12 October 2022 02:56 am Views - 98
Conflicting statements from the Cabinet spokesman and the President’s Media Division over classification of Sri Lanka’s economy based on the per-capita income status sparked confusion as the country attempts to access concessional funding to meet its foreign currency liquidity needs after it lost access to market rate loans.
In the Cabinet press briefing held yesterday, the Cabinet spokesperson, Minister Bandula Gnawardane said the Cabinet of Ministers gave its approval for a paper to reclassify Sri Lanka as a “low-income country”, considering the decline in its per-capita income from 2020 onwards, which will persist through 2022.
“The Cabinet has given approval for a paper, which would reclassify Sri Lanka as a low income country for it to be able to access concessional funding after international organisations have informed the Finance Minister of its need, so that they could get involved,”Gunawardane said.
However, the President’s Media Division was quick to refute the claim and said Sri Lanka continues to remain a middle-income country, but pursuing what it called a ‘reverse graduation policy,’ for a limited period of time.
Although there wasn’t a direct reference to a change of the country’s income status, President Ranil Wickremesinghe too in his special statement to parliament last week alluded to the move in order to tap concessional funding, which Sri Lanka was deprived of since it graduated to a middle-income country.
While Sri Lanka was upgraded to an upper middle-income country in July 2019 by the World Bank after the country’s Gross National Income (GNI) increased from US$ 3,840 in 2018 to US$ 3,996, it slipped to the lower middle-income status a year after when the per-capita income reversed gains as Sri Lanka entered into a recession.
Sri Lanka’s GNI measured in US dollar terms slipped to US$ 3,591 in 2020 when the economy contracted by 3.6 percent before recouping US$ 131 dollars in 2021 to bring the per-capita income again up to US$ 3,722 when the economy briefly recovered 3.7 percent in 2021.
However, the World Bank recently projected the Sri Lankan economy to give up 9.2 percent in 2022 in its worst contraction ever, undoing many years of progress.
“Due to the economic crisis we are in, we are no longer capable of taking loans at market rates from either the World Bank or other lending institutions,” President Wickremesinghe said.
“We can’t get money from IBRD, of which we are members. So, we are now applying to the International Development Association (IDA) from which we graduated earlier for concessionary financing”, he added.
Sri Lanka lost access to loans from the International Bank for Reconstruction and Development (IBRD) due to the sovereign rating downgrade, according to Dinouk Colombage, Director of International Affairs for the President.
According to Colombage, twelve countries including Indonesia have availed themselves for the facilities under IDA known as “Gap”, when they were going through similar economic crises similar to that of Sri Lanka.