• Chamber has advised GoSL to seek IMF assistance: Vish Govindasamy
• ‘Import restrictions: Sri Lanka should do what’s best for its economy’
• Chamber requests monthly progress report of six-month roadmap
• Set to submit alternate proposals for Budget taxes
• Govts. should stay consistent with their policies

    By Madhusha Thavapalakumar With each passing minute, Sri Lanka’s economy raises fresh fears over a possible debt default, according to economists, with authorities being adamant against seeking financial assistance from the International Monetary Fund (IMF), as they believe they can manage the dwindling official foreign exchange reserves by taking loans and entering swap arrangements with a couple of selected countries under the “debt-restructuring” plan.  On the other hand, to encourage deteriorating worker remittances to return to their usual levels, the Central Bank of Sri Lanka (CBSL) has announced a series of measures which, according to many renowned economists, have created more problems. Meanwhile, leading companies are not happy with the tax proposals the Budget 2022 announced, and they are looking for an engagement with the Minister of Finance to discuss these proposals.  Thus, the Sri Lankan economy appears mired in myriad issues, led mainly by diminishing reserves and a poor fiscal position due to tax reforms announced in the later part of 2019 by the newly elected President Gotabaya Rajapaksa, as per the experts’ claim. Against this backdrop, The Sunday Morning Business conducted an interview with Vish Govindasamy, a familiar face in the country’s corporate sector, the man behind Sunshine Holdings conglomerate’s diversification into the FMCG, dairy, and renewable energy sectors, and now the Chairperson of Ceylon Chamber of Commerce.  Sri Lankan economy and the pandemic  The very first question we asked Govindasamy was regarding the pandemic’s impact on the Sri Lankan economy.  “Thank you for asking the question of the year,” Govindasamy responded, beginning the interview.  He stated that the pandemic was quite challenging as it came without warning, and because the current generation has not faced anything of this size or calamity. Drawing comparisons to the tsunami that wreaked havoc in December 2004, Govindasamy pointed out how that particular disaster lasted a mere 24 hours, but with Sri Lanka facing the consequences long after. However, the tsunami was also limited to a selected geographical area, whereas Covid-19 is a global pandemic that has touched every nook and corner of the world. “Coming to Sri Lanka, I think we should speak more of today than of when the pandemic started, because looking back, I think we are in a much better position now. I want to give credit to everyone, including the Government of Sri Lanka (GoSL), the private sector, the health sector, and everyone else. We had our disagreements, we had the unknowns, but we have all come together in managing it, understanding it, and the way forward. I think we have handled it reasonably well. I do not think I can give a pat on the back and say we have done great, but look at how we are today while some of the nations are still struggling.” Import restrictions Moving on to the import restrictions that are still in place, despite advice from the European Union and World Trade Organisation (WTO) to reconsider since said restrictions are hindering free trade, Govindasamy stated that Sri Lanka should do what is best for its economy, as two out of three Sri Lankan dollar-generating sources were paralysed due to the pandemic.  “Sri Lanka gets most of its foreign exchange from about three sources. One is tourism, second is worker remittances, and the third is exports. Two of these sources have dried up because of the pandemic, and it is no fault of anyone. In a situation like this, how does one control the outflow? There are no magical solutions for this.  “So the Government took a decision to control and save forex by placing import restrictions. That is how we have survived so far and that is how we have food on the table so far. I do not know whether it is healthy. But Sri Lanka has worked on getting tourism. You can see it coming back to normal. There is a greater push on exports; we have exported more than ever before.  “If I were Europe, I would be upset, because Sri Lanka is not buying, but we are expecting them to buy. However, we are a small country and we need to do what is good for us. We need to survive. We are in this survival programme. Import is required as we are a trading nation and this country has been built on trade. We will continue that, but right now, it is a good break,” Govindasamy added.  To IMF or not to IMF? In terms of the IMF, the Government itself is divided as some of the ministers emphasise that Sri Lanka should seek IMF assistance, while another group says that the country is better without any assistance from the international financial organisation. However, Govindasamy stated that they were informed that the Government has better plans than seeking financial assistance from the IMF, after the Chamber made it very clear that the Government should reach out to the IMF for assistance.  “End of the day, they make the final decision, and I hope they will make a final decision. They have told us they have better solutions than seeking the IMF. We have asked them to tell us what those solutions are and how they are going to avert the crisis. Nevertheless, we have made our point clear: Please seek technical assistance. Please give confidence to the business community that there is some effort being made,” he stated.  Speaking further on this matter, Govindasamy noted that GoSL seems to have a point in not choosing the IMF for financial assistance, as seeking their help would mean Sri Lanka would have to resort to austerity measures as advised by the IMF. He added that Sri Lanka would not know what those austerity measures are till they enter into an assistance programme, which will make it harder for the country to reverse the decision if those measures are hard to comply with.  Float the rupee According to him, the Chamber has engaged in discussions with CBSL Governor Ajith Nivard Cabraal and suggested that one way to increase the USD inflow into the country is to depreciate the currency (Sri Lankan Rupee) to its real value.  He added that the Central Bank is now willing to pay Rs. 10 for every dollar remitted into the country, but when the rupee is floated and hits its real value, people will start sending their dollars more and the exporters will also start bringing the dollars and converting them, as every exporter wants more for their dollar rather than less. However, Govindasamy noted that the moment GoSL does that, all our imports will become that much more expensive, and paying our debt will also become that much more expensive for our Government.  Commenting on the Central Bank’s measures to encourage inflow of worker remittances through legitimate and authorised channels by paying Rs. 10 extra per dollar that is remitted during the month of December and freezing the “black market” money exchanges that pay a minimum of Rs. 30-40 rupees extra compared to Licensed Commercial Banks (LCBs), Govindasamy noted that as long as someone is willing to pay unauthorised amounts, people will take that advantage.  “This is a deterrent. We do not encourage anybody to do anything unauthorised. We have to play within the rules of the Government whether we like it or not. There is the Government and the country has a law. We first obey the law. We can complain about the law later. Comply and complain. I hope the Central Bank’s measures are a good decision. I hope it will work,” he added.  Roadmap lacks precision? Moving on to the six-month roadmap announced by the Central Bank on 1 October, Govindasamy stated that it is something Sri Lanka needed, as there was no proper roadmap earlier.  Although the CBSL roadmap outlined the targeted forex inflows, Fitch Ratings stated that the roadmap has not indicated the details with regard to the sources, as well as the timeline for those financial rollouts.  During the commentary that was made on Sri Lanka as a part of the “What Investors Want to Know: Emerging Market Sovereigns – 4Q21” report, Fitch Ratings Director – Sovereigns Sagarika Chandra said: “In a Six-Month Road Map published in October by the Central Bank of Sri Lanka, the authorities have outlined plans to secure funds through bilateral, multilateral, and other syndicated loans for 1Q22. However, the financing plans contain limited details, including the sources and timelines of financing arrangements.” She further mentioned: “As positive rating sensitivities we have flagged the need for more enduring improvements in the external and public finances.” When asked about this, Govindasamy stated: “We have asked Cabraal to give us a progress report on a month-on-month basis and he has agreed. We asked for a roadmap, it is there and we need to give them time to implement. Not every roadmap will work but we need to give them time to see that.” Buyback pharma agreement In a bid to boost the State Pharmaceutical Manufacturing Corporation (SPMC) joint ventures, the Sri Lankan Government has breached a buyback agreement established with local drug manufacturing companies, placing them in a precarious position, The Sunday Morning Business learns. Industry sources told The Sunday Morning Business that the current Government has failed to honour said agreements, which contain guaranteed quantities to be purchased by the Ministry of Health Medical Supplies Division (MSD) from local pharmaceutical manufacturers, since 2020. When asked about this and whether the Chamber held any discussions with the relevant authorities, Govindasamy noted that the buyback agreement was done before the current Government and what he knows is they are using a different methodology at the moment.  “The agreement was done with individual companies, but the current one would like to open up orders to everyone who is there in the manufacturing. I am not sure whether it is the right thing to do. Again, as the Chamber, what we asked the Government was to stay consistent with their policies. It doesn’t matter who is ruling, as the private sector we would require consistency. We should not be depending on who the rulers are and who is in charge. If a decision is made it should continue until it is discussed and changed,” he emphasised. Budget 2022’s proposals  Expressing its views on Budget 2022, three days after it was announced, the Chamber issued a statement noting that the imposition of the one-off surcharge tax would dampen investor confidence given its retrospective implications. It added that the proposed social security contribution will also have an adverse impact on low-margin businesses, including those subject to price controls and financial intermediaries while also having a cascading impact. “As such, we recommend considering sourcing this revenue through established measures such as VAT or the previously abolished Nation Building Tax. The proposed multiple taxes could place a heavy burden on the banking sector, which is supporting the post-pandemic recovery of most (other) sectors, potentially weakening the financial system in the country,” the statement added.  It noted that the private sector understands the need to identify new revenue measures to bridge the budget deficit, given the impact of the pandemic on the economy, in terms of maintaining mainstream corporate tax rates and investment incentives continuing from end 2019, in Budget 2022.  The CCC recommended that policymakers consult relevant stakeholders who would be willing to contribute to the development of specific strategies to achieve the desired outcomes. It added that while the Budget recognised the need for fiscal consolidation and the rebuilding of Sri Lanka’s foreign exchange reserves, it fell short on addressing the key macro-economic challenges of managing the shortage of foreign exchange in the market and refinancing of debt in the short to medium term.  “The Budget would have been an ideal opportunity to reassure investors, provide clarity, and build confidence while further complementing some of the measures outlined in the Central Bank’s Six-Month Road Map. Similarly, the Government could have used the opportunity to signal its commitment to phase out the currently prevailing import restrictions that are not sustainable in the long term.” When asked about this, Govindasamy noted that they are making a written submission to the Ministry of Finance on some alternate proposals to the ones announced in Budget 2022, because what is written on the budget is not very clear as to how they are going to implement it.  “One thing is sure that we are not in favour of retrospective taxes. It is not good to go back in time because financials are closed in those years, companies have given audits, and based on these profits, companies have announced their dividends. Now to go back and tax these ones is not a good practice because investors will lose confidence, which is something we have spoken about to the Secretary to the Treasury. We will be speaking to the Minister and making our submission. While we complain, we have to give them an alternative because where else will they come up with tax revenue? We are working with them to seek some alternate way on a fair basis,” he added.  Tax concessions for companies that go public  Budget 2021 proposed a 50% tax concession for the years 2021/2022 for companies that get listed in the CSE before 31 December 2021, and to maintain a corporate tax rate of 14% for the subsequent three years of these opting entities. Following this, private companies started to go public in the last few months and as of 31 October 2021, 34 companies had gone public.  When we asked whether the Chamber will request the Ministry of Finance to extend this concession, Govindasamy said: “We have already mentioned this to the Treasury Secretary and he said that they will look at the benefits that have come into the stock exchange and to the companies and if it's necessary and if there is a major requirement from the business sector, they will consider it.”  Talent migration, advice for leaders  Speaking on the talent migration that is currently happening in the country, Govindasamy stated that it is personally worrying that talented people are leaving the country.  “As Sri Lankans, it is a shame that our talents are going somewhere else and making other countries and people richer instead of making Sri Lanka richer and better. This is another worry we have raised, and why this talent migration is happening is because there is a lack of opportunity here and people feel their lives are better outside. I have lived and worked outside, but there is no place like Sri Lanka. Homeland is always better. In every country there are difficulties. You cannot abandon the ship.You need to be there, you need to support the captain, and you need to sail,” he stated.  Speaking further on his role model and future leaders of the country, he added that one of the role models he looks up to on a daily basis is his brother, as he had built their company from scratch and worked very hard, while not having the luxuries that the current generation has.    Adding to that, he advised the future leaders to make sure they do not make the same mistakes.  “We should always look at history, because we do not want history to repeat itself,” Govindasamy concluded, while also advising the public to not to lose hope in the country, as it will overcome the current crisis, just as it has done many times previously.