• All necessary steps taken to avoid risk of default 
• Priority will be given to get growth back on track  
• Central Bank shows country performed well sans GSP+ 
• No conditions attached to IMF’s SDR allocations  
• Difficult period due to low reserves left by former Govt.  

By Yoshitha Perera Amidst claims that Sri Lanka’s economy is on the edge of a crisis with limited external finance, massive foreign debt repayments, and inadequate capacity of government measures to ease mounting poverty, State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal assured that the Government’s plans would stimulate economic growth.  In an interview with The Sunday Morning, State Minister Cabraal said that the country envisions further growth in the economy since the country’s macro fundamentals are moving in the right direction.  Following are excerpts of the interview:  What is the Government’s action plan under the new Finance Minister?  There is not much of a change, except to say that we will be focusing on the post-Covid-19 period, where we are opening out. There is a fairly long lockdown which naturally adds pressure on all macro fundamentals, as well as the business climate. Our priority is now to open the country as fast as possible, aligned with the health protocols. We are in a position to get growth back on track. The priority will be growth. The original idea was to implement the policies as set out in the “Vistas of Prosperity and Splendour” (President Gotabaya Rajapaksa’s election manifesto) which will continue.  If we lose the Generalised Scheme of Preferences Plus (GSP+) status, what new economic policies will be put in place that have not yet been done?  The last time we lost the GSP+, many people said that it would be the end of the world. People said that we will lose 6,000 jobs, our factories will close, and that will never be recovered. In 2010, our exports to the European Union were at $ 2.875 billion; in 2011, after we lost the GSP+, it went up to $ 3.576 billion. According to Central Bank data, we performed well without the GSP+. Thereafter, in 2017, we got the GSP+ again and there is no massive change in exports.  This is a myth that has been very well constructed, that Sri Lanka will get into serious trouble if we lose the GSP+ and that it will go to heaven if we get the GSP+. Both these norms are not accurate and that is proved by the Central Bank figures. At this moment, if the benefit for the European buyers is not given by the European Government, then we will have to take steps to make sure that benefit can be given to them in some way or the other. That’s the economic decision the Government has to take and we will take that based on the conditions at that time.  The Opposition blamed us when we lost the GSP+ status but when they gained it, what they did was they agreed to co-sponsor Resolution 30 of the United Nations; they agreed to set up the Office on Missing Persons; they agreed to prosecute all our soldiers who went to war against the LTTE (Liberation Tigers of Tamil Eelam); and they agreed to release all the former LTTE members who were in custody. After agreeing to all of these conditions, they recovered the GSP+. However, there was no change in our export market even after regaining the GSP+.  Sri Lanka has been identified as a country facing great risk of default. How will the Government overcome it?  We have taken all the necessary steps to avoid default. I think these people don’t give us enough credit for that. The country curtailed imports in order to conserve their foreign currency, so that we can pay the loans. Instead of saying that we have done a great thing, some of the same people who are benefiting from that policy are saying unnecessary things. If we don’t curtail our imports, we won’t have enough dollars to pay our loans and when we have to go to an outside agency to restructure our loans, who will then suffer? It will be the same people who have given the loans – the creditors have to suffer. We have made it possible for the creditors not to worry; we have given them the assurance that we will pay.  We have in fact moved to the extent of curtailing imports to our own countrymen and conserving the dollars with a lot of political pain. Does that sound like an action taken by a reckless person? It shows that we have been extremely prudent and responsible. We have every intention of paying. We had constraints, mainly since we had less foreign exchange coming into the country.  Now, we are gradually ready to open the country, and foreign exchange will come in. We have passed the Port City Commission law. We are bringing in a new pharmaceutical zone to attract more investment to Sri Lanka. The money has been already earmarked for a $ 1 billion loan payment that is due this month. The next such payment will be in January 2022, during which time the Central Bank will quietly gain all the necessary dollars to settle the particular payment.  It was reported that by the end of May 2021, Sri Lanka’s total debt was recorded at Rs. 16 trillion. What is your opinion on the current debt burden faced by the country?  In 2015, the debt was only Rs. 7 trillion and the former Government made it Rs. 13 trillion within the last five years. I’m glad that the Opposition is at least keeping track now, because during their tenure, they didn’t follow this. If they had kept track of it, they would have been a lot more prudent.  We are going through a difficult period, mainly because the reserves that they left for us were extremely low. When I was the Governor of the Central Bank and we left the economy in 2014, we had $ 8 billion in reserves. Thereafter, the former Government borrowed $ 12 billion net, which means they should have had $ 20 billion in the reserves, but what they had was only $ 7 billion. Therefore, the current Government undertook a difficult task and we are somehow managing that situation. We will ensure that there will be no default.  Right now, there is no risk of default since we have made the arrangements and in the future, we will have a bigger buffer, which would mean that we will not have any risk thereafter.     Some members of the Opposition stated that with or without the International Monetary Fund (IMF), we have to go for a fiscal consolidation. With the current situation, how are we going to aim at reducing the government deficit and debt accumulation?  That is not a bad position to have. The reduction of the fiscal deficit is something that we have already announced, long before the Opposition said that. We also realise that we cannot have large fiscal deficits forever. Last year was very peculiar because of the massive spending we had to undergo after the Covid-19 pandemic emerged. We spent Rs. 250 billion on Covid-19 management. Once that investment is complete, we will have less commitment and we would shrink the fiscal deficit quite substantially.  We are also hoping that our interest rates can be kept low. We are also rationalising the capital investment. We are concentrating on several projects only – particularly the water and roads, which we have committed to. The other projects we will have slightly less investment going in. We are happy to announce that our fiscal consolidation programme is on track. In 2021, we will probably find that our fiscal deficit is lower than last year, and by 2025, we are hoping to bring down our fiscal deficit to about 4% of the Gross Domestic Product (GDP). It is quite a good target to aim at since it will bring more fiscal disciplines into the country.  What are the foreign currency swap deals we are expecting in the upcoming months?  There is one which is already in place, a swap amounting to $ 1.5 billion from China. The one with India is also due in August and that is for $ 400 million. We are negotiating another one from India, amounting to $ 1 billion. We have already successfully negotiated a swap deal with a Bangladeshi bank which is for $ 250 million. Those are all in place and are at quite mature stages.  Economists and many other academics claimed that the foreign exchange swap deals won’t assist in strengthening the dwindling foreign reserves. What is your view on this?  It will definitely increase the foreign reserves. These people who are saying anything different, should learn some arithmetic.  According to reports, the IMF last year prematurely ended a loan programme to Sri Lanka after disbursing $ 1.3 billion of an agreed $ 1.5 billion facility. Now, they are granting us another $ 800 million. What is your view on this?  The earlier programme and the current Special Drawing Rights (SDR) which is on the cards, are completely different. The IMF had also recognised that many countries, particularly the emerging nations, have undergone a serious challenge with the Covid-19 situation. Accordingly, they had recognised that there is now a need to increase what is known as SDR allocations of the IMF on a universal basis.  For that, the IMF had allocated a sum of $ 650 billion to be distributed as new allocations amongst all its member countries. A similar thing was done by the IMF way back in 2009, at the time of the global financial crisis. At that time, Sri Lanka received $ 500 million as its share of the SDR allocation during that time.  At this moment, with the new allocation of $ 650 billion worldwide, Sri Lanka will stand to gain around $ 800 million in the next month or so. This will probably be next month and it is not connected to an individual programme with the IMF.   When it comes to IMF loans and grants, what sort of reforms, especially in the public sector, will be introduced?  There are no conditions to the above-mentioned SDR allocation from the IMF. This programme is a special one which is not in line with its normal disbursements. It is not a special loan or a standby arrangement that the IMF is giving; it’s an overall credit to all its member states.    The earlier one was an individual programme that we had with the IMF and there we agreed to certain conditions. The former Government had a programme with the IMF and there is what is known as a letter of intent that they provide to the IMF which sets out what initiatives we would take in line with the agreement. Those would be part of privatisation programmes reducing the recruitments, privatising some other state-owned enterprises, etc.  Once the new Government came, we did not want to go ahead with the same conditions that the previous Government had agreed with the IMF. We allowed that programme to lapse. At the same time, we took many measures to deal with the economic situation as well as the weaknesses that were there, which we continued with or without the IMF’s assistance. The previous programme was over; if not, it would have been really difficult for our country people to emerge from the Covid-19 pandemic situation.    You said that in the next few weeks and months, some steps will need to be taken to address the unfolding situation. With rising cost of living, what are those measures?  We don’t see a major risk in the inflationary upward trend. Right now, we do talk about some food items going up in price but that has also not been as much as sometimes people make it out to be. Considering some time periods, prices of certain items have to be increased. According to stats by the Department of Census and Statistics, the price increases overall haven’t been that alarming. The prices have gone up but that is manageable. However, the Central Bank keeps close track on movement of the Colombo Consumer Price Index (CCPI). If there are any spikes, then the Central Bank will have instruments that they can use in order to deal with it.    The country’s credit rating has been downgraded further. In this situation, how are we going to attract new investors to the country?  That is going to be a challenge. It has been downgraded since 2015 onwards and during the former Government’s period, our credit rating was reduced four times and thereafter, with the new Government, it has been downgraded twice. With the new Government, it was mainly due to the weakness that was generated in the economy with the Covid-19 situation.  However, after the downgrade, there were many steps that were taken to provide a more positive reaction to the investors worldwide. We passed the new Port City Commission law which is the main positive factor. We increased the prices of petroleum and the Ceylon Petroleum Corporation (CPC) will not move into loss-making while the Government pumps additional funds into it.  We have also planned to open new areas such as the Hambantota Port Industrial Zone, the Pharmaceutical Zone, and at same time, we have provided space for new investments to flow in the form of private-public partnerships (PPPs) to about 17 strategic assets which have been opened out for partnerships. We also provide special incentives for special exports such as gems and other technical and commercial services which again would bring us a lot more foreign exchange.  The remittances have gone up and we encourage Sri Lankans to pursue foreign jobs which pay higher payments.