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Exiting default status next for Sri Lanka, CB Governor says
View(s):Central Bank Governor Dr. Nandalal Weerasinghe said the next priority is for the country to exit its restrictive default and selective default status, which Sri Lanka has been placed in for not fulfilling its debt obligations, and make progress in its credit ratings.
“The initial priority is to resolve this situation and complete the restructuring process to exit these defaults. The success of this endeavour will determine our next steps. With swift action, we can swiftly progress to achieve credit ratings such as B, BB, or BBB thereafter,” Governor Weerasinghe said in a discussion on Friday with the President’s Media Division.
The Governor Dr. Nandalal Weerasinghe (right) was joined by Finance Ministry Secretary Mahinda Siriwardena for the discussion
The Governor was joined by Finance Ministry Secretary Mahinda Siriwardena for the discussion.
He said that as Sri Lanka emerges from a challenging situation after entering into a specific programme agreed upon by both lenders and the IMF.
It is crucial for any government to ensure that they do not regress from this programme’s path.
“None of us wish to revisit the crises of the past. Therefore, decisions must be made with careful consideration and foresight. We must tread cautiously on this journey. Reflecting on why we sought IMF assistance in 2022, some advocated against it, suggesting alternative options. However, reforms were necessary due to longstanding economic issues that precipitated the crisis,” he said.
He also spoke on the positive aspects of the domestic debt restructuring agreements, including in the banking sector as well as the EPF.
The Governor said that concerns about the collapse of longstanding banking systems have been resolved and the country’s overall condition has improved.
Another concern, he said, was the potential disappearance of the employees’ provident fund and its inability to pay even 9% interest as net profit.
“I am pleased to announce that we paid 13% interest for the year 2023. Despite not refinancing in 2018, 2019, 2020, and 2021, we still managed to pay 9% interest. This year, we have already secured 13% interest for employee pension holders, ensuring their account balances remain stable. We expect to provide good returns in 2024 as well.”
He said that by securing long-term relief from bilateral creditors, the country has significantly eased the burden of debt repayment, and this has enhanced our capacity to meet financial obligations, with only interest payments scheduled for the next five years.
Subsequently, repayments will be made in installments over another five-year period, culminating in a major deadline, and with the commencement of debt payments, projects that were temporarily halted during the previous period will resume, supported by countries such as Japan, India, China, and others, he added.
This resurgence, he said, promises to restore normalcy and catalyse national development efforts.
Governor Weerasinghe said the government has started to address the deficiencies in the country’s governance framework, which were highlighted in a report by the International Monetary Fund, including corruption, which poses a significant barrier to managing a country’s economy, particularly in financial matters.
“Sri Lanka is the first Asian country to undergo such a comprehensive governance assessment. Actions taken include the enactment of new anti-corruption legislation and strengthening of the Bribery or Corruption Commission. Advanced technology has been introduced in procurement processes to enhance transparency. The Government has also published reports detailing tax concessions and loans, aiming to increase transparency. There are discussions about introducing legislation to recover misappropriated resources,” he said.
He added that progressive legislation introduced in the past two years has helped the country. These include establishing an independent Central Bank alongside a robust legal framework for Public Finance Management.
“The Public Financial Management Act ensures transparency in financial oversight, addressing past fiscal discipline issues. Strengthened fiscal discipline and enhanced oversight will bolster monetary policy effectiveness and enable more rigorous budget preparation and approval processes. Integrating public debt management under the Ministry of Finance further enhances financial stability. These acts form the cornerstone of a strong foundation,” he said.
The Governor added that the Economic Transformation Act aligns these pillars, facilitating discussions for comprehensive economic reforms. This framework sets a clear path for short, medium, and long-term national direction, fostering new institutions and enabling economic activities with greater freedom.
Meanwhile, the Finance Ministry Secretary said that they have managed to sustain the economy under strenuous conditions, ensuring salaries and other allowances are met. “Introducing additional pressures on our already strained resources raises concerns about sustainability. While steps are being taken to boost Government revenue, we aim to implement salary increases by 2025, navigating these challenges with careful consideration.”
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