order to resolve some of the ongoing clashes between State ministers and Cabinet ministers, speculation was rife that the President was also looking at carrying out a Cabinet reshuffle.

Despite claims by Wickremesinghe confidants to SLPPers awaiting Cabinet portfolios that the President did not have plans to reshuffle the Cabinet and add more ministers to the Cabinet prior to the 2024 Budget scheduled for next month (November), groups of SLPP MPs continue to believe that the President is looking at expanding the Cabinet.

Wickremesinghe had also reiterated that he would not consider an expansion of the Cabinet, despite requests having been made by certain Government MPs to grant them Cabinet portfolios.

It was also reported that some SLPP MPs such as S.B. Dissanayake had warned that they would work against the Government and show their displeasure at the Budget vote if they were not given portfolios.

However, SLPP MP Dissanayake had last week denied reports that several Government MPs, including himself, had warned that they would work against the Government if Cabinet portfolios were not given to them.

Dissanayake had denied the allegations in the reports and said that they had not asked for any ministerial posts, nor had they warned of any move against the Government. “All these reports are false. We have not asked for any portfolio.”

He had further stated that SLPP National Organiser Basil Rajapaksa had sent Wickremesinghe a list of SLPP MPs to whom Cabinet portfolios should be given as soon as he became the President and that no request had since been made regarding the matter.

Nevertheless, the political rumour mill continues to work overtime, with reports also stating that several ministers had requested the President to make a change in the Health portfolio. News reports stated that proposals have been made for Minister Dr. Ramesh Pathirana to be appointed as health minister.

However, Pathirana has remained silent about the stories, with several of his loyalists maintaining that he is happy to continue in his current portfolio.

CBK-Maithri reunion

Meanwhile, the Sri Lanka Freedom Party (SLFP), which is currently facing an internal crisis, saw some positive change when SLFP Leader, former President Maithripala Sirisena and former SLFP Leader, former President Chandrika Bandaranaike Kumaratunga, who have been at loggerheads for some time, were seen together at the event to commemorate late Prime Ministers S.W.R.D. Bandaranaike and Sirimavo Bandaranaike and late Speaker of Parliament Anura Bandaranaike on Tuesday (26 September).

The event was held at the Bandaranaike Memorial in Horagolla, Attanagalla. Kumaratunga and Sunethra Bandaranaike presided over the event. Sirisena has not attended the Bandaranaike commemoration event in Horagolla for a few years and has instead organised separate events to commemorate the Bandaranaikes with SLFP members.

Prime Minister Dinesh Gunawardena, former Speaker Karu Jayasuriya, Opposition MPs Prof. G.L. Peiris and Kumara Welgama, and several SLFP MPs in the Government such as Nimal Siripala de Silva and Mahinda Amaraweera were among the political figures who attended the event.

The SLFP had last year organised a separate event to commemorate the Bandaranaikes at the Bandaranaike Memorial International Conference Hall in Colombo. Sirisena and Kumaratunga had been criticising each other for years, particularly after the former’s decision to suspend the latter’s SLFP membership for her alleged support of the Government led by President Ranil Wickremesinghe.

However, the SLFP is in a crisis with Sirisena’s recent decision to remove its General Secretary Dayasiri Jayasekara from the post and suspend his party membership.

No positions

Meanwhile, Sirisena has stated that the SLFP is ready to accept Jayasekara back to the party, but that he will not be offered the post of general secretary once again.

Speaking to party activists at the SLFP Headquarters in Colombo last Sunday (24 September), Sirisena had explained the decision to remove Jayasekara as the party’s general secretary. Sirisena had further called on the party members to prepare to face an year of elections in 2024.

Ministers Nimal Siripala and Amaraweera and MPs Duminda Dissanayake and Shan Wijayalal de Silva had also attended the meeting.

It is in such a backdrop that the Colombo District Court had last week decided to dissolve its previous enjoining order issued on SLFP Leader Sirisena. The court had earlier issued an enjoining order preventing the operation of an explanation letter sent by Sirisena to former SLFP General Secretary Jayasekara.

Sirisena, through his lawyer Faiszer Musthapha, had made a request to dissolve the enjoining order stating that the respective order had been obtained by concealing material facts to the case. 

Taking the facts into consideration, Colombo District Court Judge Sandun Vithana had decided to dissolve the enjoining order which was issued on the SLFP office bearers.

New alliances

The formation of new alliances and the advocacy work related to them were recently witnessed during an event in Colombo that was attended by politicians from both sides of the divide.

One such incident was witnessed when a group of SLPP MPs including the Deputy Speaker and several others were seated at a table. Minister Susil Premajayantha had made his way towards them and spoken about the new alliance in the making – the one led by SLPP dissidents Anura Priyadarshana Yapa and Nimal Lanza.

After listening to Premajayantha for a while, several MPs at the table had asked if he was going to be the new general secretary of the dissidents’ alliance. Premajayantha had quickly said that he was not being appointed as the general secretary, but had reminded the MPs of the formation of the ‘betel leaf alliance’ (bulath kole sandhanaya) – the United People’s Freedom Alliance (UPFA).

“I was the general secretary of that alliance and within a short period of time, we managed to win the election,” he had said with a smile before walking away.

Nominations conundrum

Meanwhile, the Election Commission has stated that the nominations called for the 2023 Local Government (LG) Elections are still valid and that they can only be cancelled through an act in the Parliament.

On 20 September, the Ministerial Consultative Committee on Public Administration, Home Affairs, Provincial Councils, and Local Government had unanimously consented to cancel the nominations called for the LG Elections.

Commission Chairman R.M.A.L. Rathnayake has said that the committee’s decision to cancel the nominations had no effect: “It is a Ministerial Consultative Committee which has made this decision. It does not do anything. If the nominations are to be cancelled, it can be done only through a parliamentary act.”

In response to a query on whether the nominations were still valid, he has said: “Yes, they are still in effect. Nothing has changed.”

The Local Government Elections were initially scheduled to be held on 9 March 2023, but the Finance Ministry and the Treasury had not released the required funds to the Election Commission, which then rescheduled the polls for 25 April and the postal voting to 28, 29, 30, and 31 March and 3 April 2023. Since the funds were not released by that time too, the Election Commission once again postponed the elections indefinitely.