Govt. focuses on economic revival; early polls unlikely

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  • Cabinet approves Domestic Debt Optimisation programme after 35-page report by Central Bank governor
  • Govt.’s communicators failed to explain DDO issues to people in simple language; President asks business and TU leaders to do the job
  • Election Commission gets new chief; but concerns over lack of financial independence to conduct polls
  • Crime rate rises, public confidence in Police deteriorates, BASL calls for appointment of IGP whose record is unblemished



Fifty eight years ago when Sri Lanka’s rupee was devalued for the first time, the confusion it caused among the public was considerable.

The vast majority who are not conversant in the deeper intricacies of economics or public finance pon-dered what it meant. After all, there was still one hundred cents that made a rupee, they thought. Many in the government offered explanations that were embroiled in technicalities not easy to grasp.

J.R.P. Sooriyapperuma, then Editor of the ruling United National Party’s (UNP) official Sinhala journal Siyarata spoke out in simple terms to define what was avapramana or devaluation. He was also a parlia-mentarian. Earlier, he said, a person took a purse full of money to bring home a trunk case full of goods. After the devaluation, however, it was a case of taking a trunk case full of money to bring home a purse full of goods. No doubt, a purse cannot contain any goods. The explanation did seep in, though there was undoubtedly a segment to whom it was still Greek. That was the devaluation of the rupee by then Finance Minister, Ukku Banda Wanninayake from Rs 5.95 to the US dollar to Rs 16.  It was under Prime Minister, Dudley Senanayake’s government.

In further measures to extricate Sri Lanka from the ills of bankruptcy, the Government lined up five days when banks will remain closed. This covered the bank holiday on Friday, the two days of the week-end, the Haj holiday on Thursday and the Poya Day on Monday. During this period, a meeting of the cabi-net of ministers was summoned to be followed by a session of the government parliamentary group. The developments became the focal point of attention in several sectors, besides the business community. The Colombo-based diplomatic community was awaiting the important decisions to follow. Most capitals were asking about the “major decisions” that were due. Small-time business entrepreneurs were querying whether the prices of goods and services marketed by them would have to be raised. In essence, the at-mosphere was one that created the belief that a vast segment of the country’s population would be affect-ed. The answer, however, as the days passed was in the negative.

The Cabinet of Ministers on Wednesday approved a Domestic Debt Optimisation (DDO) framework, af-ter a presentation by Central Bank of Sri Lanka Governor Dr Nandalal Weerasinghe. The 35-page docu-ment covered five areas: Sri Lanka’s Public Debt Sustainability (background); How to Restore Debt Sus-tainability; Why Domestic Debt Optimisation (DDO) is essential. Who should (will) share the burden of DDO and Envisaged Terms of Sri Lanka’s Domestic Debt Optimisation; and Sri Lanka’s Public Debt Sus-tainability (Background).

Dr Weerasinghe made clear that the DDO applied mainly to Treasury Bills and Treasury Bonds. In oth-er words, the issue related largely to those who have subscribed to Treasury Bills and Treasury Bonds. Herein lies the drawback. Government communicators have not been able to tell the wider section of the people, in the language they understand, what Domestic Debt Optimisation is and how it concerned them. As a result, they have only played the role of a post office, simply conveying what Governor Weerasinghe and his colleagues associated with the exercise were saying or doing. Little or no effort has been made to simplify it for the benefit of the larger segment of the population. Politically, it was not helpful for the Government since an impression had been created unwittingly that more burdens were around the corner and the stage was being set for it. The price increase in cigarettes, arrack and beer only added credence.

One is not sure whether President Ranil Wickremesinghe’s appeal on Friday to business leaders and separately to trade union leaders to spread the rationale behind the Domestic Debt Optimisation was prompted by the lack of outreach by the Government’s own communicators. The President’s Media Divi-sion said: “During meetings held yesterday (29) at the Presidential Secretariat, President Ranil Wickre-mesinghe addressed members of the Chambers, business leaders and unions regarding the Domestic Debt Optimisation (DDO). The President urged the business leaders to educate their employees on this crucial step aimed to ensure that individuals and industries comprehend the significance of this financial ma-noeuvre. He said by engaging in widespread explanations, stakeholders can grasp the nuances of the re-structuring and gauge its influence on their livelihoods.

“President Wickremesinghe noted that the foremost effect of this restructuring endeavour is the antici-pated reduction in interest rates, providing a glimmer of hope for individuals burdened by financial obli-gations. While the exact timeline remains uncertain, experts predict a noticeable decline in interest rates within a matter of months. President Wickremesinghe said, “I think the best is for you all to go out and explain what this debt restructuring means to you all and to the workforce. I think that’s what you all should do and if you can keep that momentum in the next few days, it will be very helpful. This is about the best that we can achieve. With this comes the fact that our interest rates will come down. It’s a matter of months before it comes down. Secondly, the development assistance will start, which will be a boost to a part of the construction sector.”

Moreover, the President said, as part of this restructuring, an injection of development assistance is on the horizon, poised to breathe new life into the construction sector. This infusion of support has the poten-tial to stimulate growth, create employment opportunities, and invigorate the overall economy.

President Ranil Wickremesinghe together with Premier Dinesh Gunewardena and Finance State Minister Shehan Semasinghe addresses business leaders this week. Also in attendance was CBSL Governor Nandalal Weerasinghe

Meanwhile, during the meeting with trade union representatives, President Wickremesinghe empha-sised the importance of implementing the DDO programme. He warned that failure to do so could lead to a potential increase in interest rates for loans obtained by small businesses. The President also expressed concerns about the possibility of the dollar’s resurgence, given the strengthening of the rupee. He empha-sised that domestic debt optimisation must be conducted simultaneously with foreign debt optimisation to mitigate this risk.

Governor Weerasinghe who spoke after the President elaborated. He said, “There have been a lot of concerns about banks recently, saying that bank deposits will be affected. There will be an impact on the banking system. So, in our discussions, we ensured the banking system’s stability.

“Next is the protection of all bank deposits. This is going to have a huge social impact compared to su-perannuation funds. So, there is a very reasonable and fair solution. Our argument is that banks have al-ready made a huge contribution to the Treasury in terms of 50% taxation and their contribution to the economy in terms of debt moratoriums, and state loan provisioning, which has already been affected. As a result, we wanted to exclude the banking system or deposit-taking institutions from restructuring their treasury bonds. Treasury bills obviously have no impact at all as was already announced by the Central Bank.

“Treasury bills will be restructured. On the superannuation funds, it is also a fair solution where we would be able to assure that they will receive the interest or return of 9% every year. Next several years they will be assured of a 9% return as well as no reduction in their balances. No re-statement of balances. The current balance would be protected. They will continue to get a 9% return going forward. And those treasury bonds would be restructured and would be exchanged for new bonds. That will be launched on the first working day on Tuesday (04) morning. There will be a launch notice. From there that will be the cut-off date. Any bonds held by superannuation funds will be exchanged including EPF, ETF and all su-perannuation funds. There are several private-sector superannuation funds. Those will be restructured. The main justification why only superannuation funds are chosen is basically because they are paying their liable 14% tax compared to the banking sector’s 50% insurance. At least 30% of the corporates are paying 30% income tax. Any income out of Treasury bonds or interest income is paid back to the govern-ment in terms of taxes.”

It is also Dr Weerasinghe who explained after both the Cabinet and the Parliamentary Group meeting that their key target would be to optimise the debt within a 10-year period in keeping with the negotia-tions with the International Monetary Fund (IMF). He said that in achieving the targets, there were three areas to be addressed: bilateral loans, Commercial loans through the issue of sovereign bonds and Domes-tic debt. He said Domestic Debt restriction applies to Treasury Bills and Treasury Bonds. He said that of Treasury Bills issued to the value of Rs 4.1 trillion, 62.4 percent is held by the Central Bank and already agreement has been reached to convert them into long-term Treasury Bonds.

Dr Weerasinghe said considering the Treasury Bonds 36.5 percent was from Superannuation Funds in-cluding the EPF, another 36 percent from commercial banks and the rest with insurance companies and private individuals. One of the key features in the restructuring process, he said, would be to exclude the banking sector which had already taken a tax burden above 50 percent and was making an important con-tribution to the state revenue. The banks also had taken the burden of the recent economic crisis, he said, adding that among the issues faced by the banking sector have been the moratorium and the non-payment of loans.

“In order to protect the interest of the customers who hold some 57 million accounts, the banking sector has been excluded,” he said. Depositors could start withdrawals leading to the collapse of the banking sector and therefore, the Banking sector had been excluded, he said.

Dr Weerasinghe said that for superannuation funds such as the EPF the proposal is retrieving all exist-ing Treasury Bonds and issuing new bonds (the step down process). The new bonds will gain a 12 percent interest until 2025 and there after a 9 percent interest will be guaranteed. “There will be no impact on the current EPF balance held by holders,” he added.

The Governor said the EPF and ETF are subject to a 14 percent tax rate, and in the event, they decide to refrain from taking part in the Treasury bond exchange they would have the option of paying 30 percent tax, instead of the current 14 percent tax.

Dr Weerasinghe said Friday’s holiday in the banking sector was announced so that banks would remain closed for a five-day period and thereby prevent panic among customers leading to withdrawals. He said by Tuesday banks will operate as usual, and they hope to complete the Bond exchange programme by the end of July.

Parliament debated Domestic Debt Optimisation yesterday. A report on the proceedings appears else-where. The main opposition Samagi Jana Balavegaya (SJB) chose to vote against the DOO. Its parliamen-tarian S.M. Marikkar said yesterday the decision to oppose it had been made by the parliamentary group that met on Wednesday. However, one of SJB prominent members, Harsha de Silva, told a news confer-ence earlier that opposition parties, while cautious about the potential consequences, would discuss the need for careful domestic debt optimisation if deemed necessary. He added that he had earlier highlighted the importance of a cautious approach toward domestic debt optimisation. The blueprint, published last year and revised earlier this year, stressed the need to guarantee the stability of Sri Lanka’s financial sec-tor and prevent any unfair treatment of depositors, particularly the EPF and the ETF. De Silva who chairs the Committee on Public Finance on Friday approved the Government’s DOO programme.

New EC head

Many other issues in recent days have been shrouded by the focus on matters relating to DDO. Among them is the change made to the post of chairman of the Election Commission by the Constitutional Coun-cil. Taking over as new chairman is R.M.A.L. Ratnayake. He was a former Additional Commissioner Gen-eral of Elections. Others appointed are M.A. Pathmasiri, Chandrawansha Perera and Ameer Mohamed Faiz. Both Ratnayake and Perera count considerable experience having worked for longer periods at dis-trict offices of the then Department of Elections. Since 1986, they had served the department and later the Election Commission.

Nimal Punchihewa, who served until now as chairman of the Election Commission has been appointed a member of the Human Rights Commission. President Wickremesinghe has appointed retired Supreme Court Judge L.T.B. Dehideniya, as the Chairman. Also appointed as members are Thayamuthu Thanaraj, Prof. Fathima Farzana Haniffa and Gehan Dinuk Gunatilleke.

Former EC Chairman Punchihewa also applied to be re-appointed Chairman of the Election Commis-sion. However, he told the Sunday Times, “In the light of many developments, I formally withdrew my application. Thus, there was no requirement to consider my name.” Another applicant was onetime EC Chairman, Mahinda Deshapriya. He said he had applied to the CC for two positions, one as Chairman of the Election Commission and another as Chairman of the Delimitation Commission. Though he retired as Chairman of the EC, officials said, he was entitled to serve on contract if the need arose.

Punchihewa, who won the backing of the Sri Lanka Podujana Peramuna (SLPP), became the centre of a serious controversy after he acted, in keeping with the law, to conduct local council elections. Coming as it did during last year’s economic crisis, the Government declared that funds were not available – a matter that prompted parties to go to courts. Nevertheless, no elections were held. This raises an important issue. Even if one is to contend that the Election Commission is independent, the sequence of events here demonstrates clearly that the Election Commission has no financial independence. The message is clear – it cannot exist without government financial support. How the new Chairman and commissioners will set about with the pending elections would be important. Besides the local council elections, the Provincial Council elections are also overdue. Apart from that, parliamentary and presidential elections would have to be held.

Against this backdrop, an SLPP parliamentarian, a staunch backer of Basil Rajapaksa, has come up with a private member’s motion gazetted as an “AN ACT TO AMEND THE PRADESHIYA SABHA ACT.NO.15 OF 1987.” The draft bill states: Be it enacted by the Parliament of the Democratic Socialist Republic of Sri Lanka as follows:—


1.         This Act may be cited as the Pradeshiya Sabha (Amendment) Act, No……. of 2023.

2.         The following section to be inserted immediately following Section 5(2)(b) of the Pradeshiya Sabha Act, No. 15 of 1987 and shall have effect as Section 5(2)(c) of that enactment:-

“(c) Where a Local Authority election is declared and the said election cannot be held due to a crisis that has arisen, the relevant dissolved local authority/body may be reconvened by the Minister for a pe-riod as decided at the Minister’s discretion notwithstanding the lapse of the twelve (12) month extension made by the Minister in terms of Section 5(2)(b).”

3. In the event of any inconsistency between the Sinhala and Tamil texts of this Act, the Sinhala text shall prevail. Short title Insertion of new section 5(2)(c).”

In effect, this private member motion seeks to empower the Minister of Local Government to resurrect the local councils that are now inoperative. During the Covid pandemic, the then Minister of Local Gov-ernment extended the term of office of these councils by one year. This one year, from March 2022 to March 2023, is beyond the four years mandate the voters gave at the elections when they picked members of local councils to represent them. Notably, when the terms ended in March 2022, the Election Commis-sion did not call for nominations to conduct elections.

Since it is a private member’s motion, the question remains whether it would be passed in Parliament by a majority. This is because major political parties may not want to back this move which simply em-powers a Minister to extend the mandate voters gave at his own will. The fact remains that local council elections will have to be conducted sooner or later.

Concern over new police chief

Another area of concern is the mounting increase in crime. The situation has been made difficult by the absence of a head of the Police since June 26 after the retirement of Chandana Wickremeratne, the Inspec-tor General of Police. A government source said yesterday that a new Police Chief would be named in the coming week. “Several candidates are being considered,” the source said but declined to reveal their identities. Other sources said that officers who have a poor record having involved themselves in several controversial issues will not be considered despite their eligibility otherwise. They are among those who have launched a canvassing campaign with the support of influential politicians.

Last week, the Bar Association of Sri Lanka wrote to President Ranil Wickremesinghe on the appoint-ment of a Police Chief. It said: The Bar Association of Sri Lanka (BASL) is now aware that the office of the Inspector General of Police has fallen vacant on 26th of June 2023. The IGP is the Head of the Police De-partment and has the security of tenure in terms of the Removal of Officers Act No. 5 of 2002. The BASL is of the view that public confidence in the Police is vital for the administration of justice and the rule of law. Hence, it is of utmost importance that the best possible appointment be made to that office.

“In recent times, we have witnessed serious erosion in the public confidence in the Police. The BASL has previously highlighted that the lack of independence, politicisation, police brutality, custodial deaths, lack of professionalism, have all contributed to the erosion of public confidence in the Police. Further, we are of the view that the Easter Sunday attacks are a clear example of the grave ramifications of incompe-tent individuals holding such high office.

“In the case of Mohammed Rashid Fathima Sharmila v K.W.G. Nishantha and others SCFR 398/2008- S.C.M. 03.02.2023 the Supreme Court observed that the police have lost the credibility it ought to have, in the following manner: ‘It only highlights the utterly unprofessional approach to duty by the personnel who man it and as a consequence, people are increasingly losing trust in the police. It had lost the credibility it ought to enjoy as a law enforcement agency. The incident relevant to this application had taken place in 2008, however, this court observes that instances of death of suspects in police custody are continuing to happen, even today.’ (Aluwihare J).

“Further, the BASL is also of the view that prior to the approval of the appointment of the Inspector General of Police the procedures to be followed in regard to recommendations or approvals for appoint-ments under Article 41B or 41C should be determined by the Constitutional Council as provided for in Article 41E(6) of the Constitution.

“In the aforesaid, the BASL urges that it is of utmost importance that the next Inspector General of Po-lice should be an officer whose service in the police force is exemplary and unblemished and able to re-store public confidence in the Sri Lanka Police.”

In yet another development, President Wickremesinghe yesterday hosted a group of new envoys accred-ited to Sri Lanka at a dinner at the President’s House in Nuwara Eliya. Earlier, the envoys, some of them based in New Delhi and concurrently accredited to Sri Lanka, were taken on a train journey to Ella and thereafter to Nanu Oya. The envoys had to pay for their trip.

The prospect of an early election appears to be receding as the Government is doubling up its efforts on economic revival. Its sight is on the next tranche of the International Monetary Fund’s EFF (Extended Fund Facility) which is due in September.




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