12 February 2024 03:39 am Views - 416
Patali Champika Ranawaka
Pic by Nimalsiri Edrisinghe
Opposition MP and Leader of the United Republic Front, Patali Champika Ranawaka, urged the government to adopt a scientific approach in restructuring the country’s external debt.
He emphasised the importance of considering the secondary market trading values of Sri Lanka’s US$-denominated International Sovereign Bonds (ISB) when negotiating for a haircut.
“The secondary market value of our ISB is US$ 55, which means if there are US$ 1,000 million worth of bonds in the market, it’s traded at US$ 550 million today. So, we don’t need to pay US$ 700 million for this. We need to bring this to the discussion table,” Ranawaka said.
According to the Central Bank (CB), the government is envisaging a 30 percent haircut on dollar-denominated bonds, including international sovereign bonds.
Ranawaka made these remarks during a meeting with representatives from Chamber of Young Lankan Entrepreneurs (COYLE), Federation of Chambers of Commerce & Industry Sri Lanka (FCCISL) and Chamber of Construction Industry (CCI) held in Colombo last week.
He labeled the recent VAT hike as evidence of the government’s economic mismanagement. He highlighted that the Domestic Debt Optimisation (DDO) efforts fell short in maintaining fiscal stability, leading to the necessity of another VAT increase this year.
“Due to uncertainty created by DDO in the market, the government had to pay 36-37 percent in interest for treasury bills. Interest cost shot up by one trillion rupees last year, if this hadn’t happened , the VAT increase wouldn’t have taken place. To some extent, this was the result of a decision based on a wrong analysis,” he added.
Meanwhile, Ranawaka also highlighted several fundamental problems in the IMF programme. In particular, he stressed that the country must renegotiate the target to bring down Gross Financing needs (GFN) to 13 percent of GDP by 2032 from 34 percent.
“All the other countries agreed to 15 percent GFN historically. We also thought this government was going to agree for 15 percent. It’s a big problem. This has to be renegotiated, because this target is unrealistic. It simply can’t be achieved. Every attempt to achieve this target would result in shrinking our economy,” he elaborated.
Similarly, he acknowledged that the target as well as the approach to double state revenue to 15 percent of GDP in a short period of three years as rather unpractical.
Ranawaka advocated for pragmatic negotiations to tailor economic reforms in line with the country’s specific needs and challenges.
Meanwhile, he also called on for the establishment of formal mechanisms to chart a course towards development goals, a task he contends the present government has thus far neglected.