By Shamindra Ferdinando
Central Bank Governor Dr Nandalal Weerasinghe has warned political parties represented in Parliament that unless they abandon their ill-conceived strategies, Sri Lanka will have to seek IMF interventions 16 times in the past 20 coming years.
Dr Weerasinghe issued the warning during a meeting organized on the intervention of President Mahinda Yapa Abeywardena in Parliament, on August 31. That was before the successful conclusion of service-level talks with the International Monetary Fund (IMF) for a four-year, $2.9 billion loan facility.
Weerasinghe said that over the years Sri Lanka had requested IMF intervention 16 times and this was the 17th time.
Emphasizing that the measures that had been taken by the yahapalana government (2016-2019). following an agreement with the IMF, was ignored by those who regained power in 2019/2020, Dr Weerasinghe said if the government/opposition went back on its commitments, the country would face a similar crisis, in three years.
Dr Weerasinghe blamed political parties for seeking political gains at the expense of the national economy. Government and opposition and vice versa have repeatedly made election promises which have undermined the national economy, Dr Weerasinghe said. Those who voted for them ultimately paid a heavy price, Dr Weerasinghe added.
The main central banker, Dr Weerasinghe, who retired in January 2021, was invited by former president Gotabaya Rajapaksa to succeed Ajith Nivard Cabraal as governor in April this year.
Dr Weerasinghe said those who got IMF help promised to rectify their wrongdoings, but continued to do the same.
At the start of his hour-long address, Dr Weerasinghe, having said that the situation was so bad that the current crisis could be compared to that of Zimbabwe and Lebanon. The head of CBSL pointed out that per capita income in US dollars had risen from US$4,000 to US$3,200. Unless tangible action is taken, the economy could collapse, Dr Weerasinghe warned, while explaining to lawmakers how hyperinflation could send the government out of control.
Dr Weerasinghe alleged that reckless and irresponsible spending by successive governments against the backdrop of a growing budget deficit year on year has led to the current crisis. Governments have deprived the private sector of much-needed funding for investment purposes, etc., by using these funds, he said.
The CBSL leader showed how parliament has repeatedly raised the borrowing ceiling to facilitate the agendas of the ruling party, whoever is at the helm at the time.
Commenting on the rapidly deteriorating economy, Dr Weerasinghe pointed out that large-scale commercial borrowing which began in 2005 as opposed to concessional loans obtained earlier was undermining the very basis of the economy. The reckless investments of these commercial loans contributed to the current disaster, Dr Weerasinghe said, saying commercial borrowing had reached critical levels.
Stating that he was not making a political statement, Dr. Weerasinghe explained how the Mahaweli project has contributed to the development of Sri Lanka, particularly by saving valuable foreign currency by improving hydropower generation capacity. Otherwise, Sri Lanka would have been in more trouble, Dr Weerasinghe said, blaming successive governments for providing loans at higher interest rates to further develop the public sector, pay salaries and pensions and d other non-productive measures.
Dr Weerasinghe said those in power simply got loans from those willing to give. The reckless project continued as long as Sri Lanka had access to financial markets, Dr Weerasinghe said, adding that this was halted in 2020/2021 when the country lost access to these markets. Dr Weerasinghe said that by the time creditors stopped giving us more loans, we were bankrupt.
Referring to the recurring losses suffered by state enterprises, Dr. Weerasinghe revealed that the State Corporation had suffered losses amounting to Rs 1 trillion. Addressing Energy and Energy Minister Kanchana Wijesekera, who was among those present at the occasion, Dr Weerasinghe said the legislator knows the extreme difficulties of handling the crisis.
Dr Weerasinghe criticized the previous government for abolishing a series of taxes in the absence of a public campaign. It triggered an unprecedented crisis, Dr Weerasinghe said, acknowledging that central banks around the world no longer had money printed as a temporary measure, as happened during the Covid-19 pandemic. However, Sri Lanka continued the practice, the CBSL chief said, comparing the actions of the government at the time to someone who was unwilling to give up the use of “abing” (opium).
Dr Weerasinghe said that by the time he took over the Central Bank in April this year, the Bank of Ceylon and the People’s Bank had defaulted. Reserves in April stood at just $20 million and the economy was in tatters, Dr Weerasinghe said.
Comments on his immediate predecessor Ajith Nivard Cabraal’s much-vaunted roadmap for economic recovery have not yielded the expected results. Despite the planned $10 billion in fresh funding, there was absolutely nothing, Dr Weerasinghe said.
The BC Governor strongly defended the statement he made regarding Sri Lanka’s failure to meet its loan obligations. The statement came following the IMF’s rejection of Sri Lanka’s request for $800 million, made available due to covid. Sri Lanka was denied that the country could not have repaid this facility provided to all covid-19 affected countries.
Then, after wasting precious USD by pegging rupees to 203 per dollar, the currency was launched without following proper procedures. It was nothing but a disastrous measure that eventually led to street protests and a change of government. Stressing the responsibility of the government of the day to ensure strict enforcement of the measures currently in place to control spending by imposing import restrictions, Dr Weerasinghe warned that unless the government succeeds, there will be would again have a change of government.
Acknowledging the extreme hardship faced by fixed-income earners and the poor, Dr Weerasinghe stressed the critical importance of what he called a social safety net. The IMF expected the government to pay attention to the ongoing issue because whatever reforms were proposed, they could only be sustained if the administration addressed these vulnerable groups. If those unable to make ends meet took to the streets, there would be a bloodbath. Such a scenario would be far more dangerous than the Galle Face protest campaign that forced the change of government in July, Dr Weerasinghe said.
The head of CBSL said he was also concerned about the sustainability of the banking sector. The outspoken official stressed that with food inflation at over 90%, supporting economic reforms and taking the staff-level agreement with the IMF to the next level would be a challenge.