Sri Lanka faces more challenges this year

 28 Jan 2016 - 2:19

By Feizal Samath

 

Sri Lanka and the Maldives have always been good neighbours and often lent support to the other in a crisis or whenever a situation arose.
However in recent months relations have soured after the Sri Lankan government expressed concern over the imprisonment of former Maldives President Mohamed Nasheed (also fondly known as ‘Anni” to many of his people). Sri Lanka was joined by many western countries including Britain and the US in urging the Maldivian authorities to release Nasheed, jailed over alleged interference in the judiciary among other matters, expressing concern over the trial and a subsequent 13 year-long jail term.
The intervention annoyed the Maldives with President Abdulla Yameen and Foreign Minister Dunya Gayoom strongly opposing any interference in local affairs. But in a flurry of meeting that followed with Gayoom, daughter of former Maldives strongman Abdul Maumoon Gayoom who ruled the country for the three decades, flying to Colombo for talks with her Sri Lankan counterpart Mangala Samaraweera, the differences were quickly sorted out.
However Sri Lanka’s fondness for Nasheed seemed stronger. After the former President’s appeal to court to allow him to proceed to Britain for medical treatment was turned down, Samaraweera and Sri Lankan Finance Minister Ravi Karunanayake, a long-time friend of President Yameen, held emergency talks in the Maldivian capital of Male with the Maldivian President and Gayoom and successfully brokered a deal for Nasheed to proceed to the UK for treatment.
On Thursday, Nasheed arrived in Britain and soon after met British Prime Minister David Cameron at 10 Downing Street.
Sri Lanka’s mediation in securing Nasheed’s release for medical treatment (on the grounds that he would return home) was however not the main flavour of the week in Colombo where the economy and efforts to improve the country’s shaky foreign reserves position via foreign support drew most of the public and media attention. The presence of a powerful delegation of Sri Lankan ministers and business leaders led by Prime Minister Ranil Wickremesinghe and including senior Ministers Kabir Hashim and Ravi Karunanayake, at the World Economic Forum (WEF) in Davos, Switzerland raised expectations of a high level of support that would come Sri Lanka’s way from the international community.
Despite bloody fighting between government troops and Tamil rebels ending in May 2009 paving the way form normalcy in the land, foreign investment over the past few years has been less than a billion US dollars and efforts to attract investors haven’t worked. The government has been dependent on remittances by over 1.5 million migrant workers based in the Middle East, export earnings and foreign borrowings, the latter of which in recent times buffeted any crisis in meeting import bills. However while the reserves position stood at $7.29 billion at the end of December 2015, it is seen reaching dangerously low levels since a large chunk will go to pay debt (loan repayments) maturing this year – unless more money comes in.
The crisis has worsened to almost a stage of desperation. About a month ago, Finance Minister Karunanayake, at a meeting with local bankers, reportedly asked them to lower stringent rules on foreign exchange inflows (through investment or parking funds in Colombo) to allow any amount of $1 million and below on a “no questions asked” basis and to apply the rules only on any inflow above this figure. Bankers however protested saying strict rules on anti money laundering and anti terrorism funding are in place and no bank will risk ignoring these rules to help the government shore up its reserves position.
It was in this backdrop that Wickremesinghe and his team proceeded to Davos for the WEF parley where the world’s rich and famous meet once a year to discuss the global economy, its future and what it means to business. During the trip, the Sri Lankan Premier met top officials from multinational banks and heads of business conglomerates. Among the promises, a top Microsoft executive promised to step up investment in Sri Lanka while both the Managing Director of the IMF Christine Lagarde and ADB President Takehiko Nakao agreed to Sri Lanka’s request for a financial bailout.
An IMF team is now due in the island next month while the ADB has agreed to send a mission in the same month, in an exercise that Sri Lanka hopes will garner more than $1 billion in support as a buffer against dwindling foreign reserves and to fund infrastructure, thus reducing foreign borrowing needs.
A volatile global environment where China’s growth spurt has been stalled and oil prices have crashed is blurring economies across the world. While crashing oil prices – now below $30 per barrel - should have resuscitated economies like imported oil-dependent Sri Lanka and further helped by an additional bonus of economic sanctions being lifted on Iran, this is not the case.
Lower oil incomes means the Middle East, one of the Colombo’s biggest tea buyers, could be buying less tea. Ironically Iran was a big tea buyer with Colombo’s tea shipped through different ports to reach Tehran, and the lifting of sanctions would ideally have seen a spurt in tea exports from Sri Lanka which is also facing a crisis from its biggest tea buyer, Russia, where the Rouble has crashed. As it is now, the status quo remains.
Eminent economist Dr. Saman Kelegama, Executive Director of Sri Lanka’s top think tank, Institute of Policy Studies (IPS), was quoted in a local newspaper as saying that while there is a need for IMF assistance, such support doesn’t come without conditions tied to structural reforms.
“Although Sri Lanka received IMF assistance in 2009, under quite lax conditions, we must not be deceived into thinking that things will be as easy this time around. In 2009 the world economy was reeling from the world financial crisis and the (former President Mahinda) Rajapaksa administration had access to what seemed like unlimited assistance from China. Thus, we were in a better position and the IMF was feeling particularly generous. But, it would be a miracle if we get off easy this time around,” he has said.
Also under preparation is a 3-year economic policy strategy being put together by a team of Harvard University dons along with Sri Lankan experts in an initiative to be funded by Hungarian-American billionaire George Soros.
Add the economic woes to the burden of managing and holding together a government which is made up of two of the country’s main political parties and, until a year ago, were diametrically opposed to each other, and Sri Lanka is in for some challenging times – and more likely stressful times - this year.    

 

The writer is Consultant Business Editor at The Sunday Times, Sri Lanka.