President Ranil Wickremesinghe’s birthday fell on March 24. The first President to emerge from the local university system, President Wickremesinghe has created a unique record in local politics by becoming the Prime Minister six times.
He was also an Opposition Leader and Minister on several occasions. This article covers the important milestones of his political career, especially his efforts to secure IMF funding.
Sri Lanka was declared bankrupt in April 2022. At the time queues for fuel and gas were seen across the country and the country was also facing power cuts lasting up to 10 hours. Therefore, it was said the assistance of the International Monetary Fund (IMF) must be obtained to rebuild the country’s economy.
Accordingly, the Government at the time requested IMF aid and the response was that Sri Lanka’s debt must be restructured for the purpose. For this, the Government decided to obtain the services of financial and legal advisors Clifford Chance and Lazard.
Cabinet approval
While Cabinet approval was provided for the move, the people had already begun to take to the streets due to the economic situation prevailing in the country. The people had converted the Galle Face and the President’s Secretariat into a protest ground demanding solutions to the economic crisis. The Prime Minister of the Gotabaya Rajapaksa Government resigned following the attack on the Galle Face protest site.
At a time the country was fast spiralling out of control without a Prime Minister and Cabinet at its helm, President Gotabaya Rajapaksa invited various Opposition leaders to take up the post of the Prime Minister. Opposition Leader Sajith Premadasa and the Leader of the Janatha Vimukthi Peramuna (JVP) Anura Kumara Dissanayake put forward conditions to accept the post.
One of their main conditions was that President Gotabaya Rajapaksa must step down from his post. In the end, accepting the post of premiership unconditionally, United National Party (UNP) Leader Ranil Wickremesinghe recommenced discussions with the IMF.
He instructed Lazard and Clifford Chance to carry out the process of debt restructuring and to compile a full report on the country’s debt. Next, discussions with Sri Lanka’s creditors commenced.
At the request of all parties, the full responsibility was placed on the shoulders of Sagala Ratnayake, the Chief of President’s Staff. The task was made easier by the fact Premier Wickremesinghe was appointed as President in a matter of two months.
It was left to Ratnayake to tackle many issues including Sri Lanka’s announcement that it could not service its debts, the debt restructuring and to plan how the debt can be repaid. On the instructions of President Wickremesinghe, he sought the support of the then Minister of Finance Ali Sabry, PC, as he led the initial round of discussions with the IMF.
Discussions were held with Lazard and Clifford Chance with the participation of Secretary to the Ministry of Finance and Treasury Mahinda Siriwardena, Central Bank Governor Dr. Nandalal Weerasinghe and Presidential Advisers R.H.S. Samaratunga, Indrajith Kumaraswamy, Shanthini Devarajan and a plan was formulated.
Ratnayake initiated the negotiations to obtain a loan relief of US$ 3 billion from the IMF together with the advisory board appointed by President Ranil Wickremesinghe with the head of IMF operations in Sri Lanka Peter Breuer.
Discussions commenced with Sri Lanka’s major creditors, India, China, and Japan, the Paris Club as well as bilateral and multilateral companies to work towards debt sustainability.
Good footing
When discussions with the IMF commenced Sri Lanka was not on a good footing, as Sri Lanka had already obtained support from the organisation on 16 occasions and had violated the loan agreement on at least six occasions.
They were also plagued with worries about Sri Lanka’s political instability and concerns if its loans will be properly managed. Therefore ,the discussions with the IMF commenced with mistrust at its roots. Ratnayake was forced to work hard to regain the trust of the IMF. He was supported by the President and many others in this endeavour. He even commenced discussions with the World Bank (WB) and the Asian Development Bank (ADB).
By working together instead of trying to lay blame on others, Sri Lanka has now obtained the first IMF loan installment. However, one of the initial conditions of the IMF was for the Sri Lankan Government to present its plan for generating revenue to repay the restructured loans and IMF aid. They insisted that the public must be taxed for the purpose.
The IMF said that the people of Sri Lanka too must be taxed as the funds in the IMF are from tax monies of member countries. Among the proposals, some were not feasible including the increase of the excise tax by 40 percent. Ratnayake pointed out that the suggestion was impractical and in the end, it was decided that it be charged in two 20 percent shares due to his sole dedication. He stressed that the sale of illicit alcohol could increase together with a significant increase in taxes. The most difficult decision was on the revision of fuel and electricity tariffs as the IMF had informed the Government the revenue of the Ceylon Petroleum Corporation (CPC) and the Ceylon Electricity Board (CEB) had to be increased in comparison to its expenditure.
Rampant politicisation
The two institutions were loss-making due to rampant politicisation forcing the Government to implement a significant price hike at once. In the end, a pricing formula was created following discussions with Minister Kanchana Wijesekara and officials. While the pricing formula for fuel was implemented, difficulties arose in creating a similar formula for electricity due to the difficulties that arose with the Public Utilities Commission of Sri Lanka (PUCSL). However, the issue was resolved with the support of the President.
It was also proposed that income tax rates be increased. The initial IMF proposal was to tax those earning over Rs. 43,000 a month. By explaining it would be highly burdensome on the people who are facing difficulties due to inflation, Ratnayake was able to get the threshold increased to Rs. 100,000.
The bilateral and multilateral discussions based on IMF conditions were successful resulting in Sri Lanka obtaining two years to restructure its debt. However, obtaining the go ahead from China was somewhat delayed.
The IMF Chief in the end offered to support Sri Lanka due to their regained trust in the country. She visited China to discuss Sri Lanka resulting in China submitting a communiqué agreeing to the restructuring process.
However, as it was not presented in the required manner, it left the IMF and Sri Lanka in a difficult position. While Ratnayake held continuous discussions with the Chinese Embassy on the matter, the IMF Chief offered to step in and hold a discussion with the Chinese Prime Minister on the matter. Her intervention made it possible for Sri Lanka to obtain China’s agreement in writing according to the necessary stipulations.
Accordingly, on March 20, the IMF Board of Directors decided to provide Sri Lanka with an extended credit facility of US$ 2.9 billion. The President wants to ensure that the 17th IMF bailout package will be Sri Lanka’s last and to ensure the development of the country while thanking the people for making this feat possible.
The writer is the Executive Director of the United National Party (UNP).