Wednesday Sep 18, 2024
Wednesday Sep 18, 2024
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President Ranil Wickremesinghe gestures during the special “Daily FT-SC Securities Market Pulse”joint initiative interview by Daily FT Editor and CEO Nisthar Cassim yesterday - Pic by Ruwan Walpola
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As Sri Lanka prepares for a decisive phase next week, President Ranil Wickremesinghe who is contesting as an independent candidate for the 2024 Presidential election yesterday expressed confidence over his victory and shared a clear roadmap for the country’s next five years.
Despite his busy schedule in the campaign trail, Wickremesinghe yesterday in a wide ranging exclusive video cum print interview with the Daily FT-SC Securities joint initiative — Market Pulse, discussed his approach to the campaign, whilst delving into long-term stability and immediate steps needed to secure Sri Lanka’s place in the global economy.
He also outlined key issues on economic modernisation, institutional reforms, poverty alleviation, capital market development, foreign direct investments (FDIs), policy implementation, debt restructuring, challenges of rebuilding public trust and the role of the private sector.
Wickremesinghe’s insights provided a forward-thinking perspective not only on how Sri Lanka can recover, but also thrive in an increasingly competitive global landscape.
Following are excerpts of the interview conducted by Daily FT Editor and CEO Nisthar Cassim.
By Charumini de Silva
Q: In the ongoing campaign trail, what have you seen and heard and what has surprised you?
This election is still wide open, with people carefully listening and considering their options for the future. I am the only one who has put up novel ideas promoting an export-oriented economy, women empowerment law, social justice commission, the parliamentary standards, implementing the 87 recommendations of the Priyasath Dep Commission, the agriculture modernisation and so on and so forth. No one has matched that or even addressed them. It is either maintaining the status quo or changing faces.
Q: Compared to a month ago, how strong has your election bid become?
It has picked up. My whole strategy was to actively engage after the nominations, not before. Others started earlier and did their campaign twice, but there is still nothing new to offer.
Q: With the macroeconomic stability improving, how do you capitalise on it particularly in attracting foreign investors to the capital market?
Investors are first looking at post-election stability, after which we will implement the Economic Transformation law and other policies to show that we are catching on to a very stable economy. Capital markets itself should expand as we go along. As we reduce borrowing, there is also a potential channel to surplus funds from EPF and ETF into the capital market. My view is that there should be a Board of Trustees appointed together with the employees and employers organisations with the right also to invest out of Sri Lanka.
Q: Any specific plan to attract foreign investors to CSE? What would be your message to them prior to the election?
My message is clear; we are committed to opening Sri Lanka to the world and becoming part of the global economic system. Certainly foreign investors are essential for the capital market to thrive, otherwise we will not have the requisite money we need to run the economy and for investments.
Q: Let’s focus on the SOEs. Vietnam succeeded in listing several SOEs on its stock exchange as part of the divestiture process. Any reason why this option was not explored since all advertised SOE sales via SOERU are yet to be concluded? Was that option looked at or are you open to it?
These are the agreements we have reached with the IMF and the World Bank because we felt this is the best way to go. There was a certain amount of restructuring to be done in each of these organisations better to be done by a person who has taken it over and later on they could have gone on to the stock exchange which I am sure most of them would have done. We have come through on some of them but I held it back until the elections are over.
Q: As soon as you took office, there was an expectation of raising about $3-4 billion via SOEs. Are you disappointed that it did not realise in the past two years?
I did not expect to raise it right away. However, if we can get it done in the coming year, it is more than enough especially as we continue to engage with the debt restructuring.
Q: Post-election, do you think the SOE restructuring will gather more momentum and will there be more SOE issues included?
Yes, there would be. We are also looking at forming holding companies in some cases to convert SOEs into the commercial framework and have it as Public Limited Liability companies with shares held by the owning company. They would report to the Parliament and it will be very transparent. We are looking at that option also.
Q: Will the holding company be listed or?
I think it will be listed. As long as the Government keeps the control, it should be listed.
Q: Demutualisation of the CSE has been spoken about for a long time. Any reason why it is getting delayed?
From our side, we are focusing more on other economic issues.
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Q: Another enterprise is the SriLankan Airlines, where the Government has decided to revisit the strategy. What is the status quo?
The divestiture group was not satisfied with the bids that have come in. Therefore, we are looking at restarting it. We are also talking to some of the local companies.
Q: The Port City is one of the flagship projects and there have been around 100 companies who have expressed interest. How will the Government expedite the realisation of that vision?
There is ongoing work in attracting investments, but we are also looking at converting into the Colombo Financial Zone, which would be offshore jurisdiction. Sterling and Sherman has already drafted the legislation and it must be followed with a subsidiary legislation, but I wanted to do it after the election giving enough time for the parties to discuss it and look at its implications.
Q: With similar projects in India as well, how can Sri Lanka be more attractive for investors?
Firstly, it is a niche market. Secondly, for any country, the first investors are those who have taken money out abroad and sold it somewhere else. Now, this is a window for them to bring it back. Thus we need to develop it for certain subjects. I think there are some areas for insurance and other sectors.
Q: Are you saying there is no hesitation to the Government’s commitment on Port City becoming a reality?
Yes, we are fully committed to it. Remember, none of those would have come in until we finished the debt restructuring.
Q: We have seen in your campaign that you have growing engagement with the youth and there is a preference for crypto currencies. Any plans of introducing it?
There has been a growing demand especially by the youth. We will have further discussion in the country before we make a final decision. I think the youth are pressing very much for this.
Q: What plans are there to accelerate exports compared to what we have seen earlier?
One factor is export markets. I think it is also getting more and more manufacturing firms to Sri Lanka. When some of the foreign investors come along, they know what kind of supply chain they have to get attached to and we have to encourage it. We will develop markets for products such as tea, cinnamon and apparel, with a focus on adding value to these industries. In terms of other sectors, we have to encourage foreign investors to come in, but they will have to bring the markets along with them. This model has been successful in many of the countries in our region.
Q: What is the progress on the FTAs and other trade pacts?
We are going ahead with the bilateral and individual FTAs. We lag sometime to get the Regional Comprehensive Economic Partnership (RCEP) up and running. We are talking with India too. We also like to have the whole of the Bay of Bengal covered by the FTAs and finally it will cover the whole of East Asia and Australia. In terms of Europe, we need to expand it and that will offer a large market for the industries. I believe these efforts collectively will promote more investments into Sri Lanka.
Q: In terms of institutional reforms, the Economic Transformation Act refers to a single agency and putting EDB and BOI together. What about reforms in the Customs?
That is being done too. Again, there has to be major reforms in the revenue departments and we had to have an overall view of our revenue collection.
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Q: Sri Lanka has lagged behind digitalisation in terms of trade. Are there any specific plans?
We are going ahead with the digitalisation program. There has been a lot of opposition to digitalisation especially from the public sector. However, we are going ahead with the Digitalisation Act too.
Q: Tourism is one of the favourite sectors you champion. Do you have specific support schemes or do you want to make the private sector feel that the Government has done its part?
I think not just the private sector; we all have to do it together. At the moment we are looking at 2.5 million arrivals, spending over $ 150 per day and staying about 7-8 days. Over a period of time, we are trying to move that to 5 million with spending to $ 400 per day and if necessary try and push it for another day or two. This whole activity will make a vast change in the economy and the unemployment can get absorbed there. Boosting of the tourism industry is a collective effort by the Government, the tourism industry and the foreigners who are interested in visiting the country. We have already earmarked large areas for development, like Iranawila in Galle, Deddduwa in Bentota, Welimada and most of the Eastern Province will also get opened out. In addition Kandy, Anuradhapura and Jaffna will also be developed— it is a big plan. Tourism is going to be one of our major short-term income earning and employment generating sectors.
Q: The thorn in the tourism sector is the visa outsourcing process and delay in the decision made to implement free visas. What is the real problem there?
Free-visa entry has to be passed by the Parliament, which basically will be on 8 October —there is no major issue. The shortage of passports will also be met partly by October and the rest will be done in early next year. I did not want to go back to the old system. We had one exception, if they could give the old passports overnight and unfortunately the company could not. We are getting blaggarded for it — but we have got to face it. The restless situation in the industry got aggravated with the Court order. The specs of the Immigration are different from the specs of Mobitel. I am overlooking Mobitel and Minister Alles is overlooking the Immigration, but we could not get the specs of the problem there.
Q: Between now and 8 October there are some fears of cancellations and concerns within the tourism industry ahead of winter bookings. Is there an alternate arrangement in between?
Only way is to summon the Parliament early. However, I feel it is far better for the Government to give a commitment and all parties agreed for 8 October. It is only a legal hitch.
Q: Part of your success is the IMF program. There is a view that austerity measures arising from the IMF program have led to higher poverty and hardships to people. Going forward, do you balance this in your next term?
Poverty levels went up to 25% due to the breakdown of the economy in 2022 and since then the level of prices and income have improved. I do not say it is over, but it certainly has improved because the IMF agreement was to strengthen the rupee and we did it. It went from Rs. 370 to 300. How much more we can strengthen is an issue which we have to discuss with the exporters. Some exporters are quite worried about it, but we have to strengthen the rupee. I must say that prices of many items have come down between 10-40% and the incomes are gradually being increased. We are now focused on narrowing the gap between income and expenditure. By next year we will be able to sort it out. Target timeline by the IMF is 2027, but I want to do it long before that because people are suffering and I want to pick up fast on this lap.
Q: When you took office, the public was advised to tighten the belt. Do you think now we have reached a stage where the Government can be more flexible?
Yes, we can be flexible now. There will still be a group in society that may have to be more careful, but there is space. The more you relax it, the more it is a consumer-led economy.
Q: There are a lot of opinions on IMF renegotiation and strong views were expressed. Given that you have also announced some salary hikes to the public sector and increasing the threshold of PAYE, can you explain the fiscal space we have?
The benchmarks cannot be changed, but the way to achieve the benchmarks can be changed. For instance, we can do away with the income tax and increase the VAT significantly or have a lot of small taxes and adjust the VAT. But then all the small taxes will get accumulated and there will be tax-on-tax. At present, there is only a very little fiscal space as far as the collections are concerned. The next is the benchmarks on deficits allowed or the borrowings. Our borrowings are limited to 5% of the GDP. In the 2025 Budget, we can do it at 5% of the GDP because we are controlling expenditure and the revenue has increased.
I worked the Budget out and included all the proposals of the NPP. Then immediately, the Budgetary expenditure goes up to Rs. 8.9 trillion, with a revenue projection of Rs. 4.9 trillion—Rs. 2 trillion less than our plan. This creates a Budget deficit of Rs. 4 trillion which equals 11.9% of the GDP as opposed to our deficit of 4.3%. In this context, the US dollar exchange rate should be at least Rs. 400. If the IMF withdraws its support because we have breached the agreement, then we should hit about Rs. 500 for a dollar. I mean that will be a great wenasa (change) for the public. There is also an understanding with the IMF that having implemented the program, we can reduce taxes as we make progress. Each time a tax is introduced, we always keep a clause enabling us to reduce it as we move along.
Q: In terms of your own proposal to increase salaries, can your Budget support it?
Yes, the Budget can accommodate it.
Q: With higher revenue collection this year so far, there is also the question about capacity for equal pay. What are your thoughts on that?
The matter is being addressed. The main factor is to strengthen the rupee further. We are constantly looking at ways to reduce the burden of cost-of-living and introduce more adjustments in taxes as we move along.
Q: As per the IMF program, they have suggested Central Government taxes such as wealth and property taxes. Is that still on the cards?
A: I think there will be a focus on the Wealth Tax.
Q: How would you ensure to retain the public sector as it is, and assure reduction on expenses?
As far as the public sector is concerned, we can decide what vacancies we will fill and we will not. The major issue is that we have to restructure the public service. There will have to be additional money spent on human resource development in certain areas, restructuring and getting new people in, which will reflect a gradual change. No one will lose jobs, but people may resist restructuring because they feel the old system is better — that is really the issue. We are now considering on allowing any staff officers below 41 years of age with full pay to follow some courses recognised by the Government. This way, they can fit into the new structure and even if 1,000-3,000 take leave, it would not matter. They will eventually come back with more knowledge.
Q: Going forward, will the size of the public sector remain high?
It will remain high. However, as new jobs are created, staff with experience in office work and management, may find it better to stay due to their experience.
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Q: Any new measures to reduce the brain drain?
Only measure is to train more and more as some of them will return. This is why we are look ing at four new universities for the technology side.
Q: Some opine that higher economic growth can stem the brain drain. What is your forecast?
We would like to have a 5% growth but people will still keep going and there are many reasons outside this. Higher Education is one such sector, where the system has broken down. Education is one major reason why people are going abroad. So we have to tackle the issues in the sector.
Q: Now that you have established stability, what is your message for the diaspora? Do you think they have taken a proactive role?
It may not be immediately, it may not be in the next 2-3 years, but as they see results come, they will want to come back.
Q: There are many opposing views on economic growth and governance. Do you still maintain the stance that the economy should be first?
Yes. Economy comes first, and immediately governance and reforms must also take place. Firstly in the Constitution itself and also ensuring there is no corruption. Corruption itself is one of the biggest enemies of economic reforms. Those who say that governance and governance only, we have been doing reforms only for the past 20 years, we have not addressed the issues in the economy. Economy first and the governance must follow it. As far as this Government is concerned, I spoke to the IMF on anti-corruption governance reforms and I asked them to prepare the diagnostic which we are implementing. In addition to the Anti-Corruption law, we have already sent the Proceeds of Crimes Bill to the Parliament and there were so many other measures that were recommended by the IMF. So we are also asking for a mandate to implement it. My friend in the JVP/NPP has put one on corruption, but it is limited to the Anti-Corruption law. You cannot do everything only through the Anti-Corruption law; you also need all the other supporting legislation in place, if I am asking them to support our anti-corruption agenda.
Q: During your campaign, what is the feedback of people in terms of measures taken to combat corruption?
People are happy. To begin with, I did not even interfere when Ministers were taken before Court.
Q: In terms of tackling the underworld crimes, what is the Government’s stance? Will the Yukthiya initiative continue to operate though it has gotten a lot of criticism on human rights violations?
I find the operations are very successful. I am surprised that in the elections people call out and ask, are you going to carry out Yukthiya. If there have been human rights violations, which we will look into, that happens in any country.
Q: What is at stake for Sri Lanka and the people on 21 September?
In simple terms, Sri Lanka’s future —nothing else.
Q: Given that there are alternative proposals, do you feel the people will make the right decision?
I am very confident in our approach.
Q: How differently are you going to tackle the economy in the event you come up victorious?
Now we have to be implementation-oriented. All this time, the Government was policy-oriented on economic restructuring and stabilisation. Now we have to get going and many Government agencies will have to change. Private sector has to take on a bigger responsibility.
Q: Are you confident that you have the right team to focus on the implementation?
Yes, I was lagged by this team. Of course, who the team would be next time has to be decided by the voters. We will have to have the elections quickly.
Q: Where do you see some of your opponents are lagging?
They are not responding at all. They have just put some populist slogans and they have really no answers to give so they will have to work within the framework of the IMF. The moment you say, you are deviating from the program, it does not work. My attack is that they are playing the popular politics, but they are not looking at the country. They have not answered that challenge.
Q: In terms of modernising the economy, what more can be expected?
Basically, the private sector has to modernise itself to become competitive and the Government will have to modernise itself to keep in line with the private sector. So the market forces, political forces will all work together in this modernisation effort.
Q: What challenges do you see from the public sector for modernisation?
There will be resistance, but within the mechanism there are people for it. So you’ve got to explain. I think with a lot of dialogue we can sort out a lot of issues.
Q: What is the status of the external debt restructuring and can you give a timeline?
Yes, certainly. We are talking with the advisers and the IMF. I’d like to finalise it fast. We have to look at the discussions that are going on.
Q: Final words of advice to people and the private sector?
This is an election about your future, not the future of the candidates. It is your decision that will make the future of Sri Lanka, so decide wisely to go ahead with these reforms. Private sector must also think if they want to expand and become global. These are the reforms that will open up our markets which will further cement our ties with the global economy and provide more opportunities for the private sector to expand income. The private sector needs it, the people need it and the country needs it. We need a future. The others have not provided a program for the future.
Q: Any words on investors who are having a wait and see attitude?
No. I think if they come by next year that will be enough.
Q: What concrete steps will you take to ensure a tangible and faster reconciliation process in the North and East?
First we must implement the Truth and Reconciliation Commission. I have looked at the Nawaz Commission reports. We are looking at helping out the ex-combatants in the self-employed areas they are engaged in. These are the major areas and then it comes to the Provincial Councils. I want to make the nine Provincial Councils to be the engine of growth for the provinces. Then the Parliament can give more power regarding agriculture modernisation, tourism, and expansion of industries. In addition, District Development Councils enacted by law outlining the composition of what the powers are. Those are some of the interests that have been made and I am doing for the whole country. There are certain powers that need to be given by the Parliament.
The major area of importance is development. We will develop the KKS Airport, three economic zones in the North, development work in Trincomalee, tourism, and agriculture modernisation in the North Central and East. Also, the digital economy, IT, and renewable energy; so there is a lot that can be done in the North and East. Many of these efforts will also spill over to the North Central Province. Economic development will go on with the main reform framework. Devolution of power will also be a major discussion as we move forward.
Watch interview video https://www.ft.lk/ft_tv/Ranil-reveals-why-he-will-win-Presidential-poll/10520-766628
Investors are first looking at post-election stability, after which we will implement the Economic Transformation law and other policies to show that we are catching on to a very stable economy. Capital markets itself should expand as we go along