Editorial

Has Sri Lanka’s drained-out economy ‘turned the corner’ or was Wednesday’s presidential address to the nation the soft launch of Ranil Wickremesinghe’s presidential campaign? It would seem it was a little bit of both.

The brief address was something to be expected from the presidential propaganda czars. The glad tidings from Paris that saw the Official Creditors Committee (OCC), co-chaired by France, India and Japan, and separately from Beijing by China, allow Sri Lanka time till 2028 to start settling its mountain of bilateral loans, were too good an occasion to let pass without giving the President an opportunity to announce it himself.

The fact that foreign capitals and their ambassadors in Colombo were quick to take to X and congratulate the Wickremesinghe government on clinching this agreement was evidence that it was something noteworthy, even by the foreign government lenders (creditors).

India had to refer to the USD 4 billion it gave Sri Lanka when the country was in dire straits back in December of 2021 (with no mention of the strings its Foreign Ministry attached to the loan in the form of pressing for increased Indian investments in Sri Lanka). Japan, on the other hand, has all along been very supportive of Sri Lanka coming out of this economic hole, so it can come in immediately with investments that had to be suspended, despite its well concealed disappointment at the way Gotabaya Rajapaksa’s officials mishandled Japanese projects in the country with an eye on making a buck.

The Government was keen on using the common everyday parlance to announce that Sri Lanka was no longer a ‘bankrupt’ nation. It was the lexicon used ever since Sri Lanka announced it was unable to repay the loans it had taken. No nation goes ‘bankrupt’ in the sense an individual or company would; it is only the beginning of a process of restructuring, especially its debts with creditors. The United States’ national debt topped USD 34 trillion this week.

Wednesday’s Paris agreement means that Sri Lanka is now once again creditworthy, at least in a qualified way. Bilateral and multilateral lenders will return to engage, but access to private capital markets (the loan sharks) is not doable in the foreseeable future as any engagement will be at exorbitant interest rates. Rating agencies will begin recognising Sri Lanka for what it is worth. Therefore, the doors to doing business as usual with the rest of the world are only half open.

Concurrently, in Kenya, a massive ‘Aragalaya’-style demonstration broke out due to plans to introduce a tax bill that was to turn the lives of the already oppressed masses into hell. Protestors burned a part of the Parliament complex, and the military shot dead over two dozen of the ‘Aragalyaists’. It was a textbook case of the entire macroeconomic policies of the IMF bailout for the cash-strapped East African country ending up in smoke.

Fortunately, Sri Lankans haven’t had to suffer the same fate. Parliament was saved from arson, and no one was killed. The high taxes have been endured despite the unions showing no patience and street agitations whipped up by those with different agendas. Safety nets for the poor in the form of ‘Aswesuma’ and other social welfare programmes in Sri Lanka at least cushion some of the blows in the ongoing reform process, and one only hopes these weekly street demos will not go the way Kenya’s have gone.

There’s no denying that the Central Bank and the Finance Ministry, together with their international consultants, and indeed a foreign policy that was skating on thin ice, or more to the point, navigating the ship of state in the sizzling waters of the Indian Ocean’s geopolitical complexities, paved the way for the eventual success in Paris.

The Opposition, or a section of it, is not likely to take this ‘success’ in good spirit. They will contest the President’s claim that “Sri Lanka won” and say this is a mere celebration of debt, which it is, after all.

All this macroeconomics might also not convince the petrol shed attendant who needs to find a job for his sister, whom no one will marry unless she can support her future family, or families that cannot meet their bills to feel that they have indeed also ‘won’. Their support for the continuation of the stringent IMF reforms is doubtful. Many of them may well remain in a make-believe world that an election and a change of government are the panacea to overcoming their difficulties.

Sri Lanka has miles further to go in reaching a deal with the international sovereign bonds (ISBs), the private commercial creditors, and nautical miles further to go in settling their loans in the future, even with a cut in the interest payable. The fact is that any government—either the incumbents or those in the Opposition vying for office—will have to deal with these pending issues in the future. That is the reality.

For now, the Opposition is like what is said of the British Opposition and its vague plans to fix their country’s numerous problems. Political analysts have coined the phrase ‘Ming vase strategy’ i.e., carrying an expensive Ming vase across a highly polished floor wearing socks. They are afraid to slip and fall by doing or saying something that would cost them the election. So it’s a conspiracy of silence on how they plan to pay for strained public finances; how they will fund their spending plans and balance their budgets. They will only criticise the government.

No one really knows how the Opposition will meet the cost of the debt interest. No one is talking about their tax plans and raising money plans; it’s only about spending promises and vague and unrealistic talk of negotiating with the IMF. They are perfectly right when, like the Labour Party in the UK, they say that the youth and working class would prefer jobs and proper wages rather than handouts, but they don’t say how they will achieve those ends.

Unless they say something next week when the Paris MoU is debated in Parliament, they may well buy time to say ‘wait and see’; their election manifestos will outline these details.