Dr. Dayan Jayatilleka.
However formidable, even brilliant, a leader and protagonist in the national political arena President Anura Kumara Dissanayake is, dialectics in general and the dialectics of the debt deal in particular, will undermine and undo AKD-NPP rule. A contradiction lies embedded at the very heart of the Government between the NPP’s progressive political sociology—its generational and gender configuration—and its regressive political economy. AKD and the NPP’s economic decisions; their choice of economic strategy and model; their economic turn, will erode and disintegrate the NPP social bloc and vote-base—and cannot but do so. Anura is determined, but the economy is the determinant.
Every leader, if he/she wants to be well-regarded by history, has to successfully tackle the greatest challenge, successfully resolve the greatest problem, defeat the greatest danger, facing his/her country at the time of entering office, leaving the country better on that front, before the term he/she was elected to ends. Mahinda Rajapaksa, and before him, Ranasinghe Premadasa, did just that. Premadasa was the UNP’s SWRD. Mahinda was the SLFP’s Premadasa.
The chief challenge facing AKD is the debt crisis. Inheriting a country deep in the debt trap, he has decided to take it deeper still, rather than try to extricate us from it. He is heading in exactly the opposite direction from which he should.
In 2021, Gotabaya’s Central Bank Governor Ajith Nivard Cabraal made a repayment on ISB debt against the public advice of Dr Nishan de Mel who almost yelled that there will be no dollars left for essential imports such as fuel. Informed speculation was rife that the payout was foolishly made, gouging out our reserves, because there were local ISB holders with an inside-track to the Gotabaya government or top officials.
Cabraal’s answer was that if the payout wasn’t made the country would have defaulted and be considered bankrupt. This is a precursor and prototype of the justification by AKD’s economic team and Ministers today regarding the imminent ISB deal. What Nishan de Mel warned of, happened–and the Aragalaya arose, sweeping away the Gotabaya presidency. It wasn’t Ambassador Julie Chung and a ‘colour revolution’. It was a replay of the August 1953 Hartal.
Once again, the ISB holders are being prioritised, this time by the AKD presidency. This time they have an even higher-placed link to the policy process and the decision-making apex. Though the exact sequence won’t repeat itself –the outcome will probably not be an Aragalaya– the cumulative blowback cannot but prove decisive.
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In my previous column I shared a diagnostic note from a top-notch economist in the international circuit. Here’s a 5-point update from the same expert:
1. Sri Lanka faces significant financial challenges in 2025, with repayments on International Sovereign Bonds (ISBs) expected to total around $1.85 billion, including $420 million in interest on bilateral debt.
2. In addition, lifting the import ban on personal vehicles will lead to an estimated $1.5 billion in outflows, pushing the total additional funding needed to $3.4 billion.
3. Although debt maturity periods have been extended, this has led to higher long-term interest payments. From 2028, the average interest rate on ISBs is expected to rise to 6.8%, and after 2032, it could reach 9.75% for six years. The IMF’s debt sustainability analysis (DSA) sets a target for Sri Lanka’s debt-to-GDP ratio at 95%, but this excludes the present value of interest payments. As a result, it misleadingly suggests Sri Lanka’s repayment capacity is stronger than that of highly stable economies.
4. Heavy debt repayments will likely weaken the country’s currency over time. Under the recent agreement with bondholders, Sri Lanka has forfeited the legal right to negotiate higher debt relief. Creditors now have the authority to change the governing law for Sri Lanka’s ISBs. There’s no evidence that the government’s financial advisors, who maintain close ties with creditors, are acting in the best interests of Sri Lanka’s people.
5. Additionally, creditors knowingly extended loans despite Sri Lanka’s debt exceeding its government revenue by tenfold, reflecting predatory lending practices. This violates established norms in responsible lending, further exacerbating the country’s financial instability
Excerpts from a longer article published in the Daily FT