• SL now facing effects of long-term crisis built up for decades
• Crisis not created by this President or Government
• Parliament has poor understanding of economics and SL’s situation 
• Discussions on China-Sri Lanka FTA have commenced
• May have to explore unconventional decisions to increase forex inflows
• There will be no shortage of essential items, but prices may be higher
• Raiding vendors, strict regulations won’t work

By Asiri Fernando Sri Lanka needs to build a national consensus on fiscal policy and move to bring in urgent reforms needed to make national debt sustainable, reduce the borrowing threshold and budget deficit, and shrink the balance of payment deficit, Trade Minister Dr. Bandula Gunawardena told The Sunday Morning. In an interview about the ongoing economic crisis with The Sunday Morning, Minister Gunawardena blamed long-standing issues, such as the poor collective understanding of economics in Parliament, the resulting weak fiscal policy, a complaisant bureaucracy that encouraged irrational borrowing as a long-held practice, the global pandemic, and ever widening balance of payment for the current crisis that has crippled the Island nation today. Following are excerpts from the interview: In your opinion, how long will the current economic crisis affect Sri Lanka? And how did we get here? I think this is the worst economic crisis Sri Lanka is facing post-independence. In a global context, some economists have opined that the worldwide economic crisis that we are also witnessing at the same time may be bigger than the great recession of the 1930s.  What we are facing now are the effects of a long-term crisis which has been building up for decades. This is not a crisis this President or this Government created, it has been building up for years. The effects of this crisis will not be short-term, it will have to be managed and reduced and overcome in the coming years. For decades Sri Lanka has been carrying on with a large budget deficit. We have been taking loans to bridge the budget deficit. When I made my maiden speech in Parliament in 1989, I mentioned this issue. I had warned that taking an unreasonable amount of debt to bridge the widening budget surplus will make debt unsustainable. The sudden shift to the open market in 1977 saw the gradual increase of foreign currency leaving the country rather than flowing in. I have said this, and economists have been saying this for decades. Unfortunately, over the years, as our Parliament has been one with a very basic collective understanding of economic science, we as a country have not been able to find a solution to these national fiscal issues. In 2003, I was involved in introducing the Fiscal Management Responsibility Bill. We wanted to address three issues with the Bill. Firstly, to keep the budget deficit below 5%. Secondly, to reduce the national debt burden to below 60% of the GDP by 2013. Third, we wanted to limit the State from becoming the guarantor for loans which amounted up to less than 4.5% of GDP. Today, even the International Monetary Fund (IMF) is promoting similar goals. Unfortunately, due to Eric Solheim’s agreement, the Government that had brought such reforms had to go home. Every government since then, including the Yahapalana Government, changed the parameters of the Bill to suit their political ambitions. The fiscal policies of the Yahapalana Government aggravated the crisis. That has left us with little room to manoeuvre. By now, the 4.5% of GDP limitation we introduced for the Government to be guarantors for loans has been increased to 15% through amendments. The target set to limit debt to 60% of GDP has been hiked to 80% by 2030. This is at the core of the problem, and our policy makers have been avoiding making the hard decisions in favour of short-term political gain. The Constitution empowers Parliament to oversee and be responsible for the taxpayer’s rupees. We need to address this in a bipartisan manner. Parliament should focus on managing public funds, not trade political arguments. We also need to understand that there is a group of bureaucrats who have advised and fostered this type of fiscal mismanagement with multiple governments over the years. They too are responsible for this situation today. There are advisors, analysts, and ministry officials – experts who fostered these… and advised on poor decisions. They too are responsible for this deterioration. Do you think Sri Lanka needs robust fiscal reforms urgently? Yes, we need them as a matter of priority. We need to address three areas quickly. We need a national consensus on reforms. We must ensure they are carried out in the long-term and not diverted from easily. Firstly, we need reforms to address the slow pace of economic growth. Secondly, the fiscal crisis. At present, the Government spends about 80% of the State earnings on paying public sector wages and pensions. We don’t have adequate government revenue to cover government expenditure. Therefore, no matter who comes into power and governs, they need to take loans to keep the Government going. Thirdly, we need to address the balance of payment crisis. With it will come solutions to the forex crisis.    Some politicians are suggesting and telling the public: ‘Let’s ask our friendly countries to give us assistance and support’. This is not a sustainable solution. We can’t say: ‘Please send us some fuel or supplies, we’ll pay you later’. Such statements mislead the public and trivialise the issues at hand, this should not be done.  I have never seen or heard of a Parliament anywhere else that has such a poor collective understanding of economics and the gravity of the situation this country is in. Some people question: ‘Why can’t you print more money and give it to the poor and underprivileged?’ They don’t understand that such things cannot be done. It has a negative effect on the whole economy. The Parliament must understand this and set limitations for printing money. To increase forex inflows, we may have to explore some unconventional decisions. We need to expand our export markets, diversify our export basket, and increase remittances. We must encourage tourism. We should as a priority expand our IT and IT services sector and move towards value addition for our exports. I will be tabling an ‘Export Promotion Strategic Plan’ within the next two weeks before the Cabinet, which will be implemented through the EDB. I also think that we need to stop the negative message we show the world. Sometimes the commentary given by the Opposition to the local voter is highlighted overseas and we lose potential tourists and investors. Given that the Government dropped price control measures for several essential items like rice, sugar, and milk powder, in hindsight, what could have been done differently? What the Government did was to impose a maximum retail and wholesale price. When you impose maximum prices when there is a shortage of goods, it creates a black market and that pushes up prices.  The solution is for the Government to introduce goods to the market at a subsidised price to create competition. This is what the Trade Ministry is doing through Sathosa. The black market wanted to push the price of a kilo of rice to Rs. 300 by the April festive season, but we have taken measures to thwart that attempt by importing rice and selling it through Sathosa at a lesser price. We will sell a kilo of Samba for Rs. 130 and Nadu for Rs. 105 through Sathosa. You can’t control prices, especially if there is a shortage, since it boosts the black market. You can’t raid all the shops and vendors in the island to keep a fixed price. The more laws you bring, the more you restrict, the more powerful the black market becomes. The decision to raid the markets and vendors, and to use strict regulations, won’t work. I have spoken up against such moves by the Government. At times, I have had to remain quiet about such moves because criticism is not taken in well. This happens when those who make decisions are not persons with a sound grasp of economics, be it in the Cabinet or in Parliament. One obstacle I face in ensuring that essential food items are available to the public during these times is the dollar shortage. I can’t offer the relief needed if I am not given the dollars to import what is needed. There has been criticism by the public that the stated essential items which were to be available at Sathosa outlets in special packages are not available in some areas. How do you respond to this criticism? We have taken measures to address the issue. We introduced a hotline – 1998, where you can call in and request the essential food item packages. We have teamed up with a company and they deliver the packages to your home for a fee of Rs. 200 within 48 hours of the request. This is now in operation in all parts of the Island, even Jaffna. Each such package will at minimum cost Rs. 500 lesser than if the goods were individually bought from the market.  We don’t have funds at hand now to publicise this service widely and build public awareness as we are focused on securing and supplying the essential goods. Many people are not aware of this service. There has been a concerted effort by those involved in price gouging and black market practices to prevent the public from turning to Sathosa for relief. They continue to spread fake news and misinformation that Sathosa is out of stock. I have complained to the Police about these activities.  For example, there are allegations that we have paid too much to import rice from Burma. We have not paid Myanmar one cent yet. No Letter of Credit (LC) has even been opened. What we have done is, the Government of Sri Lanka and the Government of Burma have entered into a Government-to-Government (G2G) agreement to import 150,000 MT of kekulu rice. This has made the rice mafia nervous; they are spreading false allegations that my relatives are involved in this planned import, with the aim of derailing this G2G agreement. I complained to the CID on Tuesday (15) to launch an investigation into this fake news. If anyone proves that I have misused my ministerial powers, I will not remain in politics.   Will essential food items remain scarce during the upcoming festive season? No, there will be no shortage of essential items. There may be some shortages of non-essential food items. However, the price of essential items may be higher than last year. Some relief will come with the $ 1 billion Line of Credit (LOC) from India coming online. It is given in order to import pharmaceuticals, essential food items, and raw material from India – supplies needed for local industries. We will advertise this week calling for interested parties to apply for the scheme to import items via the LOC. This will reduce the pressure, or demand for dollars. My Ministry is also negotiating with the Government of Pakistan for a $ 200 million LOC to import items from there. I am talking to the Australian Government seeking a $ 200 million LOC to import items from that country. These are not commercial loans, and they are a temporary measure. With the rupee floated, what is the overall impact on the national economy? Should it have been done earlier? It is too early to say. Floating the rupee will have an immediate impact on all imported goods, that is unavoidable. Normally, with the Lines of Credit coming in and the other incentives for remittances kicking in, it may take about a month or two for the rupee to stabilise. There may be a temporary fall in the demand for dollars following the first week of April, due to the festive season. This is because most of the goods ordered for the Sinhala Tamil New Year season have already been ordered and are on the way or have already arrived. So, we may see a drop in demand from April to early May. This is a transitional period. If we should have gradually floated the rupee, it should have been done much earlier. The pegging of the rupee began with Minister Ravi Karunanayake in 2015. Will the Government revisit a price control mechanism for rice and wheat flour? There are factors the Government can control and there are those we can’t. We can’t control the world market price. We can’t influence that. What we can do is to lay a safety net for vulnerable communities that will get affected. We are doing that. We have introduced a mechanism to provide those in the hill country – the estate sector – wheat flour at Rs. 80 per kilo. This is because wheat flour is a predominant part of their diet. This relief has been coordinated through State Minister [of Estate Housing and Community Infrastructure] Thondaman’s Ministry. What steps is your Ministry taking to help retailers, bakeries, poultry farmers, farmers, and the fisher community? At present, what we can do is promote local production of the goods these groups need. We need to bring in a big crop growing programme. Now, the price of chemical fertiliser has skyrocketed in the international market due to conflict and the price hike of fuel. In such a situation, small economies like ours will come under much pressure. We need to build resilience. Has the Trade Ministry worked out a process to facilitate the relevant forex for importers to clear containers stuck at the Colombo Port? There is difficulty in assisting them due to the dollar shortage. One problem was that banks needed dollars to honour 180-, 90-day LCs they had opened before, which were maturing over the last few months. So, the banks had to settle those first. We are unable to waive demurrage charges from private terminals, and most of the containers that are stuck are in them. Also, there is little or nothing the Government can do regarding the rising supply chain costs. Freight and insurance charges have gone up, as the Government we have no control over those issues. What is being done to support low-income communities and families to weather the skyrocketing cost of living? What the Trade Ministry can do to assist them is to provide essential food like rice, sugar, potatoes, onions, tea, chillies etc. through the State-owned retailer Sathosa. How has the fuel shortage and electricity outages affected trade and export from Sri Lanka over the last three months? The fuel issue has only affected these for about a month. For exporters, particularly those in BOI Zones, we ensured that they had uninterrupted electricity supply.  My ministry has been working with the Ministry of Power, Ministry of Energy, and the Ministry of Transport to ensure our main exporters are impacted as little as possible. Minister Dilum Amunugama works with us to enable exporters’ vehicles to be supplied with fuel from the State depots with the assistance of Minister Lokuge. Actually, our exports have not dropped, they are increasing. We will continue to support exporters. A majority of our trade and exports come from the private sector. But some politicians think that they can win elections and govern the country only with the public sector. This is a very wrong impression. Some extremist politicians think if they attack or try to discredit the private sector it will bring them to power. But then what? You can’t run this country on the public service! The public service only contributes a minor amount to trade, exports, and earnings. Sri Lanka is considering an FTA with China and Bangladesh. Has the Trade Ministry begun the negotiation process? Sri Lanka has FTAs with India and Pakistan. We are keen to enter into FTAs with China, Bangladesh, and Indonesia. We have already begun discussion on the China-Sri Lanka FTA. I have, through the Cabinet, got the Secretary to the Prime Minister to coordinate the stakeholder consultations we need to have. I will be overseeing the process. As I said before, given that we are in a crisis situation we need to think out of the box to recover and grow. Part of the negotiations are being conducted through the commerce department. As the Trade Ministry, we feel that we should have more trade agreements with similar economies too. I think in the near future we should look at rising nations in Africa, some in the Middle East, and countries like Vietnam for FTAs.