Paying local dues: Money printing to the rescue

We appreciate the genuine answer given by the Prime Minister Ranil Wickremasinghe in his BBC interview, stating that money printing (although not his long-term term plan) is necessary in the short-term to continue paying Government salaries. 

This is in part due to the fact that the country’s money stock is equal to the total amount of currency available in the Sri Lankan market at any given time. And money printing allows the Government to finance itself. By injecting cash into the economy, this helicopter money can help deal with dangerous economic crises.  This monetisation is necessary for the following few months given that it is properly controlled by the Central Bank.

We believe it is extremely necessary for this benefit to be extended to other sectors, which have been debilitated from the unbearable weight of unpaid Government debt, and therefore have been unable to pay their employees. The temporary use of money printing would settle the local debt of the country and would give the Prime Minister a fresh start to his journey as the man expected to save the nation.

Construction and other industries

There are over 100 billion outstanding debts to contractors. Simultaneously, Government projects have been halted. Both of these cannot be borne at the same time therefore, firstly, debt should be settled. Second, essential and partially-completed Government projects that have been abandoned should be completed, as local currency is used for these. If this issue is ignored, 5 to 600, 000 workers who have lost their jobs would be released onto the streets.

To prevent the dissolution of the Construction Industry as well as the banking sector, which would otherwise collapse because people cannot pay, this decision is essential. Along these lines, banks should not encash bonds and guarantees for contractors as the contractor is not at fault – it is the Government that is at fault. So, it is mutually beneficial for banks to keep contractors alive, so they can continue benefiting from them, rather than encashing bonds and guarantees which is a one-off gain for banks, as this would end contractors’ careers and banks would lose repetitive clients.

Another criticism is that more than 60% of construction materials in luxury buildings (high-rises, hotels and so on) are imported items. Therefore, the focus should be on encouraging the local manufacturing of these currently imported items. Or changing our current choices of materials altogether, in favour of materials that are specific to and available in Sri Lanka.

Importantly, as per the Prime Minister’s speech, vital industries such as Pharmaceutical (Government is yet to pay an outstanding 34B to pharmaceutical companies), Agricultural and other sectors, which provide essential products and services, should be protected in a similar way, by settling debt.

(The writer has over 30 years of experience in civil engineering and holds a B.E (India) T.Eng.(CEl), MIE(Lon.) MBA (UK) FIIM (HK), FCIOB (Ceylon) Ph.D. (U.S.A). He is the President of the Ceylon Institute of Builders.)