Sri Lanka’s Economic Resurgence: President Wickremesinghe Calls for Radical Restructuring at 2023 Economic Summit

  • A Comprehensive Overview of the President’s Address and the Path to Economic Sustainability.

In a groundbreaking address at the 2023 Sri Lanka Economic Summit, President Ranil Wickremesinghe declared the imperative need for radical economic restructuring to ensure the sustainability of the country’s economy. The President emphasized that continuous commitment to a new economic policy framework is essential to avoid a recurring economic crisis.

The summit, organized by the Sri Lanka Chamber of Commerce and held over two days at the Shangri-La Hotel in Colombo, commenced yesterday (28), and witnessed President Wickremesinghe laying out the achievements of the past year’s radical economic restructuring and outlining the roadmap for the nation’s economic future.

President Wickremesinghe began his keynote address by acknowledging the theme of the summit Economic Reform for 2023. He questioned whether the transformative measures taken could be labeled as mere reforms, asserting that the changes implemented were more accurately described as a radical restructuring with no possibility of reverting. “It’s a restructuring and a radical restructuring, and there’s no going back,” stated the President, underscoring the irreversible nature of the economic changes.

The President highlighted the progress made in the economy through the government’s radical restructuring efforts over the past year. He stressed the importance of continuing these efforts and working within the framework of the new economic policy to elevate the country to a robust economy resistant to potential downturns. President Wickremesinghe’s vision for the economic future relies on the dedication and collaboration of all stakeholders within the specified policy framework.

One of the key achievements mentioned by the President was the successful negotiation with creditors over the country’s debt. He acknowledged the cooperation of all creditor groups and commended their constructive engagement. Notably, negotiations with China Exim Bank resulted in an agreement in principle to restructure the country’s debt, signaling a positive step forward in the economic stabilization process.

President Wickremesinghe highlighted the government’s transparent and good-faith negotiations with creditors, dispelling expectations of challenges in the process. He specifically mentioned the engagement with the Official Creditor Committee and China Exim Bank, showcasing Sri Lanka’s ability to navigate complex negotiations successfully. The President expressed optimism that the IMF Board would conclude the first review of Sri Lanka’s EFF program within the month of December.

The President outlined the ongoing discussions with external private creditors, emphasizing the government’s commitment to reach an agreement on specific restructuring terms with them shortly. A focal point of the restructuring strategy is a reliance on a long-term extension of the debt, with economic principles guiding future negotiations and operations.

In his address, President Wickremesinghe touched upon the necessity of adhering to the agreed-upon framework, stressing that deviation could lead to adverse consequences with creditors. He urged the nation to embrace the radical restructuring as a last chance for economic stability, emphasizing the need to break away from the cycle of seeking external aid due to mismanagement.

Addressing concerns about consensus, the President acknowledged the challenges of obtaining agreement from political parties and trade unions. He argued that a consensus with those who had not taken responsibility in the past was difficult to achieve. The President called for a united front in recognizing the gravity of the economic situation and urged the country to agree on the proposed framework.

President Wickremesinghe drew attention to the dangers of remaining a “beggar nation” and the unsustainable practice of seeking financial assistance without addressing the root causes of economic instability. He questioned the wisdom of repeatedly asking other countries for help, emphasizing the need for internal reform and competitiveness.

The President underscored the importance of a competitive, export-oriented economy, outlining the government’s vision for a digitalized and green economy. He drew parallels with the economic reforms of 1977, emphasizing the need for a new era of economic policies that align with the current global landscape.

Following his address, President Wickremesinghe participated in a panel discussion moderated by the Chairman of the Sri Lanka Chamber of Commerce, Mr. Duminda Hulangamuwa. The panel included Mr. Montek Singh Ahluwalia, Former Deputy Chairman of the Planning Commission of India.

The questions directed at the President and his responses are as follows:

Q: Sir, my initial question to you, in the context of the restructuring used for reform, is about enhancing revenue. We observed an increase in taxes to 18%, aiming to raise the revenue from 8% to 13% of GDP. What are the plans to strengthen revenue administration, particularly in the Department of Excise and Customs, to broaden the tax base and enhance the capacity of these departments?

A: We kicked things off in terms of functionality, and there’s still some groundwork to cover. We’re gearing up to establish a revenue authority, and the bulk of the associated legislation is expected to roll out in the next few months. The ball is set to get rolling on the reforms.

The catch is, substantial changes don’t happen overnight. We’re looking at a span of two to three years to get this extensive job done.

A noteworthy historical point is our situation compared to India. We had district revenue officers during the British era, and this practice persisted until the early 1970s. These officers were the ones handling revenue collection, sometimes with the assistance of government agents. The hitch was that the focus was more on spending than on earning. To address this, we need to revert to some regional system, something akin to a collector or a DRO. Yeah, it’s a hefty job, but I’m optimistic that we’ll pull it off.

Q: The recent diagnostic report from the IMF highlighted the need to enhance the governance structure, a key observation. What steps does the government plan to take to improve the governance structure within the public sector?

A: The report is originally in English, and currently, we’re in the process of translating it into Sinhala and Tamil. As mentioned by the Treasury Secretary, the report is dense with technical terms, making the translation a time-consuming task. However, we anticipate having the translated versions ready by around January next year, at which point we’ll implement the proposed changes. Additionally, a parliamentary oversight committee will be established to monitor and follow up on the implementation, ensuring a transparent process.

Essentially, we’re working with structures established during the British era, and now we find ourselves in the position of needing to overhaul the entire regulatory system. The current situation is unsustainable, and the plan is to modernize it. While this transformation will take some time, it is a necessary step forward.

Q: Shifting the focus slightly from the IMF, restructuring, and reform, as you previously highlighted, let’s delve into the discussions about FTAs with Thailand and China. Can you update us on the progress made in these negotiations, providing insight into where we currently stand? This exploration is crucial as it represents one of the avenues through which we aim to enhance exports.

A: We have successfully concluded the FTA with Singapore. Our intention is to extend this initiative by expressing our desire to open discussions for an FTA with Malaysia. Simultaneously, we’ve applied to join the RCEP. However, RCEP has informed us that they lack a procedure for admitting new members, which implies a significant delay. During this period, we can resume talks with India. India, in turn, has conveyed that they prefer separate agreements for investment and trade. While we are currently focusing on trade negotiations, discussions with India will precede talks with Bangladesh.

Considering the RCEP’s five-year timeline, our engagement with them is underway. Notably, China has been negotiating for seven years, and we’ve recently initiated agreements. All these efforts indicate a comprehensive opening up over the next five to six years. However, in the case of China, we are advocating for an extended timeframe. Beyond these, revisiting discussions with the EU for GSP Plus is on the agenda.

While Pakistan has expressed interest in an FTA, their current capacity to engage seems limited. Looking ahead, envisioning a South Asian network with India, Bangladesh, and Pakistan is in our plans. This network will extend connections to all RCEP countries, including Australia and New Zealand. Additionally, there’s a long-term goal of reaching out to East Africa and South Africa. This strategic expansion aligns with our vision for continued growth.

The event was attended by a diverse audience, including Member of Parliament Dr. Harsha de Silva, Secretary of the Ministry of Finance K. M. Mahinda Siriwardena, former Central Bank Governor Dr. Indrajith Coomaraswamy, and a group of local and foreign diplomats, businessmen, and other stakeholders.

President Ranil Wickremesinghe’s address at the 2023 Sri Lanka Economic Summit outlined a comprehensive strategy for economic restructuring and sustainability. The President’s call for a radical transformation, commitment to the new policy framework, and collaboration from all sectors underscore the urgency and seriousness of the economic challenges facing Sri Lanka. As the nation stands at a critical juncture, the success of these measures is contingent upon the collective efforts of the government, business community, and the general public in steering Sri Lanka towards a prosperous and stable economic future.