The Colombo Port City Economic Commission Bill has been making headlines throughout the past few weeks, with many groups publicly raising their concerns. The Supreme Court of Sri Lanka is also in the process of hearing numerous petitions that were filed with regard to Bill.
In an interview with The Sunday Morning, the State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal expressed his views in relation to the Bill, along with the country’s economic plight, balance of payments, and the current state of the Sri Lankan Rupee.
Following are excerpts of the interview:
Why is the Port City Commission important to the success of the project and how will the Commission holding such authority benefit the country in the long run?
Sri Lanka is presently at the 99th level of the Doing Business Index. We are seeing an influx of around $ 1.5 billion as investments and we are also finding that while challenging, attracting investments during this Covid period has been successful. In terms of the Port City, I think it will certainly be a turning point for Sri Lanka’s economic activity. I say this because of the incentives we are providing together with the envisaged efficiency we are hoping to provide to the entire sector through Port City investments.
In order to achieve this, we must give the powers to a body which will execute the plans in the Port City. To do this, the body must be empowered with the necessary laws. This Act allows for a single window facilitation unit which will cater to a faster and more efficient level of activity in business.
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State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal[/caption]
The Port City Economic Commission Bill caused quite a stir recently with numerous groups filing more than 10 petitions at the Supreme Court. All of these groups shared more or less the same concerns. What do you think is the reason for this?
They are people who have not read this Act seriously enough. I believe that all who have actually read it would have seen the merits of this Act as well the need of having laws of this nature. I’m also inclined to think that some of those petitions are not based on the desire to make the Act more vibrant. Instead, I feel as if their purpose is to hinder the passage of this Act. I say this because some utterances made via the media have been quite absurd. Some of these out-of-line claims are populist claims to perhaps aggravate other instincts which are not based on any factual position. I do feel a little suspicious of the bona fides who have made certain claims.
If mounting pressure from the public continues to grow with regard to the Bill, is the Government prepared to take another look at it and make any amendments if necessary?
These claims are now being evaluated by the Supreme Court. This is a good thing because after the Supreme Court evaluates these claims, it will make a pronouncement and every one of these claims will be laid to rest. However, as a government, we are prepared to make changes to the Act if any part of it is not consistent with the Constitution. Nevertheless, we are confident that this will not be the case, as the Attorney General has assured us of this. I must also add that because we are a democratic government, we would be happy to consider changes even at the committee stages, provided that suggestions will allow for the law to be more efficient and accountable.
There have been claims by governing party coalition members that there was no proper consultation process on the proposed Port City Bill until it was presented in Parliament. Wasn’t there a proper consultation process?
The Bill was presented in its last form to the Cabinet in January 2021. Somewhere around March, it was being looked at by the Cabinet and an approval from the Cabinet followed. At that stage as usual, the Bill was presented to our coalition members as well. If any member had any concerns, they could have very easily brought it up at the group meeting. That opportunity was there but instead, they took discussions to the media instead of using the forum that is available to all government MPs. This is why I said earlier that we are suspicious of bona fides and their motives. We have taken a decision to counter such arguments and show the actuality of this Bill to the public.
Several government members have claimed the initial Port City Commission Bill was presented by the former Government. However, former government ministers have compared the former Bill with the present one and have pointed out many differences. How much has been changed from the former Bill?
Two different governments will have different views. This is no surprise but regardless, we do not want to discuss drafts from the previous Government. However, to answer the question, one major difference seen in the former Government’s proposal was that the land in the Port City area was to be managed and controlled by a Chinese company. The Chinese company was to hold 51% of ownership and the Sri Lankan Government was to hold 49% of ownership. We could not accept this. This is why we wanted a commission driven by Sri Lanka and appointed by the President, allowing it to be the sole authority.
How would you respond to some voices which claim that this Bill will allow for the Port City to become a haven for money laundering? Are there any provisions established to ensure that such things do not take place?
Sri Lanka passed an anti-money laundering law in 2005. Since then, we have been managed by the Central Bank under the Financial Intelligence Unit (FIU) of Sri Lanka which has been doing an effective job. All these operations are governed by the anti-money laundering law. Absolutely nothing has been changed in this law and it will keep operating. The story that has been put out there on the grounds that Sri Lanka will be a haven for money laundering due to the Port City Bill is an absurd claim and I reject it completely. I am also surprised that this claim was made by the US Ambassador herself. I think she has not read the Act deeply enough to understand its function.
Sri Lanka appears to be in a worsening economic plight with diminishing foreign reserves being a cause for concern. As the State Minister of Money and Capital Markets, and State Enterprise Reform, what are you doing to address this?
One of the major difficulties inherited from the previous Government was the rapidly depreciating rupee which went from 131 to 182 in a period of five years. On top of that, we were also struck by Covid-19. However, we have managed 2020 effectively, as the rupee devalued by only Rs. 2. Thereafter, in 2021, the first quarter saw a strong depreciation. We have made plans to strengthen our position as we go along. A $ 1.5 billion currency swap line has been negotiated with the People’s Bank of China and $ 500 million has been borrowed from the China Development Bank. We have also been informed by the IMF (International Monetary Fund) that Special Drawing Rights have been increased to $ 650 billion, of which Sri Lanka should receive around $ 800 million.
Our economy is now a lot more reliant on non-debt inflows. We have taken steps to increase remittances by 10%. Exports have come up rapidly and the service industry has positioned itself to increase earnings. We are confident that inflows will now continue as we go along. The Central Bank confirmed this by their ability to add a substantial amount to their reserves on a daily basis. Restrictions on imports have also been imposed resulting in managing our BOPs effectively. Overall, we are comfortably paying our debts and we have enough reserves to make payments for the foreseeable future.
In terms of the currency swap arrangement the country entered into with the People’s Bank of China, how effective is this swap going to be and is this an effective solution to ensure that the Sri Lankan Rupee appreciates?
The rupee has already appreciated. The swap provides us with the comfort of drawing down at any moment. We have been keen to not add reserves unless we need it. I believe that overall, it will be effectively managed by the Central Bank to ensure we are on top of the situation. The swap has already helped greatly and we are happy to receive this kind of response from the People’s Bank of China.
Leading up to 2021, several rating agencies downgraded Sri Lanka’s sovereign credit ratings indicating concerns about Sri Lanka’s ability to fulfil foreign debt repayments, what are your thoughts on this? How capable is Sri Lanka when it comes to paying off its foreign debt?
The agencies were extremely irresponsible in this action. Along with Sri Lanka, 40 other countries were downgraded as well. Despite the pandemic going on, the agencies did not pay sufficient attention to sort this out in a better way. So, while we did get downgraded, the positive side is that the IMF stated that they will be increasing the Special Drawing Rights of all countries as I mentioned earlier.
What do you have to say to those who are afraid that Sri Lanka is on the verge of a balance of payments crisis?
I will tell them not to worry. We have been deliberately singled out by some agencies and parties to destabilise the country. Regardless, Sri Lanka has proven to be resilient and we have been able to withstand pressure and always come out on top. Other countries have also understood our resilience. Sri Lanka is back in business and will probably see a 6% growth this year.
In your professional opinion, what is the root cause of Sri Lanka’s debt problem?
We allowed foreign borrowings to exceed rapidly in the last five years. Interest rates also increased rapidly which stressed our budgets. This should have been handled carefully. In 2014, our exposure to international sovereign bonds was $ 5 billion when our overall economy had a GDP of $ 80 billion. Thereafter by 2019, the GDP grew by $ 2 billion but our international sovereign bonds increased to $ 15 billion. Rupee depreciation was also a significant factor. In 2014, the total interest paid to international sovereign bonds was only $ 233 million which translates to around Rs. 30 billion as interest cost. By 2019, the total interest on the international sovereign bonds had grown to around $ 1,014 million which was around Rs. 200 billion. We need to recalibrate Sri Lanka’s foreign borrowings and ensure that our currency is strong.
State Minister of Money and Capital Market and State Enterprise Reforms Ajith Nivard Cabraal[/caption]
The Port City Economic Commission Bill caused quite a stir recently with numerous groups filing more than 10 petitions at the Supreme Court. All of these groups shared more or less the same concerns. What do you think is the reason for this?
They are people who have not read this Act seriously enough. I believe that all who have actually read it would have seen the merits of this Act as well the need of having laws of this nature. I’m also inclined to think that some of those petitions are not based on the desire to make the Act more vibrant. Instead, I feel as if their purpose is to hinder the passage of this Act. I say this because some utterances made via the media have been quite absurd. Some of these out-of-line claims are populist claims to perhaps aggravate other instincts which are not based on any factual position. I do feel a little suspicious of the bona fides who have made certain claims.
If mounting pressure from the public continues to grow with regard to the Bill, is the Government prepared to take another look at it and make any amendments if necessary?
These claims are now being evaluated by the Supreme Court. This is a good thing because after the Supreme Court evaluates these claims, it will make a pronouncement and every one of these claims will be laid to rest. However, as a government, we are prepared to make changes to the Act if any part of it is not consistent with the Constitution. Nevertheless, we are confident that this will not be the case, as the Attorney General has assured us of this. I must also add that because we are a democratic government, we would be happy to consider changes even at the committee stages, provided that suggestions will allow for the law to be more efficient and accountable.
There have been claims by governing party coalition members that there was no proper consultation process on the proposed Port City Bill until it was presented in Parliament. Wasn’t there a proper consultation process?
The Bill was presented in its last form to the Cabinet in January 2021. Somewhere around March, it was being looked at by the Cabinet and an approval from the Cabinet followed. At that stage as usual, the Bill was presented to our coalition members as well. If any member had any concerns, they could have very easily brought it up at the group meeting. That opportunity was there but instead, they took discussions to the media instead of using the forum that is available to all government MPs. This is why I said earlier that we are suspicious of bona fides and their motives. We have taken a decision to counter such arguments and show the actuality of this Bill to the public.
Several government members have claimed the initial Port City Commission Bill was presented by the former Government. However, former government ministers have compared the former Bill with the present one and have pointed out many differences. How much has been changed from the former Bill?
Two different governments will have different views. This is no surprise but regardless, we do not want to discuss drafts from the previous Government. However, to answer the question, one major difference seen in the former Government’s proposal was that the land in the Port City area was to be managed and controlled by a Chinese company. The Chinese company was to hold 51% of ownership and the Sri Lankan Government was to hold 49% of ownership. We could not accept this. This is why we wanted a commission driven by Sri Lanka and appointed by the President, allowing it to be the sole authority.
How would you respond to some voices which claim that this Bill will allow for the Port City to become a haven for money laundering? Are there any provisions established to ensure that such things do not take place?
Sri Lanka passed an anti-money laundering law in 2005. Since then, we have been managed by the Central Bank under the Financial Intelligence Unit (FIU) of Sri Lanka which has been doing an effective job. All these operations are governed by the anti-money laundering law. Absolutely nothing has been changed in this law and it will keep operating. The story that has been put out there on the grounds that Sri Lanka will be a haven for money laundering due to the Port City Bill is an absurd claim and I reject it completely. I am also surprised that this claim was made by the US Ambassador herself. I think she has not read the Act deeply enough to understand its function.
Sri Lanka appears to be in a worsening economic plight with diminishing foreign reserves being a cause for concern. As the State Minister of Money and Capital Markets, and State Enterprise Reform, what are you doing to address this?
One of the major difficulties inherited from the previous Government was the rapidly depreciating rupee which went from 131 to 182 in a period of five years. On top of that, we were also struck by Covid-19. However, we have managed 2020 effectively, as the rupee devalued by only Rs. 2. Thereafter, in 2021, the first quarter saw a strong depreciation. We have made plans to strengthen our position as we go along. A $ 1.5 billion currency swap line has been negotiated with the People’s Bank of China and $ 500 million has been borrowed from the China Development Bank. We have also been informed by the IMF (International Monetary Fund) that Special Drawing Rights have been increased to $ 650 billion, of which Sri Lanka should receive around $ 800 million.
Our economy is now a lot more reliant on non-debt inflows. We have taken steps to increase remittances by 10%. Exports have come up rapidly and the service industry has positioned itself to increase earnings. We are confident that inflows will now continue as we go along. The Central Bank confirmed this by their ability to add a substantial amount to their reserves on a daily basis. Restrictions on imports have also been imposed resulting in managing our BOPs effectively. Overall, we are comfortably paying our debts and we have enough reserves to make payments for the foreseeable future.
In terms of the currency swap arrangement the country entered into with the People’s Bank of China, how effective is this swap going to be and is this an effective solution to ensure that the Sri Lankan Rupee appreciates?
The rupee has already appreciated. The swap provides us with the comfort of drawing down at any moment. We have been keen to not add reserves unless we need it. I believe that overall, it will be effectively managed by the Central Bank to ensure we are on top of the situation. The swap has already helped greatly and we are happy to receive this kind of response from the People’s Bank of China.
Leading up to 2021, several rating agencies downgraded Sri Lanka’s sovereign credit ratings indicating concerns about Sri Lanka’s ability to fulfil foreign debt repayments, what are your thoughts on this? How capable is Sri Lanka when it comes to paying off its foreign debt?
The agencies were extremely irresponsible in this action. Along with Sri Lanka, 40 other countries were downgraded as well. Despite the pandemic going on, the agencies did not pay sufficient attention to sort this out in a better way. So, while we did get downgraded, the positive side is that the IMF stated that they will be increasing the Special Drawing Rights of all countries as I mentioned earlier.
What do you have to say to those who are afraid that Sri Lanka is on the verge of a balance of payments crisis?
I will tell them not to worry. We have been deliberately singled out by some agencies and parties to destabilise the country. Regardless, Sri Lanka has proven to be resilient and we have been able to withstand pressure and always come out on top. Other countries have also understood our resilience. Sri Lanka is back in business and will probably see a 6% growth this year.
In your professional opinion, what is the root cause of Sri Lanka’s debt problem?
We allowed foreign borrowings to exceed rapidly in the last five years. Interest rates also increased rapidly which stressed our budgets. This should have been handled carefully. In 2014, our exposure to international sovereign bonds was $ 5 billion when our overall economy had a GDP of $ 80 billion. Thereafter by 2019, the GDP grew by $ 2 billion but our international sovereign bonds increased to $ 15 billion. Rupee depreciation was also a significant factor. In 2014, the total interest paid to international sovereign bonds was only $ 233 million which translates to around Rs. 30 billion as interest cost. By 2019, the total interest on the international sovereign bonds had grown to around $ 1,014 million which was around Rs. 200 billion. We need to recalibrate Sri Lanka’s foreign borrowings and ensure that our currency is strong.