Mr. Harsha De Silva, Chairman of the Finance Committee, spoke about the Staff Agreement between the International Monetary Fund and the Government of Sri Lanka via a video on social media.
This is what he said:
‘We are happy that the government reached this agreement with the International Monetary Fund at least now. In fact, this agreement is the first step to overcoming the crisis in Sri Lanka. The day I joined the Parliament in 2020, I advised the government that had we gone to the IMF earlier, we would have only needed an agreement between the IMF and Sri Lanka.
But as the government postponed it, Sri Lanka lost its debt sustainability. So, they had to go beyond a bilateral agreement and bring in more parties. That means that if Sri Lanka comes to an agreement with its creditors, it will be possible to get the money agreed today from the International Monetary Fund. And if anyone thinks that the IMF is going to simply write a cheque by this evening, that’s not going to happen.
The next stage is that we must negotiate with bilateral creditors. Primarily China. Nearly 20 percent of foreign loans given to the Sri Lankan government and government institutions are owed to China, primarily to Exim Bank of China and China Development Bank. We must negotiate with China immediately. Next, we have to negotiate with India. Next comes multilateral institutions. We must also negotiate with the World Bank and the Asian Development Bank. At the same time, we need to negotiate with the institutions that have given loans from international sovereign bonds. Therefore, we have hired Lazard, a financial consulting firm, and Clifford Charles, a legal consulting firm.
If we can achieve some success at these discussions, we don’t need to agree on how much debt those people are ready to write off and how long of an extension they can give to pay back the loans. If those negotiations proceed successfully, then the IMF can take this staff-level agreement to the Executive Board. If there is approval from there that Sri Lanka can sustain its debt and move forward, then the IMF will write that cheque.
It is from today that the hard part of this work begins.
They have said that Sri Lanka has the lowest government income in the world and that it should be raised soon through income-based development. They have given a number. 2.4. That is, a primary surplus of 2.4 percent of GDP should be achieved by the end of 2025.
A primary surplus is the result of deducting all day-to-day and capital expenditures from income. Once we deduct interest, the difference is called the primary deficit. To achieve the given targets, costs should be reduced. On the other hand, taxes should be increased. The previous government hoped to bring the primary surplus to zero by 2024. But as you can see, the government has agreed to do carry out more severe reforms. That means the VAT will have to be increased and its tax base should be widened.
By tomorrow, VAT will rise to 15 percent, and another tax called Social Security Levy (SSL) will be charged, which amounts to 2.5 percent as a turnover tax. But if we consider it as a VAT, it is around 4.5 percent. So, we can consider the total VAT to be around 19 percent. But it looks like it will be higher than that.
Next, they say that economic stability is necessary. Inflation should somehow be reduced. We must, therefore, stop printing money. Ranil Wickremesinghe had stated in the interim budget that this would be difficult to do in the short term. But there is no room for it in this signed agreement.
Next, with regards to the exchange rate, we need to achieve the market economy exchange rate. Either way, we need to build our foreign reserves.
There is something very important in this. That is about corruption. Earlier, the IMF had not come to agreements with the government regarding corruption. But this time they say that new laws will have to be passed and existing laws be changed. This is an indication that Sri Lanka is in this situation because of excessive corruption. The agreement signed today shows that new laws are needed against corruption, fraud, and theft.
Strict rules should be put in place to stop corruption. MP Eran Wickramaratne has presented several suggestions for that. I agree with him one hundred percent. One is the need for an independent prosecuting body. The problem is that only some cases get filed. Sometimes cases are dismissed. This is where the political hand comes into play. If we can establish an apolitical prosecution process, I think that would be a very good and positive reform.
It is with all these conditions that this agreement has been reached today. We are happy. We speak for the people, not the government. This should have been done much earlier. Our country is now bankrupt. To get out of here, very difficult reforms need to be made.
I don’t know if the groups that have opposed these reforms so far will help President Ranil Wickremesinghe implement them. But as the opposition, we will do our best to support him in carrying out these reforms. Basically, as the Chairman of the State Finance Committee, I will try to bring all the political parties in the Parliament together and explain to them the need to do this in detail, explain the facts, bring in consultants and independent economic experts to demonstrate why we need to do this, and get the necessary support from the Parliament.
We stand firm on one thing. That is the need to strengthen the social safety net for oppressed people. About 50 percent of people in this country live in poverty. We have a responsibility to protect them.’