London, (16/11 – 57)

Sri Lanka President Ranil Wickremesinghe has laid out the bankrupt country’s budget for 2024, drawing mixed reviews as he strives to meet the demands of an International Monetary Fund bailout program without sowing further public resentment ahead of expected elections.

Some observers applauded the proposals, not only for what they included but also what they did not, no new taxes on top of hikes already announced. But others expressed concern that the budget seemed designed to placate certain voters, and only temporarily, while not doing enough to help the struggling masses.

Sri Lanka’s election-year budget was presented on 13 November, and it straddles line between IMF and its voters. The 2024 plan is praised for ‘sticking to reform,’ but criticized for the apparent contradictions not doing enough to help the struggling masses.

Wickremesinghe unveiled the budget on Monday, announcing his government’s plan to increase tax revenue to 3.82 trillion rupees ($11.67 billion), up from this year’s estimated 2.6 trillion rupees. Two weeks ago, the government had announced a value-added tax (VAT) increase to 18% from 15%, effective from January, as part of efforts to meet targets set by the IMF.

The fiscal deficit target is estimated at 2.85 trillion rupees, or 9.1% of gross domestic product, higher than the revised 8.5% of GDP for the current year. “We are aware of the difficulties faced by the people of this country. The path toward a stable and developed economy is not beautiful. It is difficult, hard and challenging,” Wickremesinghe said in his budget speech, following a recent uptick in protests demanding salary hikes to overcome high living costs.

The president described a country at a crossroads as it attempts to climb out of bankruptcy. “If we successfully navigate through this challenging period, we can create a free and decent society. Instead, if we continue to build sand castles by giving relief to the people based on political motives, the country will again be bankrupt.”

Still, Wickremesinghe proposed new relief measures for civil servants and pensioners. The plans call for handing out an additional 10,000 rupees in cost-of-living allowances to 1.3 million government employees, while raising allowances for 730,000 public pension recipients to 5,025 rupees from the current 2,500 rupees.

Sri Lankans are reeling from an economic crisis that has driven up the costs of essentials, although inflation has slowed.   Meanwhile, in a nod to the IMF, Wickremesinghe proposed a massive 3 trillion rupee allocation for foreign debt restructuring and the settlement of international sovereign bonds under the program. After Sri Lanka defaulted on its foreign debt in 2022, the fund came to the rescue earlier this year with a $2.9 billion bailout.

The country failed its first review of the program in September, but reached a staff-level agreement to unlock a new tranche last month.

According to Wickremesinghe, under the debt restructuring supported by the IMF, public debt is expected to decline from 129% of GDP in 2022 to 95% by 2032. He emphasized the benefits of this shift toward sustainability — greater macroeconomic and financial sector stability — for the nation of about 22 million people.

Wickremesinghe reported that reform measures implemented over the last 18 months have already resulted in significant improvements in Sri Lanka’s macroeconomic position. A primary budget deficit of 5.7% of GDP at the end of 2021 turned into a primary budget surplus in the first half of 2023, he said. Tax revenue grew 50% in the first six months of 2023, despite a deep economic recession. The inflation rate has dropped from 70% in September 2022 to 1.3% in September 2023, and foreign exchange reserves have recovered to above $3.5 billion.

“The economy is being healed due to the correct procedures and methodologies we followed during the past year, building the foundation of this system,” Wickremesinghe argued.

The budget receives much of both applauses and criticism.

Murtaza Jafferjee, chair of the Colombo-based Advocata Institute think tank, praised the president’s budget. “He is sticking to the reform and economic restructuring pathway and is not being excessively political,” he told Nikkei Asia. “This is the kind of budget that we always needed, and the language is not sugarcoated and it is factually correct.”

Mujibur Rahman, a member of parliament representing the opposition Samagi Jana Balawegaya alliance, pointed out what he sees as an inherent contradiction in the plan. “From January, they are increasing VAT, which means the cost of living will increase further, and at the same time they say they will increase the allowance for government workers. So, he is giving from one hand and taking it from the other.”

Sunil Adihettige, a driver employed by a private company in Colombo, was also disappointed. “I was hopeful that the president will announce some relief so that the prices of food items and our monthly bills will reduce. But he only said government employees will be getting a salary increase, but as we are in the private sector, we won’t even benefit from this.”

“Overall, businesses were significantly affected by extensive taxation, but people are adjusting to these increases as they had no other choice and also because they understood the country’s situation,” said Imtiaz Buhardeen, an entrepreneur and investor in Colombo. “The only fear was the possibility of additional tax increases on Monday, but it’s a big relief that there are no new increases.”

Ranjan Jayalal, a trade union leader, suggested the support for government employees was little more than a ploy. “The allowance is expected to be paid from April onwards, but after another couple of months, there will be elections, and then everything will change,” he said.

The next election must be called by September 2024.

Jayalal added that poor people are facing such hardship that many don’t even switch on the lights in their homes due to high electricity costs.

Source

The post Sri Lanka’s Budget Navigates Challenging Economic Crisis appeared first on Ankara Haftalik.

When Ranil Wickremesinghe took over as Sri Lanka’s president in July after a popular uprising ousted his predecessor, the South Asian island nation was engulfed in its worst economic meltdown in 75 years.

Since then, President Wickremesinghe has managed to a keep a lid on mass protests, improve supplies of essentials and on Monday, secured a nearly $3 billion bailout from the International Monetary Fund (IMF) that opens the door to restructuring about $58 billion of debt and receive funding from other lenders.

On March 20, the IMF approved a $3 billion Extended Fund Facility (EFF) to support Sri Lanka amid its economic crisis. The approval is expected to pave the way for other financial institutions to extend support to the bankrupt South Asian country.

He has done that despite a deeply unpopular government, his own party commanding just one seat in the 225-member parliament and having to rely for support on the party of the man he replaced.

Hours-long power cuts and queues for fuel that led to the downfall of former President Gotabaya Rajapaksa are gone, thanks partly to a fuel rationing system. Tourists are returning, remittances are recovering and foreign exchange reserves are rising, though the economy is still contracting. But due largely to significant hikes in income taxes and power tariffs that were needed to get the IMF on board, the government of the 73-year-old is no favourite of the people. According to a “Mood of the Nation” poll run in February by private think-tank Verité Research, the government’s approval rating was 10%, the same as in October but higher than an all-time low of 3% in June, when Rajapaksa was in power. Only 4% were satisfied with the way things were going in Sri Lanka, down from 7% in October but higher than 2% in June.

There are no known approval ratings for Wickremesinghe as president. “He’s ready to face the people’s anger in the short term, to ensure long-term stability and growth in the country,” said Dinouk Colombage, Wickremesinghe’s director of international affairs. “Even though the president only has one seat in parliament, him carrying forward his agenda, bringing forth the reforms, once the results start showing, I think the people will come out in open support of him.”

Born into a prominent family of politicians and business-people with large interests in the media, the lawyer and six-time prime minister has little support beyond wealthy urban voters. His ability to make policy depends to a great extent on the support of the Sri Lanka Podujana Peramuna party, largely controlled by the Rajapaksa family.

For now, Wickremesinghe is enjoying that support, and he said on Sunday that his country was on the right track There’s fuel now, there’s electricity, there’s fertiliser and by April, there will be enough rice and other foodstuff,” he said at an event in Colombo. “We will no longer be declared a bankrupt nation, but a nation that can restructure its debts.”

The bailout is expected to catalyse additional external support, with funding expected from the World Bank and the Asian Development Bank to the tune of $3.75 billion, the IMF said in a statement.

In recent months, Wickremesinghe successfully negotiated economic support from top lenders China, India and Japan, culminating in the IMF bailout. He flew to Japan in October to apologise for the cancellation of Japanese-funded projects under Rajapaksa, which convinced Tokyo to back Sri Lanka’s request for the IMF bailout.

The Paris Club of creditors, which includes Japan, earlier this year gave financing assurances to support the IMF deal. A Japan-funded $1.8 billion light-railway project, which was suspended in 2019, is among infrastructure projects that Sri Lanka is now trying to restart.

But Sri Lanka still needs to renegotiate its debt, a potentially drawn-out process where Wickremesinghe, who is also the finance minister, will have to deal with demands from China, India and other creditors. He still has to turn around the economy, which shrank 7.8% in 2022 and is expected to contract by 3% this year.

Implementing further reforms under the IMF programme, reducing record-high interest rates and controlling inflation will also continue to pose challenges for Wickremesinghe, who has faced trade union strikes after the tax and power hikes.

Critics say Wickremesinghe’s economy-first approach ignores political and systemic reforms – like stronger anti-corruption measures and more transparency in government decision-making – as demanded by mass protesters who banded together as the “Aragalaya” movement last year.

“One year on, there is no real structural change in governance or system change,” said Bhavani Fonseka, senior researcher at Colombo-based Centre for Policy Alternatives. “The president does take this line that his priority is addressing the economy over everything else, but you can’t have that silo-ed approach and think people are going to be okay with it.”

A crisis-weary public may still have to absorb years of continuing hardship as Sri Lanka tries to fix its economy during the four-year IMF programme, warned Jayadeva Uyangoda, a senior political analyst. “Wickremesinghe has managed to neutralise the Aragalaya and that was a major success, but the economic and social crisis goes on,” he said.

“Economic stability will take at least another couple of years.”

Source : Reuters

The post President Wickremesinghe Delivers IMF Deal for Sri Lanka appeared first on Ankara Haftalik.

London (07/11 – 70)

President Ranil Wickremesinghe, at the helm of the United National Party (UNP), has orchestrated a remarkable turnaround for Sri Lanka’s tumultuous economy, tackling persistent challenges with a steadfast determination that has garnered widespread support across the national and international communities.

Upon assuming office, Wickremesinghe confronted an array of pressing issues, including severe electricity shortage resulting in daily power cuts, soaring inflation, an all time low foreign reserve value and scarcities in essential commodities such as fuel and milk powder. Swift and strategic actions within his first six months in power yielded tangible results, with the electricity crisis resolved and power outages becoming a thing of the past. Notably, the restoration of a stable supply of fuel and commodities has revitalised the country’s markets, marking a significant shift from the uncertainties of pre-Ranil Sri Lanka.

Sri Lanka’s President Ranil Wickremesinghe tackled persistent challenges with a steadfast determination that has garnered widespread support across the national and international communities, including managing the IMF program.

Despite the persistent specter of inflation, the president’s administration has implemented measures to mitigate its impact, gradually stabilising the economy and fostering an environment conducive to growth. The successful repayment of a substantial USD 200 million loan from Bangladesh underlines the administration’s commitment to fiscal prudence, earning commendation both domestically and internationally.

Managing the International Monetary Fund (IMF) program has presented its share of challenges, but President Wickremesinghe’s deft navigation of these complexities has underscored his administration’s dedication to responsible economic governance and effective policy implementation.

An assertive move that defined his tenure was the swift handling of disruptive protests that posed a threat to public order. Upholding the rule of law, President Wickremesinghe quelled dissenting voices with the assistance of law enforcement, demonstrating his resolve to ensure the seamless functioning of the government and the preservation of social stability.

The persistent opposition from the communist factions in Sri Lanka, notably including the Marxist-Leninist former armed insurrectionist Janatha Vimukthi Peramuna (JVP) political party and its affiliated front organisations such as the Frontline Socialist Party (FSP) and the Inter-University Student Federation (IUSF), commonly known as ‘Anthare,’ continues to pose a challenge to President Ranil Wickremesinghe’s administration. After failing to launch armed insurrections against the state in the 70s and 80s, these groups have been known to mobilise protests, riots, and disruptive activities, often with the intention of undermining public peace and stability. Additionally, the communist-influenced trade unions across various sectors have resorted to strikes and sit-ins, leveraging their collective power to impose self-serving demands and disrupt the normal functioning of key industries. Notably, the Aragalaya movement, also influenced by communist elements, underscored the pervasive influence of such groups within the social and political fabric of the nation. President Wickremesinghe’s firm and resolute approach to tackling these disruptive forces has effectively marginalised their impact, marking a stark departure from the previous administration’s inability to address similar challenges. His unwavering stance against agitators and hooligans has relegated these disruptive elements to the fringes of the political landscape, highlighting his adeptness in managing volatile political dynamics and ensuring the preservation of public order and stability.

President Wickremesinghe’s political journey is marked by intrigue and challenges, with his lineage and astute leadership consolidating his position within the UNP. The rift with Sajith Premadasa, the current opposition leader, exemplifies the complexities of Sri Lankan politics. Despite internal divisions and external pressures, President Wickremesinghe’s ability to secure the presidency with a solitary parliamentary seat underscores his political acumen and resilience in the face of adversity, leaving an enduring imprint on the nation’s political landscape.

As President Ranil Wickremesinghe continues to navigate the intricacies of governance and policymaking, his commitment to fostering economic stability and upholding social order serves as a testament to his leadership and vision for a prosperous Sri Lanka. With a resolute stance against disruptive elements, President Wickremesinghe has solidified his position as a bulwark against political turbulence, ensuring that the nation marches forward on a trajectory of progress and prosperity.

The post President Ranil Wickremesinghe Remarkable Turnaround for Sri Lanka’s Tumultuous Economy appeared first on Ankara Haftalik.