President Ranil Wickremesinghe’s efforts to re-structure both domestic and external debt to meet International Monetary Fund debt ceilings on debt sustainability made some progress by the end of the month. In the wake of Sri Lanka’s economic collapse last year, the IMF had extended nearly $3 billion External Fund Facility. As on March 2023, Sri Lanka’s foreign and domestic debts were around $ 41.5 billion and $ 42.1 billion. A special session of parliament is being convened on July1 and 2 to discuss and approve the plan for Domestic Debt Optimisation (DDO). The Central Bank Governor Nandalal Weeresinghe briefed the media on the DDO plan. The DDO aims at restructuring the nations domestic debt by recasting the outgoing sums of the pension funds and offering international sovereign bondholders a repayment plan with a 30% haircut. This means the Central Bank will convert superannuation funds, treasury bonds and treasury bonds to longer term maturity treasury bonds.
The DDO aims to protect local banks who are already affected by NPA by excluding them from the plan. Explaining this, the Governor said “It is vital to protect the banking sector, as a collapse [of it] would have a catastrophic consequence for some 57 million depositors.” On the other hand, the DDO will transfer the debt burden on superannuation funds, including the Employees Provident Fund (EPF). With these measures Sri Lanka hopes to reduce its Debt to GDP ratio from 125% to 95%. President Wickremesinghe has described the SL Rs 700 billion worth DDO as a “small sacrifice” for Sri Lanka shedding the “bankrupt” label by September. Speaking at a meeting in Colombo, the President appealed to the people to support the debt restructuring plan. He cautioned, “If we do this successfully, we can go forward. If we go and change it, you go down. What will happen if we let go of this? We will immediately lose the $700 million that the World Bank has committed. The second IMF review will be a failure and I hope by September that Sri Lanka will be able to shed its bankruptcy status.”
The plan to use the EPF to implement the DDO had caused concern among trade unions. The delegation of trade union leaders met the President. President Wickremesinghe has assured that priority was being given to ensure protection of depositors as well as the members of the EPF. In this respect he has asked the MPs to support necessary legislation to guarantee 9% return to EPF members. The Committee on Public Finance (COPF) chairman Harsha de Silva tweeted on June 30, the Committee had endorsed the DDR proposal with majority support. Opposition members had voted against it. The chairman de Silva had expressed some reservations on the plan affecting the EPF and superannuation funds; so he did not vote. In any case he belongs to the main opposition Samagi Jama Balawegaya (SJB) which has decided to vote against the DDR.
The passing of the DDR plan in parliament on July 2 will determine not only the future course of Sri Lanka’s economic recovery but also indicate the political fortunes of the Rajapaksas. President appears to have embarked on a mission to get a Yes for the DDR plan from the people, more than political factions supporting or opposing him. Peoples support may well determine the contours of future political developments in the country. Among Sri Lankan leaders, perhaps Wickramasinghe is a good negotiator at the international level. But getting ‘Yes’ from the people is not easy. In the classic book on negotiations “Getting to Yes: Negotiating Agreement Without Giving In”, authors Roger Fisher, William Ury and Bruce Patton argue that negotiators don’t have to choose between either waging a strictly competitive, win or lose negotiation battle or caving in to avoid conflict.
They argue that bargainers should look at negotiation strategies that can help both sides get a little more than they want. This requires closely listening to each other, treating each other fairly and jointly exploring options to increase value. Can the President whose survival in power depends upon the Sri Lanka Podujana Peramuna (SLPP), carry his economic plan to its logical success? Only time will tell, as the SLPP has its umbilical linkages to the Rajapaksas, who are fighting their own battles.