Bar Association speaks out on economic crisis; lists results for urgent resolution

President Gotabaya Rajapaksa

Prime Minister Mahinda Rajapaksa

Basil Rajapaksa, Minister of Finance

BASL President Saliya Peiris

We believe that the current crisis is the crescendo of the crisis emanating from the systematic weakening of the rule of law and governance based on convenience and executive opportunism rather than independence and autonomy. institutional over a long period of time by successive governments
  • Appeal to the government. seek the assistance of recognized independent and non-partisan experts, both nationally and internationally, as well as multilateral institutions that have a track record of providing financial resources and in the form of technical expertise
  • Expresses its belief that such assistance will result in prescriptions that will manifest to the world Sri Lanka’s belief in institutions as a country where effective governance does not depend on personalities

The Bar Association of Sri Lanka (BASL) has expressed in a statement its serious concerns about the signs of an impending economic crisis in Sri Lanka and its possible impact on the rule of law and democracy and on living conditions. life of the population.

In its statement, the BASL listed the results that it believes are essential to resolving the current crisis.

Here is the full statement.

Rampant inflation, shortages of essential goods including gas, unavailability of foreign currency, inability to send money abroad, downgrading of Sri Lanka’s ratings by multiple international rating agencies ; the temporary closure of the fuel refinery in Sapugaskanda; reports of the suspension of operations by some foreign airlines; the warnings of a possible energy crisis are all indicators that demonstrate the urgency of the need for the government to deal with the economic crisis without further delay.

In this regard, a downturn in the economy can have significant adverse consequences for the rule of law and governance of a country. At worst, economic decline can lead to a complete breakdown of law and order, but even before that, serious repercussions arise from the growing financial hardship that must be borne by citizens, which perpetuates inequality and the ability citizens to take advantage of or assert their rights. rights, whether public or private. It goes without saying that those most affected by economic difficulties are the most vulnerable in society.

It is an undisputed fact that since March 2020, there has been a gradual erosion of foreign exchange reserves of approximately $7 billion. Although it has been announced by the Central Bank that the reserves have increased to $3 billion, it remains to be seen how much of these reserves are available for paying down debt and used to redress the current balance of payments crisis. Even of the available reserves, a large part contains money obtained in the form of short-term currency exchanges.

There were several sovereign rating downgrades during the corresponding period by all major rating agencies. The latest being the downgrades of Fitch Rating Agency to CC and Standard and Poor’s (S&P) to CCC. International sovereign bond yields across all mandates have remained in double digits for more than two years. This made it impossible to roll over maturing sovereign bonds.

Foreign capital flight has also been reported in both stock and money markets. Currently, foreign participation in both markets is negligible. The Economist magazine has named Sri Lanka as one of the countries most vulnerable to the expected fallout on emerging markets from the anticipated hike in interest rates by the US Federal Reserve.

The debt-to-GDP ratio of around 85% in 2019 is now estimated to have reached around 104% of GDP. However, over the same period, government revenue as a percentage of GDP fell from around 12% to 10%. Year-on-year, headline inflation in the month of November 2021 was recorded at 9.92% and December 2021 recorded a double-digit figure of 12%, the highest in the last seven years. The country’s net international reserve position has been negative for more than three consecutive months. All this has resulted in the scarcity of foreign currency to support essential imports.

The government’s ability to meet its total dollar requirements of about $6.9 billion in 2022 is in question, although the Central Bank has pledged to meet these commitments. Questions about the stability of the financial sector are also raised.

The BASL notes with deep concern the statement made at the end of December by the Mixed Chambers of Commerce calling on the government to ensure that if the actions envisaged by the roadmap recently announced by the Central Bank of Sri Lanka do not materialize within the expected timeframe , it is reconsidering other alternative courses of action available to the country, such as engaging with the IMF to explore the financing options it can offer. The mixed chambers have warned that if conditions do not improve, many local businesses will seek to relocate their business activities overseas and the ability to attract foreign direct investment (FDI) into the country will be limited.

The BASL acknowledges that the government has faced extraordinary challenges in the form of the pandemic which has disrupted economic activities. It also recognizes that the government has taken steps to address the resulting challenges. Similarly, the government has endeavored to take corrective measures to deal with the fallout from the current crisis resulting from the loss of access to financial markets and the consequent shortage of foreign exchange in the domestic market.

However, none of these measures produced the expected results and failed to build the confidence needed to reverse the flight of foreign capital from stock and money markets. These measures have also failed to regain access to international financial markets to take on debt.

Enjoying a standard of living based on lifestyle choices and desired income has become a challenge. Our members, who are mostly self-employed, are particularly vulnerable and negatively affected by these events, as savings and assets form the foundation of their economic safety net. Some of the measures taken by the government have directly hindered the ability of our members to carry out their professional duties, especially the so-called regulation that compels the conversion of foreign inflows into rupees within a stipulated time.

We believe that the current crisis is the crescendo of the crisis emanating from the systematic weakening of the rule of law and governance based on executive convenience and expediency rather than independence and autonomy. institutions over a long period by successive governments.

In these circumstances, the BASL calls on the government to seek the assistance of independent and non-partisan experts recognized both nationally and internationally, as well as multilateral institutions that have a proven track record in providing financial resources as well as in the form of technical expertise that will make it possible to find lasting solutions to this crisis.

We are confident that such assistance will result in prescriptions that manifest to the world Sri Lanka’s belief in institutions as a country where effective governance does not depend on personalities. This will demonstrate that Sri Lanka has the desire and the institutional capacity to respond to the demands brought about by the current crisis with prescriptions that subscribe to the rule of law.

Moreover, we are convinced that only such a response will create the institutional framework that guarantees efficient revenue collection and results in the efficient allocation of scarce resources and the formulation of a monetary policy that ensures economic stability rather than a permissive policy that facilitates executive expediency and convenience.

Obtaining these results is, in our view, essential to resolving the current crisis.

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