Business - Page 5

Sri Lanka: Sovereign Insolvency


The sovereign default announced by Sri Lanka on 12 April 2022, was the cumulative result of fiscal folly over many years. This writer has attempted to uncover the root causes of our ‘sovereign predicament’ in a series of interviews with international media between January and July 2022; a curated version of which could be accessed online1.

Two in-depth studies by this writer published in 20162 and 20173 prognosticated what was clearly a looming disaster. These were published in academic journals in 2016 and 2017, they were orally presented at the Inaugural Nagalingam Balakrishnan Memorial Lecture4 in Colombo on 21 June 2014, and at an international conference organised by the Centre for Poverty Analysis5 (CEPA) in Colombo from 1 to 3 September 2014, respectively.

The purpose of this essay is to highlight the specific blunders by successive Governors of the Central Bank of Sri Lanka and members of the Monetary Board since 2006 that has led to the current crisis, and hold them accountable for their actions and/or inactions over a period of 16 years (July 2006-April 2022). Authority and power come with accountability and responsibility. 

A couple of retired senior Central Bank staff (retired Deputy Governor of CBSL Dr. W.A. Wijewardena6, and retired Director of Statistics at CBSL Dr. S.S. Colombage7), independent Economists, and many other professionals (for example, Sanjeewa Jayaweera8) have repeatedly and publicly forewarned the Central Bank and the Treasury of Sri Lanka about their risky and wrongful policies since 2006 (if not before). Yet, successive Governors and Monetary Boards have not heeded saner counsel. 

This study offers citations/references that amply demonstrate where the fault lines were and who was directly or indirectly responsible for patently risky and wrong policy decisions. 

Global best practices in central banking in brief 

The independence of the Central Bank is a foundational imperative in an open market-led economic/monetary system. As a corollary, there must be a strict separation of powers between the Treasury/Ministry of Finance and the Central Bank of a country. This demarcation is as important as the insulation of the judiciary from the executive and the legislature. 

Countdown to sovereign bankruptcy in Sri Lanka

The very first breach of the independence of the Central Bank and its autonomy viz the Treasury occurred in the late-1990s when Sri Lanka graduated in to the lower middle-income country in 1997 and thereby gained access to borrowings in the private international capital markets. The Secretary to the Treasury was made an ex-officio member of the Monetary Board of the CBSL by the then President of Sri Lanka Chandrika Kumaratunga. A.S. Jayawardane was the then Governor of the Central Bank of Sri Lanka.

Although Sri Lanka was eligible to borrow from the private international capital markets in 1997, the very first such borrowing was in 2007 through the issuance of an International Sovereign Bond (ISB) to the value of $ 500 million. The then Opposition Leader and current President of Sri Lanka, Ranil Wickremesinghe9, wrote to the joint lead managers of the debut float (Barclays Capital, HSBC, & J.P. Morgan) in 2007 that a future government of his would dishonour repayment of the same.

After the election of Mahinda Rajapaksa as President in November 2005, Ajith Nivard Cabraal was appointed as the Governor of the Central Bank in July 2006. It has been the practice to appoint the senior-most Assistant/Deputy Governor to the post of Governor of the Central Bank since its inception in 1950 until President Premadasa appointed Dissanayaka as the Governor in 1992. Dissanayaka was a civil servant in the Ceylon Administrative Service (and its successor Sri Lanka Administrative Service) and was a Deputy Secretary to the Treasury prior to his appointment as the Governor of the Central Bank in 1992.

For the first time in the history of the CBSL a versatile book keeper assumed the role of Governor of the Central Bank in 2006. This appointment of a person who had scant regard for demonstrated and proven principles of central banking put the integrity of the Central Bank in peril. 

The decline of the technical competence and integrity of this premier institution was apparent to all but the ruling crony class. 

This writer learnt that there were deliberate actions taken by the newly appointed Governor to weaken the technical competence and integrity of the Central Bank by way of side-lining senior competent professional staff such as the then Head of Economic Research, Dr. H.N. Thenuwara, and the then Head of Statistics, Dr. Anila Dias Bandaranaike, among others. Such arbitrary, irrational acts of the new Governor resulted in the premature retirement/departure of Dr. H.N. Thenuwara, Dr. Anila Dias Bandaranaike, Rose Cooray, and the like from the Central Bank. Governor Cabraal wanted a compliant and subservient staff and a pliant Monetary Board as opposed to technically competent and upright senior staff with professional and personal integrity.

The year 2006 marked the beginning of severe politicisation of the CBSL never seen before in the history of the Central Bank since its establishment in 1950. It was not just the beginning of the politicisation of the Central Bank, it was also the beginning of the politicisation of the entire banking and financial sector including the private banks. The modus operandi of such politicisation was as follows. The CBSL under Cabraal utilised the EPF/ETF funds to purchase shares in the two largest private commercial banks. Commercial Bank of Ceylon (Com Bank) and the Hatton National Bank (HNB), and thereby secured memberships in the Board of Directors of such banks to park the retiring senior Central Bank officials such as Assistant/Deputy Governors. For example, Dr. Ranee Jayamaha (former Deputy Governor of CBSL) was appointed to the Board of Directors of the Hatton National Bank, and Dheerasinghe (former Deputy Governor of CBSL) was appointed to the Board of Directors of the Commercial Bank of Ceylon after their respective retirement from the CBSL. The foregoing appointments could have caused conflicts of interest (if not illegal). The justices of courts of law are barred from practicing law after retirement in order to prevent conflict of interest during their tenure as judges. In a similar vein, senior executive staff of a Central Bank should also be barred from working in the financial sector post retirement. 

The aforementioned appointments in the largest private commercial banks were made to influence/encourage those banks to borrow foreign exchange from private international capital markets to lend to the Government for its ambitious prestige infrastructure projects, inter alia, for what former Central Bank Governor W.D. Lakshman called the “developmental state”. (See the justification for such politicisation of the entire banking and financial sector by Dr. Weligamage Don Lakshman, one of the successors to Governor Ajith Cabraal (July 2006-January 2015) and the predecessor to Governor Ajith Cabraal (October 2021-April 2022), in 2020. Lakshman, 202010

Similarly, the CBSL under Ajith Cabraal directed state-owned commercial banks such as the People’s Bank and the Bank of Ceylon (BoC), and the state-owned specialised bank, National Savings Bank (NSB), to borrow foreign exchange from private international capital markets to lend to the Government for its ambitious prestige infrastructure projects as well as to fund capital expenditures of the state-owned public utilities such as the Ceylon Electricity Board (CEB) and the National Water Supply and Drainage Board (NWSDB), a state-owned enterprise such as the SriLankan Airlines, and crude oil purchases of the state-owned Ceylon Petroleum Corporation (CPC). (See, Sarvananthan, 201411, for example) 

Such Central Bank-directed external borrowings by state-owned banks, private commercial banks, and state-owned utilities/enterprises between 2006 and 2014, inter alia, have undermined the overall financial sector stability, increased the precarity/vulnerability of such semi-government and private financial enterprises, and contributed to the overall volatility of the external public debt portfolio of the country by way of underestimating the real total external liabilities of the Government. 

Policy milieu of the CBSL during 2006-2022

The Government’s direct borrowings through the issuance of International Sovereign Bonds (ISBs) and indirect borrowings through state-owned banks (such as syndicated loans) and utilities/enterprises (with and without government guarantee) currently account for over 50% of the total external debt of Sri Lanka. The borrowings by the state-owned banks and utilities/enterprises on explicit government guarantee are called “contingent liabilities”12 of the government in fiscal parlance. 

The ISBs bear the highest interest rates (between 5% and 9% in the international borrowings of Sri Lanka (see, for example, CBSL, 201213) among all the available external borrowing mechanisms (bilateral, multilateral, and private international capital market borrowings) to any country. Moreover, the repayments of ISBs are relatively short-term (5-10 years) without any grace period for the commencement of repayments. However, one advantage of ISBs is that borrower has to pay only the interest payment annually, and the entire capital is repayable only at maturity, which gives some breathing space for the borrower.

Between 2007 and 2019, borrowings in the private international capital markets were the primary mode of external borrowings for successive governments of Sri Lanka, in which borrowings do not require justification or do not come with strings attached (conditional upon economic policy reforms or political governance reforms). 

Ironically, certain press releases of the CBSL during 2007-2008 explicitly acknowledged that the proceeds of the ISBs were not only utilised to pay for certain infrastructure projects (such as the Hambantota port and southern highway) but also to retire some of the then-existing domestic debt that bore very high-interest rates (between 15% and 20% or higher) (see a series of articles by this author in Montage14 (current affairs magazine) edited by Frederica Janz at that time for criticisms of such external borrowings of the government/CBSL (unfortunately, we could not access the press releases of the CBSL before 2012 on their website now). 

In order to lessen the burden of short-term repayments of the ISBs, inter alia, successive Governors of the Central Bank have artificially kept the exchange rates quite stable thereby artificially overvaluing the domestic currency, the Sri Lankan rupee (LKR). This was the key policy blunder that led to the eventual sovereign default of the country in April-May 2022. The Central Bank’s frequent interventions in the foreign exchange market to prop up the rupee also contributed to heightened imports of consumption goods (including luxury motor vehicles, for example), especially during the period 2010-2019.

By keeping the value of the rupee artificially high by fixing the exchange rate/s for prolonged periods of time (years, not weeks or months) through frequent interventions in the foreign exchange market by the Central Bank, Sri Lanka’s exports were artificially overvalued (thereby undermining global competitiveness) in dollar terms, and earnings from tourism were suppressed. These were on top of the loss of the GSP+ facility for exports of goods and services to the European Union (EU) in the early 2010s. However, the GSP facility for Sri Lanka was restored in 2017 but is currently once again under intense review by the EU for the past couple of years. 

The severe negative impact of the managed floating exchange rate system practiced by the CBSL (as opposed to free float) is reflected in the fact that the exports of goods and services as a percentage of the GDP in Sri Lanka, in US dollar terms, that was 39% in 2000 and 32% in 2005 fell to mere 17% in 2021 (second lowest since 1960 after just 15% in 2020 due to the pandemic)15. 

Were the forgoing of exports and tourism earnings for white-elephant infrastructure projects and retiring of domestic debt rational and prudent management of the external finances of a country? To the best of the knowledge of this author, no sane government in any country would dare to borrow externally in the private international capital markets to retire its domestic debt in spite of the fact that domestic debt directly contributes to inflation. 

In addition to the folly of wanton borrowings through ISBs, the then Central Bank Governor Cabraal, and the then members of the Monetary Board (all political appointees) were singularly responsible for the losses incurred on hedging for crude oil imports16 and investments in ill-fated Greek Bonds17. The then Governor and the members of the Monetary Board have never been made accountable, to date, for such losses to the country. These past impunities have contributed to continued irrational and imprudent policy decisions of the Monetary Board (all political appointees), the chairperson of which is the Governor, that eventually resulted in the sovereign default in April-May 2022. 

By the time the Rajapaksa regime lost power in January 2015, Sri Lanka’s external debt position had already become precarious. The person who replaced Cabraal as the Governor of the CBSL in early 2015, Arjuna Mahendran, was once again from the international private sector though much more educated than Cabraal. However, Arjuna Mahendran also lacked professional and personal integrity like Cabraal, which resulted in the Central Bank of Sri Lanka bond scandal18. Arjuna Mahendran was removed from office in 2016 by the then President, Maithripala Sirisena, and replaced by Dr. Indrajit Coomaraswamy on 2 July 2016. Dr. Coomaraswamy possessed both educational qualifications and professional cum personal integrity to be the Governor of the Central Bank.

Whatever external borrowings made by the Government between 2015 and 2019 were almost entirely to make repayments of the external borrowings, especially ISBs, made during the period 2007 and 2014. The new President elected in November 2019 appointed “Emeritus Professor” W.D. Lakshman as the 15th Governor of the Central Bank effective from 24 December 2019. In spite of being a former “Professor of Economics” at the University of Colombo, Dr. Lakshman lacked the necessary exposure to the complex world of global commerce and the finer intricacies of international finance. 

Dr. Lakshman was an ideologue of a forgotten era. He was a lifelong critic of international financial institutions such as the IMF. Unsuitable to head the Central Bank of an emerging lower-middle-income open economy. Dr. Lakshman was the third worst Governor, after Ajith Nivard Cabraal and Arjuna Mahendran, the Central Bank of Ceylon/Sri Lanka has had in its entire history, though the former is professionally an honest person as opposed to the latter two. Dr. Lakshman’s lifelong pathological aversion to the International Monetary Fund (IMF) played a critical role in Sri Lanka’s procrastination to seek an IMF bailout.

By the time Dr. Lakshman was appointed the Governor in the closing days of 2019, Sri Lanka was shut out of the private international capital markets because of the repeated negative reports about the precarity of Sri Lanka’s sovereign bonds by global credit rating agencies such as the Fitch Group, Moody’s, and Standard & Poor (S&P) Global Ratings. Therefore, since the beginning of 2020, the CBSL was forced to borrow only locally in addition to several ad-hoc short-term currency swaps with Bangladesh, China, and India, a few bilateral credit lines from China and India, and one-off loans from Japan and South Korea. 

Money printing and Modern Monetary Theory (MMT)

Ironically, whereas a Central Bank’s role is to be a lender of ‘last resort’ to the government, under the governorship of Dr. Lakshman the CBSL became the lender of ‘first resort’ to the government by buying unprecedented levels of government securities, which literally meant printing money. 

While the dogmatic/theoretical inspiration for printing unlimited money is drawn from the fallacious Modern Monetary Theory (MMT), the practical lessons Dr. Lakshman19 cites are from Japan and the Newly Industrialised Countries (NICs) such as South Korea and Taiwan in the aftermath of the World War II, which he dub as “developmental states”. 

Dr. Lakshman, during his academic days, has publicly accepted corruption as a necessary evil during any country’s early stages of “take-off”, citing rampant corruption in Korea and Taiwan during their take-off period. I remember him juxtaposing corruption and successful developmental states as a classic chicken and egg conundrum at a public seminar held at the Dr. N.M. Perera Centre in Colombo several years ago, in which this author was a co-panellist. 

It is true that Japan, Korea, and Taiwan were developmental states (as opposed to market-driven states) during the early stages of their “take-off”. However, the global political and economic context during the immediate and medium-term post-World War II (i.e. 1950s, 1960s, & 1970s) period wherein victorious western powers regarded the aforesaid countries as bulwarks against communism raging throughout East and South East Asia did play a pivotal role for the resurgence of Japan as an economic powerhouse and the emergence of the so-called tiger economies (ala Korea and Taiwan). 

Hence, just because Korea and Taiwan were “developmental states”, Sri Lanka, for example, cannot emulate those “economic miracles”, through a developmental state. This author would argue that third world countries like Sri Lanka need what Prof. Rainer Kattel, et al, calls “entrepreneurial state”20. 

Two underlying cardinal principles of MMT are that as long as the public debt is denominated in domestic currency, a government need not worry about unlimited domestic borrowings because domestic currency could always be printed thereby avoiding a public debt default (i.e. states have “monetary sovereignty”), and that unlimited money printing ‘does not’ cause inflation! Both are fallacious according to mainstream economic science in general, and monetary theory in particular. (See, for example, Coats, 201921; Drumetz and Pfister, 202122; Hartley, 202223; Palley, 202024; Prinz and Beck, 202125)

In his oration to mark the 70th anniversary of the establishment of the Central Bank of Ceylon/Sri Lanka on 28 August 2020, Governor W.D. Lakshman promotes the idea of developmental central banking, deviating from the core functions/objectives laid out in the Monetary Law Act of 1949 and amendments thereof made in 2002. Implicit in his 70th anniversary oration was the justification for unlimited printing of money. Dr. Lakshman has been strenuously denying publicly that the printing of money causes inflation. One of Dr. Lakshman’s former students at the University of Peradeniya and later a lecturer in political economy in the same university (long retired), Sumanasiri Liyanage26, has publicly supported the printing of money by the Central Bank in January 2021.

Ajith Cabraal27, who once again functioned as the Governor of the CBSL between October 2021 and April 2022, propagated the myth in April 2021 that money printing does not cause inflation parroting the then Governor Lakshman. During the previous stint of Governor Cabral (at the CBSL) between 2006 and 2014, Dr. Lakshman was an “Adviser” at the Ministry of Finance. Cabraal had a history of shouting/shooting down negative reports by international credit rating agencies28 on Sri Lanka’s creditworthiness since 2006 to date. 

The over-stock of money in the market (as a result of money printing by the central banks worldwide), in the absence of a commensurate rise in production (primarily due to lack of demand), depreciates the domestic currencies resulting in hyper-inflation29 (including food inflation). In Sri Lanka, in the 21-month period between 1 January 2020, and 30 September 2021 (during Governor Lakshman’s tenure), due to excessive money printing30 by the Central Bank, the stock of money rose by 38% (i.e. by Rs. 2.9 trillion) whilst the GDP grew only by just 1%. This has caused inflation to rise to over 11%, and food inflation rose to over 18% in November 2021. 

These have seen steady rises ever since; resulting in the overall inflation, in terms of Sri Lanka Consumer Price Index (SLCPI), at its peak 74% in September 2022, and the food inflation at its peak 86% in September 2022. During the last quarter of 2022, however, both the overall inflation as well as the food inflation have begun to decelerate. 

Both Cabraal and Lakshman have unrepentantly deviated from the holy grail of central banking31, i.e. policy-making in the interest of the “public” as opposed to policy-making in the interest of the government in power or the politicians. 

The poor performance of Dr. Lakshman as Governor of the Central Bank is emblematic of poor standard of economic professors in Sri Lanka in particular, and poor pedigree and pedagogical practices of Sri Lankan academics in general. The tertiary level economic curriculum in Sri Lanka requires urgent and substantial revision and upgrading from outdated and irrelevant contents.

Theories of physical sciences are not subject to political or social circumstances, contexts, situations, or territories; that is, the outcomes of physical sciences theories are universal. In contrast, the outcomes of macroeconomic policies/theories vary according to the political and social circumstances, contexts, situations, and territories. Thus, right macroeconomic policies should be adopted taking into consideration of the individual political and social circumstances, contexts, situations, and territories. Just because advanced industrial countries were printing unlimited money for prolonged periods during the pandemic, any developing country cannot afford to print unlimited money for an indefinite period of time to revive its pandemic-affected economy. 

Lessons to be learned from sovereign bankruptcy in Sri Lanka

It is high-time the proposed new Monetary Law Act (MLA) in Sri Lanka explicitly and clearly define the qualifications and experiences required for the post of Governor of the Central Bank, members of the Monetary Board, and the members of the Stakeholder Engagement Committee (SEC). The SEC was established in July 2022 amalgamating the former Monetary Policy Consultative Committee (MPCC) and the Financial System Stability Consultative Committee (FSSCC). Moreover, the post of Governor and memberships in the Monetary Board and the Stakeholder Engagement Committee should be openly advertised and recruited and ‘not’ arbitrarily appointed by the President and/or the Governor (in the case of appointments to the Monetary Board & SEC).

While the independence of the Central Bank is sine qua non, there should be necessary checks and balances to prevent abuse of power, corruption, nepotism, and the like in the Central Bank of Sri Lanka in recruitment of staff, consultants, etc., and transparency in the policy-making and decision-making processes. Moreover, Central Bank’s frequent paternalistic diktats to the commercial and specialised banks (including to the private ones, let alone the state-owned banks) and unnecessary interferences in the financial sector in general (under the euphemism of “moral suasion”32) should be tamed (if not done away with) in the proposed new Monetary Law Act (MLA). Every single public authority (e.g., Central Bank Governor, Treasury Secretary, Monetary Board) in Sri Lanka should be made accountable and responsible not only to the parliament, government, and the executive in power, but more so to the general public as well. 

Sri Lanka cannot emerge out the current economic quagmire without broader financial sector reforms such as divestiture of the state-owned commercial banks (People’s Bank and Bank of Ceylon) and specialised banks (National Savings Bank) which function as captive sources for funding public debt (both domestic and external) as well as funding perennially loss-making state-owned utilities (Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), National Water Supply and Drainage Board (NWSDB)) and enterprises (SriLankan Airlines, Sri Lanka Railways, Sri Lanka Transport Board, Road Development Authority, etc.). 

According to a report of the Committee on Public Enterprises (COPE) of the parliament of Sri Lanka, state-owned banks (i.e. Bank of Ceylon and People’s Bank) have complained that they have been repeatedly ordered by the Central Bank to fund the CPC and CEB during 2020-2022. Moreover, in the investigations into the Central Bank of Sri Lanka bond scam of 2015, it was revealed how the CBSL coerced the People’s Bank to back off from bidding. The forensic audit report of the CBSL in the aftermath of the bond scam of 2015 is yet to be made public. This kind of non-transparency cannot assuage the domestic markets or potential foreign investors. 

The state-owned banks have also become primary lenders to unscrupulous politicians from all political parties, especially members of parliament and deputy/ministers, who are involved in variety of businesses such as owning liquor shops and fuel stations throughout the country, and involved in construction projects (public works) for public and quasi-public authorities.

We understand that one of the conditions the IMF has put forward for its proposed bailout of Sri Lanka is enaction of a strong anticorruption legislation in parliament. This is just a cosmetic exercise. There are enough laws in Sri Lanka already to arrest corruption; what is lacking is the political and/or administrative WILL to enforce such laws or the law/s are applied only selectively to penalise the political opposition. 

In addition to any new legislation, the IMF should insist that an international forensic audit of the personal finances (bank accounts, movable and immovable property, income tax filings, etc.) of each and every member of parliament (including both government and opposition) and their extended family members, and each and every public servant (especially executive grade) (including armed forces personnel) and their extended family members should be carried out and appropriate legal actions taken if their wealth and income cannot be accounted for or justified.

Even today, under a new Governor and management, some of the actions of the Central Bank of Sri Lanka smack of duplicity and double standards in law enforcement as reflected in the recent permanent “revocation” of the license of the Prasanna_Money_Exchange_Pvt_Ltd33 and merely a temporary “extension of the suspension” of the trading of Perpetual Treasuries Limited34, which was the executor of the Central Bank bond scam of 2015. It is important to note here that the Perpetual Treasuries is owned by the son-in-law of the then (2015) Governor of the Central Bank, Arjuna Mahendran.  

If Angola35, where the Supreme Court in December 2022 ordered the seizure of $ 1 billion worth of assets of the daughter of the former President and freedom fighter Jose Eduardo dos Santos, and Mozambique36, where the Maputo City Court in November 2022 found a son of the former President and 18 other “high profile defendents” guilty of $ 2 billion illicit foreign loan with government guarantee that bankrupted the country could do it, why not Sri Lanka?

Although, in principle, we welcome the public appeal by 182 Economists worldwide37 on 8 January 2023, urging the hedge fund holders of International Sovereign Bonds (ISBs) of Sri Lanka in particular, and of all the third world countries in default in general, to cancel such debt, in practice any such debt cancellation initiative should be conditional upon barring all those politicians, bureaucrats, and professionals who were responsible for the sovereign default (by their actions or inactions) and who were directly or indirectly involved in the Central Bank bond scam and other mega corruption from holding any public office hereafter. If not, any unconditional and unilateral debt cancellations would become a moral hazard for countries such as Sri Lanka. 







































Sri Lanka: Misleading Responses on Illegal Foreign Exchange Transfers

  • Suppression of wages in the export sector as a whole is the fundamental factor enabling exporters to illegally retain incomes abroad
  • Exporters illegally retaining incomes abroad worsens foreign exchange availability in the domestic financial system and causes hyper-inflation.
  • Over US$ 40 billion has been mis-invoiced out of the export and import sector between 2009 to 2018
  • Unions and civil organisations demand the CBSL and government to take immediate action to repatriate illegally transferred funds and bring perpetrators to justice
  • Parliamentary Select Committee consisting of competent persons without conflicts of interest must be set up to investigate illegal outflows carried out by export and import sector
  • Government must declare Sri Lanka’s foreign debt as odious debt through an international arbiter

Apparel, tea and rubber exporters’ associations recently announced that they wished to ‘set the record straight’ on serious corporate fraud allegations made by the Central Bank (CBSL) on non-repatriation of export income and allegations of trade mis-invoicing and transfer pricing. In view of the exporters’ statements, the CBSL appears to be withdrawing its accusations, signalling a possible complicity in economically destructive corporate fraud.

It is also made abundantly clear by the misinterpretation of Sri Lankan monetary law by the CBSL Governor in an interview on 8th December 2022 stating that merchandise exporters can repatriate foreign exchange without having to convert such proceeds. The law of the land states that if funds are repatriated the conversion will happen through the local commercial banks by the first week of the following month after the date of repatriation (see Point 8 of CBSL FAQ on Gazette Extraordinary No. 2251/42, dated 28. 10. 2021). Only services sector exporters are authorised by law to repatriate proceeds without converting.

In the following account we will show that the arguments of the business elite to absolve themselves from their fraudulent conduct are only prevarications. Accordingly, we call upon the CBSL to undertake a detailed audit of its own procedures and the export sector dynamics and make arrangements to recover the lost foreign revenue.

Childish fables of Joint Apparel Association Forum (JAAF)

In a seemingly bold disclosure out of desperation under the weight of a collapsing economy, the CBSL Governor recently declared that apparel exporters repatriated only 14% of their export income while their value addition or residual income is around 55% of the gross revenue after meeting various foreign exchange obligations. To justify the gap of 41% non-repatriated export income, the JAAF claims that they paid the balance to local suppliers in foreign exchange, especially for petroleum purchases. Any sensible person would understand it is impossible for the garment factories to consume petroleum to the extent of 41% of their gross revenue. If their assertions were true, then out of Sri Lanka’s total petroleum expenditure of US$ 4.16 billion during the first 11 months of 2022 the garment exporters alone would have consumed 54% or US$ 2.24 billion worth of fuel, which is impossible.

Secondly, it is general knowledge that apparel exporters procure only a few inputs from local suppliers and the rest is all imported. Local suppliers’ inputs usually include knitted fabric, printing and packaging. They form part and parcel of the input cost of 45% from gross revenue. Therefore, even if all local inputs are procured using foreign currency, they need to be paid from 45% attributed to the input cost from gross revenue. Hence, export income after deducting the foreign exchange input costs and other foreign exchange obligations (which is called residual income) should be fully repatriated to prevent 55% value addition in the sector claimed by exporters becoming a ridiculous fallacy.

Garments constitute a technologically backward process resulting in low wages and physically destructive workday lengths and intensities for workers, in contrast to technologically progressive processes of producing inputs. Since the inception of garment manufacturing in Sri Lanka, businesses have failed to reinvest surpluses in producing inputs like yarn and machinery. On the contrary, they have largely siphoned away capital through trade mis-invoicing and destroyed what remains in the economy in conspicuous luxury.

Tea Exporters Association (TEA) fabricating facts on repatriation

Following JAAF’s misleading statement on non-repatriation, TEA also asserted a similarly disingenuous view. The CBSL Governor had underlined that the value addition ratio of the sector is 90% of the total output while the repatriation rate was only 23% from gross revenue. In response, the TEA claimed that they do not enjoy the luxury of keeping income outside the country as its costs constitute 75% of the gross revenue. This is a shameless distortion of facts by TEA.

In 2021 the unit production cost was Rs. 533.13 a kilo of tea whereas the average weighted export price was Rs. 920.76 (CBSL), as much as 72.7% above the cost of production. More importantly, the average weighted export price of tea shot up over 116% to around Rs. 1,990 a kilo in October 2022 from December 2021 (Sri Lanka Tea Board) due to the rupee depreciating over 80% and the increase in the world market price for tea. However, the unit production cost could increase no more than 20-30% given that the estates and exporters brutally suppressed wages that account for over 70-80% of the unit cost. Therefore, the collapse of the rupee, the increase in world market tea prices hand in hand with the suppression of wages multiplied the profits of estates and the franchised tea exporters in 2022, leading to the unprecedented boom in plantation stocks recently.

At current prices, it can be estimated that the unit production cost is only 32% of the average weighted export price of the sector, less than half of the 75% rate claimed by TEA. The export price is a staggering 210% above the unit production cost of the sector. In other words, the weighted average export price of tea is over three times its unit production cost in 2022! This enables them to retain a greater share of the export proceeds outside the country, contrary to what TEA wants us to believe and justifying the initial calculation of 23% repatriation rate in the sector by CBSL.

This means to say that suppression of wages in the export sector as a whole is the fundamental cause enabling the exporters to illegally retain incomes abroad. This in turn worsens the foreign exchange availability in the domestic financial system and hyper-inflation. We therefore demand the increase in export sector wages by the rate of currency depreciation.

Response of Masakorala and CBSL Governor on Illegal Capital Outflows

Instead of reinvesting in expanding and transforming the production structure, the economy’s surplus is stashed away through non-repatriation and trade mis-invoicing to the tune of over US$ 40 billion between 2009 to 2018 according to Global Financial Integrity, the widely cited Washington based think tank. Its report further notes that this figure is a gross underestimation of trade mis-invoicing in Sri Lanka given that it limited its analysis to trade based on Open Accounts and did not consider services and trade based on Letters of Credit. It is to be noted that the latter accounts for a large share of Sri Lanka’s total international trade.

Illicit capital outflows also led to collapsing tax revenue over the past few decades, which corresponds with proliferating BOI firms in mid-1990s (see graph below), the primary agents of capital flight through transfer pricing and trade mis-invoicing. Sri Lanka’s tax revenue as a share of the GDP averaged between 22% to 24% until the mid-1990s. It collapsed to 8.7% by 2022 primarily as a result of under-invoicing exports and imports, and over-invoicing imports made possible by zero percent import tax on inputs for BOI firms and the other sweeping tax holidays they enjoy. Even after imposing draconian taxes on people through 2023 budget, the government can only expect a 2.6% increase in the tax income to GDP ratio in 2023 to 11.3%. This modest increase in 2023 compared to the enormous collapse of the ratio over the years is also projected to be highly unrealistic. The government nor the CBSL, however, seem to have any intention of addressing corporate corruption leading to this colossal and catastrophic loss of tax revenue.

Source: CBSL

In this regard Rohan Masakorala, Director General of Sri Lanka Association for Manufacturers and Exporters of Rubber Products, states that no one can blame businesses for shifting capital out according to the law of the land. We thank Mr. Masakorala for admitting that businesses have shifted capital abroad and now it is up to Mr. Masakorala to specify the laws of the land that gave the right to transfer capital through trade mis-invoicing and transfer pricing.

The CBSL Governor Dr. Nandalal Weerasinghe stated that between 1994 and 2016 the law allowed businesses to stash their foreign exchange incomes out of the country (see his interview on 8 December 2022). What is the law that allowed businesses to illicitly transfer foreign exchange belonging to Sri Lanka and not generated by them, by means of fraudulent invoicing and transfer pricing?

In fact, it was the CBSL who warned us in 2006 in its own publication titled ‘Preventing Money Laundering and Combating the Financing of Terrorism’ that the country is suffering an outflow of funds through trade mis-invoicing. It states that “money launderers tend to use international trade to effect their laundering activities by the means of inaccurate pricing (mis-invoicing) of imports and exports to hide the transfer of funds. For example, over-invoicing of an import will permit the transfer of funds outside the country.” Even the Justice Minister Wijeyadasa Rajapakshe told the Parliament recently that US$ 53 billion was transferred out by exporters in the last 12 years.

In this light, we demand both the CBSL and the government to take immediate action to repatriate the illegally transferred funds and bring the perpetrators to justice. We demand the government to setup a Parliamentary Select committee with competent persons without conflict of interest to investigate the matter and recommend strong punitive and remedial action.

Demand for debt cancellation

When national savings and external borrowings are illicitly siphoned out of the economy, the capacity of a country and its people to survive and let alone prosper would soon end. However, both international law and U.S. domestic law hold that the burden of proof lies with the creditors when there is widespread evidence of chronic misuse of external borrowings. Creditors should reclaim the funds from those who are accused of misusing or embezzling it, and not from the people who suffered under their control. The legal doctrine of odious debt makes an analogous argument that sovereign debt incurred which does not benefit the people is odious and should not be transferable to a successor government. Applying this principle, Sri Lanka could declare that debts will be treated as illegitimate through an arbiter like the United Nations. Numerous African nations are already demanding the same in collaboration with the United Nations Conference on Trade and Development (UNCTAD) asserting that illicit capital flight through trade mis-invoicing and transfer pricing drained more capital from its region than it received through foreign debt and aid over the past decade.

The recently published statement signed by 182 eminent economists and academics around the world support this position on debt cancellation in Sri Lanka citing the impact of illicit capital flows through trade mis-invoicing and transfer pricing. They underline that illicit capital flight is estimated to be greater than Sri Lanka’s foreign debt during past 15 years. Instead, the government is pushing the cost of economic collapse solely onto the people by imposing unbearable indirect taxes, privatisation and slashing essential expenditures. This unjust and unsustainable status quo must end.

Swasthika Arulingam, President, Commercial and Industrial Workers’ Union, United Federation of Labour

Signed on behalf of:

Ceylon Bank Employees’ Union, Ceylon Estate Employees’ Union, Ceylon Federation of Labour, Ceylon Teachers’ Union, Dabindu Union, Engineers’ Services Professional Association, Families of the Disappeared (Human Rights Organisation), Federation of Media Workers’ Trade Union,Mass Movement for Social Justice, Movement for Land and Agricultural Reform, National Fisheries Solidarity Movement, National Trade Protection Council, North South Solidarity Group, Professionals’ Centre for People, Protect Union, Satahan Media, Sri Lanka All Telecommunication Employees’ Union, Stand Up Workers’ Union, Textiles Garments and Clothing Workers’ Union, United Fishermen’s and Fish Workers’ Congress, Young Lawyers’ Association

Sugath Kulathunga – Former Chairman of Sri Lanka Export Development Board, Prof. (Dr.) M. P.S. Magamage – Former Chairman of National Livestock Development Board, Gratien A. Peiris – Former Chairman of Sri Lanka State Engineering Corporation and Value Chain Expert, Kalpa Rajapaksha – Senior Lecturer in Economics and PhD Student, Amali Wedagedara – Political Economist and PhD Student, Dhanusha Pathirana – Economist

Sri Lanka: How not to deal with a debt crisis


In the 1920s and early 30s, John Maynard Keynes was embroiled in a controversy with the ‘austerians’ of his time, who believed that balancing the government budget, even in a time of economic volatility and decline and financial fragility, was necessary to restore ‘investor confidence’ and therefore provide stability. Keynes was horrified by the idea.

Zachary Carter’s brilliant biography notes that Keynes felt a package of government spending cuts and tax increases would be ‘both futile and disastrous’. It would be an affront to social justice to ask teachers and the unemployed to carry the burden of deflating a doomed currency, in the name of balanced budgets. Even worse would be imposing austerity on debtor countries, as American banks were then demanding of several European nations.

Keynes was concerned with more than just the lack of efficacy and adverse distributional effects of austerity. He worried that such measures would alienate working people, cause them to lose faith in their leaders and make them prey to right-wing demagogy and incitation to violence. His arguments were not heeded—and fascism in Europe followed. Deflation in Germany under Heinrich Brüning as chancellor left six million unemployed when Adolf Hitler assumed power in early 1933.

Nearly a century on—and after more than a hundred sovereign-debt crises—those in charge of global economic governance appear however to have learnt nothing. Those who do not learn from history are condemned to repeat it—and, sadly, the worst effects of their decisions are likely to be felt by others, not themselves.

Brutal means

Consider the approach being taken to the sovereign-debt crises which are now erupting in so many low- and middle-income countries. Effectively dealing with these requires timely, fair and considered action, designed to help economies grow out of debt rather than squeezing repayments through brutal economic means. Delays increase the size of the problem and add to human suffering.

Forcing austerity and ‘budget balance’ on countries already suffering from falling economic activity and employment merely exacerbates the decline and puts even greater pressure on already devastated people. Just as Keynes had foreseen in Europe in the 1930s, the resulting injustice and mass disaffection can have the most unpleasant, even deadly, political consequences.

Such potential fallout was recognised by ‘the international community’ when dealing with the massive sovereign-debt overhang faced by West Germany after the second world war (fascism having been defeated militarily at great cost). The major creditors of that country combined in 1951 to provide a package of debt relief, which should have offered a template for subsequent debt-management schemes. It involved outright cancellation of around half the debt, while limiting repayments on the remaining portion to 3 per cent of annual export earnings.

Forces beyond control

Contrast this with the treatment now being meted out to countries struggling with exploding debt burdens. For many repayment is difficult, if not impossible, because of forces beyond their control: the pandemic and its impact on their imports and exports; the price hikes in global food and fuel markets since the onset of the war in Ukraine; and the higher interest rates in the United States and the European Union, which have caused finance to flow back to those countries.

Over the previous decade, most low- and middle-income countries were encouraged to take on more loans, particularly via bond markets suddenly interested in more risky debt, because of persistently low interest rates in a world awash with liquidity. This was looked upon benignly by the International Monetary Fund and celebrated at the World Economic Forum (whose annual meeting starts today, at what it more soberly calls ‘a critical inflection point’ of multiple crises). For many countries, the trajectory was unsustainable from the start, but recent events have left even sovereigns deemed more ‘responsible’ facing repayment difficulties.

Indeed, it has been evident for at least three years that several countries face insolvency at existing levels of debt. Yet the international community, especially the G20, has been unacceptably slow in responding.

Kicking the can

The Debt Service Suspension Initiative of May 2020 only kicked the can down the road, postponing the inevitable reckoning. The Common Framework for Debt Treatments was set in motion the following November. It sought to involve both public and private creditors in debt restructuring while taking into account debtors’ capacity to pay and enabling them to sustain essential spending. But not a single country has yet benefited, despite several already being in default or tipping into it.

The common framework is limited to low-income countries, which is a major restriction. Worse, for too many debtor countries, the IMF continues to require moves to balance budgets or even produce surpluses as quickly as possible, in return for providing tiny doses of immediate balance-of-payments support, as the negotiations with Sri Lanka indicate. This approach has to change, as a joint statement I among more than 180 economists and analysts have signed points out.

In addition, for debt resolution the problem goes beyond bringing all official creditors to the table—as already in Zambia and Chad. Rather, the concern is with private creditors. They have generally refused to participate and mostly continue to demand full repayment, even after benefiting significantly from the higher returns derived from the higher risk premia such debt carries. Even among public creditors, the steadfast refusal of the international financial institutions to reduce their own debt is increasingly hard to justify.

Provisions for write-off

Meaningful debt resolution requires the active involvement of private creditors—which, if it remains voluntary, will simply not happen. Some of the action must shift to the legal and regulatory systems of New York and the City of London, where the vast bulk of international debt contracts are made. Regulatory changes in both jurisdictions could entitle sovereign debtors to treatment similar to that provided to private debtors, with provisions for debt write-off.

Without speedy resolution involving all parties, more debtor economies will face problems of not just illiquidity but insolvency. That will heighten inequality, instability and conflict within and between countries—in a script we really do not want to see play out again.

This is a joint publication by Social Europe and IPS-Journal

China’s economy is on a rebound

China’s economic data for the year 2022 has been released in Beijing on Tuesday. The striking part is that China’s GDP growth slowed down to 3 percent.

From an Indian perspective, it may seem momentarily that China’s economy is slowing while India’s expanded by nearly 7 percent (per World Bank predictions.) Can India catch up with China in a medium term scenario? 

This is where the devil lies in the fine print. The heart of the matter is that China’s GDP growth of 3 percent translates as a year-on-year expansion of its economy touching a whopping $18 trillion. 

To put matters in perspective, China has an economy that is five and a half times the size of India’s economy (GDP: $3.5 trillion). (Emphasis added.) 

Yet, this is being regarded as a lacklustre economic performance, attributed to headwinds stemming from a combination of adverse circumstances characteristic of 2022 — ranging from the coronavirus and geopolitical tensions to repeated US interest rate hikes and the waning overseas demand due to the world economy tiptoeing toward recession. 

The sporadic outbreaks of Covid in manufacturing bases including Shanghai and South China’s Guangdong Province disrupted production in local factories and logistics, which combined with a property market slump.

To be sure, “Zero-covid” has been a well-documented drag on the Chinese economy over the past year; factories suffered when workers were locked down, and consumers reined in their spending as they lost pay checks and jobs. 

Externally, the escalating geopolitical tensions due to the western sanctions against Russia drove up bulk commodity prices, subjecting China to imported inflation pressure. Second, the historical reality is that as the Chinese economy and the US economy grew closer and closer during the decades since 1980, the extent and depth of the Chinese economy affected by the US monetary policy also grew stronger and stronger.

That is to say, the US interest rates and the Chinese economy are inversely related, especially in import, export, and China-US exchange rate. 2022 witnessed extraordinary fluctuations in the US financial market, which was bad news for China

Nonetheless, China’s 3% GDP growth compares by far favourably with those of the US and Japan — “the peer competitors” — whose GDP grew by less than 2% (per IMF projections.) Analysts expect a much better performance in the year 2023, exceeding 5% in GDP growth. (In comparison, the World Bank estimates that global growth will slow from 2.9 percent in 2022 to 1.7 percent in 2023, and the US’ GDP is expected to increase by just about 0.5 percent in 2023, the weakest forecast in three decades.) 

This has geopolitical ramifications, as China is well-placed to make a far more significant contribution to global growth than any other major economic power, which would inevitably translate as increased prestige in the world community and create greater opportunity to leverage foreign policy objectives. 

China’s consumer-led rebound to buttress global growth implies that its vast market potential will be seen as a locomotive of growth by other economies, especially in the ASEAN region, Africa and Latin America. 

Contrary to doomsday predictions, China’s transition away from the “zero-Covid” policy has been relatively smooth. The new regime aims to cope with the Covid mutants that are highly contagious, but less potent and dangerous. In retrospect, hundreds of thousands of human lives were saved in China, unlike in India or America. 

Interestingly, the latest economic data from China also showed that notwithstanding the 3% growth rate last year, the country’s GDP per capita has stayed above the $12,000-mark, which is close to the high-income countries defined by the World Bank.

Equally, the Chinese stock markets remain bullish indicative of the optimism. In political terms, this sets the stage for China’s most important annual political gatherings ahead in March, which are expected to unleash the economy once more. 

What Indian analysts in their schadenfreude tend to overlook is that an attitude toward China predicated on that country’s misfortunes and setbacks is a road to nowhere. There are some profound conclusions to be drawn from the data on the Chinese economy. 

Clearly, with global economic growth likely to decline sharply and global inflation still hovering at high levels in 2023, the economies of major developed economies are likely to show stagflation. Suffice it to say that the European countries will be inclined to view the Chinese market as holding the key to an early economic recovery. Recasting the global supply chains by decoupling from China is going to be easier said than done.

Second, the US simply cannot compete with China anymore as a manufacturing country. In infrastructure, the gap is so patently wide. Ukraine has shown that the US lacks the capability to fight Russia and  needs a coalition. It is no different when it comes to China. 

Surely, the economic data on the Chinese economy will be taken very seriously in Washington. The US Treasury Secretary Janet Yellen was due to meet with Chinese Vice Premier (“economic czar”) Liu He in Zurich on Wednesday on the sidelines of the World Economic Forum in Davos with view to “expand communication” between the two largest economies in the world. 

According to Politico, Secretary of State Antony Blinken will visit Beijing on Feb. 5-6. Blinken’s talks will show whether the dialogue between President Biden and President Xi Jinping at Bali has led to more productive bilateral relations. A serious rapprochement seems  difficult to achieve after the US House of Representatives created a committee on strategic competition with China recently. 

However, both powers want to put the deterioration of relations on pause or at least keep it under control. They will try to avoid crises, although that is not guaranteed. Typically, it has been Washington who invariably initiated any deterioration of relations. 

Addressing the CSIS in Washington last week, Biden’s advisor on China, Kurt Campbell described the Bali summit meeting as “an effort to build a foundation for a new relationship with China.” He said 2023 will be the year “to build some guardrails,” although the dominant feature of US-China relationship will continue to be competitive. 

Campbell messaged that the US wants it to be “a productive, peaceful competition” that can be channelled for the betterment of life of the two peoples. 

Why are we confident about China’s economy this year?


China’s economy, the second largest in the world, has always been in the spotlight. Recently, the country has deployed its economic work for 2023, opening a new chapter for its economic development and filling us with confidence in China’s economy in the new year.

But where does this confidence come from?

Looking at the bigger picture, the 10 new prevention and control measures ushered in a new stage of China’s COVID-19 response. Although the pandemic has not yet come to an end, the optimized strategy will undoubtedly boost economic activity, and facilitate the flow of economic factors and commodities. Put simply, the optimized strategy has reinvigorated the economy. The roads are busier, the malls have more shoppers, and travel apps have seen an uptick in customers. The optimized COVID-19 strategy and updated economic policy have brought China’s economy into a new development stage.

In terms of specific economic measures, “expanding domestic demand” has become a top priority in achieving the goal of ensuring stable growth in 2023. Predictions for this year depict a bleak global economic outlook with sluggish external demand. In contrast with the Keynesian belief that “demand creates its own supply,” China emphasizes generating effective demand through high-quality supply, which means continuously innovating to create higher-level products. For example, despite the saturated cellphone market, the emergence of smartphones redefined cellphones, creating demand from 7 billion people for the new products. This represents the underlying logic behind China’s efforts to deepen supply-side structural reform.

According to a recent report from the World Bank, China contributed an average of 38.6% to global economic growth from 2013 to 2021, more than the G7 countries combined. Expanding domestic demand means further tapping the huge potential of China’s supersized market of 1.4 billion people. This will translate into a critical driving force to the economies of both China and the world.

In addition, developing the private sector is also a key priority. With private businesses, such as Huawei, Alibaba and ByteDance, accounting for a large proportion of China’s economy, the private sector has now become a major economic player in the country. Statistics show that in the first 11 months of 2022, the import and export volume of China’s private businesses amounted to 19.41 trillion yuan (about $2.82 trillion), or 50.6% of the country’s total. Private businesses have also demonstrated stronger vitality and resilience, especially in terms of the sustainable development of new forms of foreign trade.

Therefore, China is scaling up its support for the private sector, continuously urging equal treatment of private businesses and their state-owned counterparts, and helping micro-, small- and medium-sized enterprises to overcome difficulties posed by the pandemic. These supporting measures aim to promote the sound development of private businesses. Likewise, the thriving of private businesses will in return bolster the economy by creating more jobs, ensuring the continued growth of disposable incomes, and further expanding domestic demand and boosting consumption. As such, we are also confident about the growth of the private sector in 2023.

China’s economy has withstood multiple tests and challenges during the three years since the outbreak of the pandemic, and the year 2023 is bound to be a brand new journey in striving for economic growth. However, with the current policies, innovation capacity and various driving forces, we are confident that China’s economy will grow steadily, continue to act as an engine for the global economy and propel further growth.


From coal to renewables – lessons to learn from a total transformation


Since the end of 2020, Scorpio Bulkers has been gradually disposing of its dry bulk vessels. In the world of entertainment, this would have been classed an extreme makeover. Why did your company reinvent itself as Eneti?

There were several factors that led to this decision: the lower barriers to entry and standards of competition in the dry bulk market and, in 2018 and 2019, the pressure on the transportation of coal, especially from financial institutions in the United States. In parallel, amongst the various research and development projects we habitually appraise, we evaluated the fundamentals of the offshore wind turbine installation vessels and renewables market. This prompted us to redirect Scorpio Bulkers’ focus to more sustainable endeavours and dare to take the leap towards this growing market. Disposing of our dry bulk carriers was a natural first step fully aligned with the Group’s vision of embedding decarbonization efforts with the market’s solid opportunities. After we had started the process, the dry bulk market recovered, but for us there was no turning back, and we don’t regret our decision.

What were the biggest challenges you faced on this journey?

At Scorpio, we have always been “moxie” – agile but responsible. So we were mindful but unworried of this responsibility when entering a sector that was new to us. Our approach is to dig deep into details of any new venture to fully understand the environment into which we are stepping. This was also the case with the conception of Eneti. We were acutely aware of the challenges and therefore looked for partnerships and consultants in the areas where we were less experienced – this is where DNV came in.

What did the support from DNV look like?

Given DNV’s strong track record in this field, we were very pleased to ally and further strengthen our relationship. We particularly appreciated DNV’s ability to investigate non-standard issues that crop up all the time during the construction process for wind turbine installation vessels. Rules and regulations are often not clear or focused and open to interpretation for this complex and new type of vessel. It’s a fine balance to match what makes sense technically to meeting the regulatory requirements. And this is where it’s been very helpful to have such an experienced partner by our side. With the aim to boost operational knowledge, Eneti also employed experts and acquired the UK-based company Seajacks in 2021. Their existing assets and long-standing experience in the operation of wind turbine installation vessels established Eneti as one of the strongest players on the market and unique in having a NYSE-listed public vehicle fully dedicated to renewables.

Could you tell us more about Eneti’s current portfolio and what its project pipeline is?

Eneti acquired five existing wind turbine installation vessels through Seajacks. They operate in Northern Europe and Asia. However there is an expansion trend for the diameter of wind turbines which will challenge both the existing capability of the crane and the availability of space on deck. The business case was therefore building a vessel which will better cover these concerns, considering that supply and demand are extremely misbalanced at present. Currently, Eneti has two newbuilding projects at DSME in Korea. They are due to be delivered in 2024 and 2025 and we are confident that they will also be able to transport and install the turbines of the future. Scorpio Ship Management s.a.m. has been in charge of technical specification discussions and entrusted with the supervision of both newbuildings. Eneti Inc. is however as an autonomous entity capable of proceeding in the promising renewable segment with its own resources, including technical management and operation.

What makes the new vessels fit for the future?

Both are being built to the new GustoMSC NG-16000x design and will be capable of operating at depths of up to 65 metres and of installing wind turbines of up to 20 megawatts with diameters exceeding 300 metres. We have had many discussions with the designer on how to improve the operational capability of the vessels and on how to operate with reduced emissions. We want to build them as energy efficient as possible and ensure that they can comply with tightening environmental regulations. For example, the vessels will have DNV’s Ammonia Ready class notation. That being said, we want them to be as fuel flexible as possible – moxie! This means they could also be methanol ready, LNG ready or hydrogen ready. We have run studies on the storage capability and supply for almost all liquid gases (ammonia, methanol, LNG and hydrogen), and we have invested in a diesel generator which is able to be easily retrofitted to adapt to a new fuel.

What concrete emission reduction measures did you opt for?

To reduce emissions and boost energy efficiency, the cranes are fully electric, and all the major electrical consumers are fitted with variable-frequency drives. We have also introduced hybridization in the form of a powerful battery pack. In turn, we have reduced the power of the diesel engine on board and will instead use the battery for covering peak power requirements. The battery will in general be used as spinning reserve for ensuring that the diesel engines will always run at the most efficient regime, avoiding black smoke during sudden load demand and eliminating the problem of blackouts. We plan to recover the energy into the battery system during operations such as jacking down. Idling time and hotel operations can also be battery powered for a limited time rather than by the diesel engine. The vessels will be ready for cold ironing while in port but we also envisage them using cold ironing during operations once solutions are made available. NOx emissions will be 50% lower than the latest IMO Tier III requirements applicable to this type of vessel.

How is Eneti adapting to an evolving offshore wind market?

Investing in long-term assets that can install the turbine of the future has been Eneti’s primary duty. There is strong competition amongst turbine producers to increase industrial efficiency by size. Similar to other industrial sectors, the competition on size will settle down once certain technical, economic or regulatory limits are achieved. With the possibility of reaching 215 metres’ hook height from LAT, 2,600 tons of crane SWL and a variable load in excess of 12,500 tons, we are confident of being able to serve the offshore wind industry of the future, ensuring a fast return on investment and years of high profitability. Amongst Eneti’s existing vessels, SEAJACKS SCYLLA – a Gusto-design NG 14000 – is well placed to cover present and future wind turbine installation demand. The other four vessels are continuing to install wind turbines along with being employed in Operation and Maintenance, a sector that is as promising as that of new turbine installation.

Can you give us a short future outlook?

There are also possibilities to upgrade the length of the boom in order to cover future market needs or eliminate older assets and continue to invest in newbuildings. Eneti is currently exploring all these options. Overall, Eneti’s goal is to experience the same success as Scorpio Tankers while being fully dedicated to renewables. The expected increase in demand of renewable energy will stabilize this market and counteract some of the global energy and political instability. Eneti is ideally positioned to tackle the supply and demand misbalance in the sector and the increased need for zero-carbon energy. Our ambition is to further increase our presence in this promising market.

Source: DNV

Role of Diplomacy in Enhancing Exports


As the Government seeks to re-engage with the global economy in order to enhance exports and encourage export-oriented foreign direct investment, new strategies formulated collectively by all stakeholders are needed to complement these efforts, Foreign Secretary AruniWijewardane stated recently.

Speaking at the Members’ Forum 2022 organised by the Ceylon Chamber of Commerce and the Chamber’s 19 Business Councils, Foreign Secretary Wijewardane said that ‘access to regional and global supply chains and re-engagement with the global economy to enhance exports and encourage export-oriented foreign direct investment is an important element of the government’s economic program to revitalize the domestic economy. She stressed the need to utilize Sri Lanka’s diplomatic outreach, expanding measures to enhance economic growth and generate revenue and build foreign reserves through the diplomatic network.  

The Members’ Forum 2022 offered an exclusive opportunity to expand diplomatic relations, enabling Members of the Ceylon Chamber to interact and network with Ambassadors, High Commissioners, and senior Government officials attached to trade, investment and tourism related institutions in Sri Lanka.

Chairman of the Ceylon Chamber of Commerce, Mr. Vish Govindasamy asked the diplomatic community and development partners in Sri Lanka to assist in ‘promoting economic relations and people-to-people contacts between Sri Lanka and the countries you are representing with a view to increase trade and investment volumes and tourist arrivals.

The Gold sponsors of the Members Forum 2022 were 99X, Lanka IOC and The Chartered Institute of IT, while South Asia Gateway Terminals and Bileeta Private Ltd. were the respective Silver and Bronze sponsors. Strategic sponsors were Astron Ltd, Ceyline Shipping, Capital Maharaja Organisation, Elpitiya Plantations, Macksons Paints Lanka Private Limited, and Salota International.

IMF gearing up to work closely with China

Chinese Premier Li Keqiang on Thursday met with International Monetary Fund (IMF) Managing Director Kristalina Georgieva in Huangshan, east China’s Anhui Province, pledging to strengthen macro-policy coordination.

Noting that China has been a participant in, upholder of and contributor to global economic governance, Li said China has kept a sound cooperative relationship with the IMF for many years.

He said China will continue to strengthen macro-policy coordination with all parties, including the IMF, to tackle debt, climate change and other global challenges, and make greater contributions to promoting global economic recovery and sustainable development.

China will implement the G20’s Debt Service Suspension Initiative in all respects, Li said, adding that China will work with the relevant G20 members to formulate and participate in a fair and equitable debt-restructuring plan.

Pointing out that reform and opening up is an important experience of China in attaining its tremendous development achievement, Li said China will stay committed to its fundamental national policy of reform and opening up, keep to the path of peaceful development, and continue to pursue opening up at a high level.

Li said China will advance the opening up of its service sector on the basis of the full opening of its manufacturing sector.

He added that China will keep the RMB exchange rate generally stable at an adaptive and equilibrium level, which will be conducive to maintaining the stability of international industrial and supply chains.

Georgieva, who is in China for the seventh “1+6” Roundtable, said that the IMF places great importance on relations with China and commends the Chinese side for recalibrating its COVID response policies, which she believes will help boost economic growth.

The IMF is ready to work closely with China to promote stronger macro-policy coordination among countries, prevent fragmentation of the world economy, and jointly respond to common challenges such as climate change and debt, Georgieva added.

Source(s): Xinhua News Agency

India: Chemical Industry in Tamil Nadu at Crossroads

When good investment opportunities in chemical industry exist which are known in a region and which are yet to be exploited, it can be said that the chemical industry in the region is at the cross roads. However, when there are good investment opportunities in chemical industry but which are ignored and focus shifted to some other sector, it can be said that the scenario amount to poor strategy.

Tamil Nadu government has now fixed a target for achieving one trillion dollar economy in the state by 2030. This is a bold and forward looking initiative and certainly this target is achievable, even though the year 2030 is only seven years away.

With the target of achieving one trillion dollar size economy, it is necessary to give due role and importance for the growth of the chemical industry, since several chemical products are feed inputs for several other industrial sector such as automobile, electronics, textile and so on. Growth of such chemical industry can promote chain of developments in number of other sector.

In Tamil Nadu, the ground reality is that very few major chemical projects have been set up in the state in the last several years. On the other hand, well established and large chemical and research projects have been closed down or have been given up.

There are number of such cases. A few examples are given below :

Sterlite Copper:

Sterlite Copper project in Tuticorin which was working for several years with good capacity utilization has now been closed down due to counter productive environmental activism, though several investigative studies on the functioning of the project by credible agencies have asserted that Sterlite Copper Project has not been causing pollution in Tuticorin region. The Green Tribunal have also ruled in favour of Sterlite Copper. Subsequent to the closure, the employees of Sterlite Copper and section of general public in Tuticorin region have appealed to Government of Tamil Nadu repeatedly to restart the Sterlite Copper plant. Sadly, Tamil Nadu government is not responding to such appeals.

Due to the closure of Sterlite Copper , India has now become an importer of copper , while India was exporting copper when Sterlite Copper unit was in operation.

Copper is a vital metal needed in several sector and international price of copper has now skyrocketed. The closure of Sterlite Copper in Tamil Nadu has really brought a bad name to Tamil Nadu that it is not an investor friendly state for chemical industry.

Natural gas pipeline project from Kochi

The proposed natural gas pipeline project from Kochi to Tamil Nadu has also been shelved now for no valid reasons , as some poorly informed protestors carried out agitation against the pipeline project without understanding it’s significance. The natural gas pipeline from Kochi to Tamil Nadu could have resulted in an investment of Rs.15000 crore, which is now not to be.

LNG terminal at Enoore :

LNG terminal has been commissioned at Ennore with capacity of 5 million tonne per annum. However, the capacity of the LNG terminal is very much under utilized , as downstream projects based on LNG have not been adequately set up in Tamil Nadu to utilize the natural gas , which only indicates the lack of forward planning. Commissioning the LNG terminal without facilities for utilizing the LNG fully is similar to the act of putting the cart before the horse.

Titanium dioxide project in Tuticorin

Tamil Nadu has large deposit of ilmenite ore in Tuticorin region and the earlier proposal to set up a large titanium dioxide project in Tuticorin based on ilmenite ore by Tata group had to be shelved, due to counter productive agitation and protest.

Presently, India imports more than 2 lakh tonne of titanium dioxide every year, whereas the raw material for production of tTitanium dioxide namely ilmenite ore deposit is adequately available in the state.

Tapioca based products :

Around 80% of the tapioca cultivation in India is carried out in Tamil Nadu. Tapioca provides excellent investment opportunities , for production of derivative products such as tapioca starch and several starch based products such as L-Lysine, Mannitol ,Citric acid and others , which are not presently produced in India and imported to meet the Indian requirement. There is potential investment opportunity of around Rs.1000 crores for setting up tapioca based complex in the state, which has not received attention so far.

Neutrino project :

Neutrino project in Theni district in Tamil Nadu has been hanging in balance for several years now, as protestors are blocking the project.

This is a research project of great importance and several credible agencies and scientific research institutions have clearly said that there would be no particular environmental issue due to the operation of neutrino project. One of the knowledgeable persons who wanted the neutrino project to be set up at the earliest was Dr. Abdul Kalam.

But, all these views have fallen on deaf years.

Crude oil exploration project :

Crude oil exploration project in delta region has also been blocked due to protests.

While there are several lakhs of acres of agricultural land in delta region, a few thousand acres allotted for crude oil exploration would not have made any difference to the economy of the delta region, particularly when the interests of the affected persons would be suitably taken care of by the government.

But , this project has also been blocked, ignoring the findings of the cost benefit analysis.

Magnesite project:

Tamil Nadu has large deposits of magnesite ore in Salem and nearby region, which constitutes one of the high deposits in India. This industry now is in stagnation stage.

By processing the magnesite ore, dead burnt magnesite (DBM) was produced earlier to meet the requirement of refractory industry all over India. As DBM production has considerably tapered now , India has to import large quantity of DBM. This has happened , since no attention has been paid to set up magnesite ore beneficiation plants in the state.

Nagarjuna Petrochemical project:

Nagarjuna Petrochemical complex in Cuddalore, which is a large project became a non starter and went into insolvency. Tamil Nadu Industrial Development Corporation has an equity share in the project , however small it may be. Kolkata based group has purchased the unit in auction. It remains to be seen how and when this project would fructify , as revamping of the project is still in preliminary stage.

PCPIR Project

Government of India proposed to implement Petroleum, Chemical and Petrochemical Investment Regions (PCPIR) in Cuddalore and Nagapattinam in Tamil Nadu. However, this project scheme has been shelved due to agitation and protest against the project by some environmental activists, who could not appreciate the significant industrial and economic growth that would happen in the region , which would far outweigh any issue in this scheme.

Salt project:

Tamil Nadu is the large salt producing region in the country after Gujarat. This traditional industry in Tamil Nadu has not been modernised to improve the quality of the salt and optimise the process parameters and penetrate the export market.

This task has been carried out remarkably well in Gujarat state.

On the other hand, some of the land area where salt was cultivated in Tamil Nadu has been diverted to some infra structure project.

Suspension of production in some units:

Several prospective chemical units have been closed down in the past years in medium and small scale sector. Such projects include South India Viscose in Mettupalayam , Indag Products in Cuddalore, Trichy Distilleries and Chemicals in Trichy, Tamil Nadu Explosives in Vellore, several fire cracker units in Sivakasi region and so on.

The products produced by all the above units have high level of relevance to the country’s needs and they have been left high and dry for whatever reasons.

Where do Tamil Nadu chemical industries go from here?

One large project that has been announced recently is the petroleum refinery project in Nagapattinam. One only hopes that this important project would be commissioned as per schedule, though the work is in the preliminary stage at present.

There are also two or three medium scale projects announced such as hydrogen peroxide unit and a few expansions by some units to increase the capacity marginally.

The status of traditional industries such as leather and textile processing remain largely at the same level without much of significant modernization. The pharma units in Tamil Nadu are also largely stagnating and whatever proposals made are a few and far between.

While focused industrial parks such as for medicinal herbs have been announced, the progress appears to be slow and disappointing.

The most important chemical industry centres in Tamil Nadu are located in Manali, Cuddalore, Ranipet and Tuticorin. New projects are not being allowed in Ranipet, due to some environmental hazard caused in the area several years back by a basic chrome sulphate project. This issue of ground water contamination is yet to be sorted out by initiating necessary measures.

Other than a very few chemical projects mentioned above, with no other massive chemical projecst being proposed in Tamil Nadu now, one can say that Tamil Nadu is a net loser due to lack of focus for setting up chemical projects and the negative and counter productive attitude of some environmental and political groups against chemical projects in the state.

Of course, there have been good progress in other sectors such as automobile, auto component, auto tyres, electronic products and information technology. However, the lack of progress in chemical industry is conspicuous.

While periodical meetings take place in Tamil Nadu with participation of ministers , bureaucrats and top industrialists to discuss the prospects of chemical industries in the state, most of such meetings and conferences really end up as talk show , which is unfortunate.

Chemical Industries in Tamil Nadu have as much potentials as Chemical industries in Gujarat due to the availability of coastal belt, trained manpower and other advantages. Tamil Nadu stands far behind Gujarat in the development of Chemical industries. Obviously, the chemical project promoters including the promotional organisations in Tamil Nadu have a lot to learn from Gujarat.

CCC Proposals on (SOE) Reform

Statement issued by the Colombo Chamber of Commerce (CCC)

The presence of State Owned Enterprises (SOEs) in strategic sectors of Sri Lanka is proof of the significant value creation it can generate through spillover effects. The societal returns too are greater as it links to our day-to-day activities such as the water we drink, the electricity we use, or even the bus or train we ride. Therefore, addressing the suboptimal performances of SOEs by inculcating a performance oriented culture whilst ensuring transparency and accountability are warranted at this difficult juncture of trying to recover from economic turmoil.

While the Government may need to operate some SOEs due to reasons such as providing essential goods and services at an affordable price, there are large number of SOEs which are purely engaged in commercial activities that can function more efficiently and effectively under private sector ownership. Hence, we recommend that SOEs falling into the latter category be divested either fully or partially through a well-structured, open and transparent process.

In this regard, the Public Sector Reform Steering Committee of the Ceylon Chamber of Commerce, through its Sub Committee on SOE Reform recently presented a set of proposals to the policy makers on SOE reform. The proposals are twofold in which the first section of the document suggests a right model to adopt for the SOE restructuring agency (announced in the Interim National Budget for 2022) in order to provide the agency with the authority and power to carry out the required SOE Reforms. The second part of the document focuses on a framework for practical implementation of SOE reforms after careful analysis of the role played by each SOE.  

1)     Model for the SOE Reform Agency

The objectives of the SOE Reform Agency should be to;

  • To separate the state’s ownership functions from its policy-making and regulatory functions in order to help avoid or minimise potential conflicts of interest.
  • To minimize the scope for political interference and bring greater professionalism to SOEs.
  • To promote greater coherence and consistency in applying corporate governance standards and performance management systems across all SOEs.

It is imperative to ensure that the SOE agency would not be relegated to play a passive role with little authority over the SOEs. It should be able to collaborate with line ministries and other related agencies (including the Public Enterprise Department), and gather information related to SOEs. It should also be shielded from short-sighted political pressures and government interferences in operational decisions. Therefore, it should have the freedom and authority to carry out the reform process without any restrictions.

  1. 1 Holding Company

The ideal scenario for the SOE agency would be to have a holding company established under the Companies Act No 7 of 2007 and bring all the SOEs under the control of the holding company. So that as the parent company, the holding company will have the authority and power to control entities directly under it. A company-type structure will also have a separate legal identity, their own governance bodies and will be exempt from cumbersome government polices relating to remuneration policies and procurement processes.

However, in the context of Sri Lanka, there are 36 SOEs that are governed by the ‘Administer Part II’ of the Finance Act No 38 of 1971 and 86 SOEs established under the Companies Act No 7 of 2007[i]. Out of the SOEs established under the Companies Act, about 44% of the SOEs are not owned by the treasury (the majority stake is not held by the treasury) and most SOEs are also gazetted under different line ministries. According to the Gazette Extraordinary No 2289/43 published on 22 July, 2022 and amendments thereof, these line ministries have a broad spectrum of powers and functions over the SOEs and this is detrimental for the SOEs performance and driving reforms. 

A critical goal of the SOE agency is to separate the state’s ownership functions from its policy-making and regulatory functions to minimize the conflicts of interest. The SOE agency should be the specialised entity that serves as the shareholder representative with oversight responsibility for all SOEs. It should be responsible for exercising all ownership functions on behalf of the state as the owner, while the line ministry should only be responsible for policy making in relation to the sectors in which SOEs operate. This is a model practiced across many countries.

Therefore, we recommend that all SOEs should move away from this complicated dual ownership model in which line ministries and other entities have ownership responsibilities, and to move to a centralised ownership model where all the SOEs are under the holding company. In this regard, as a first step, we recommend to gazette all the SOEs under the Ministry of Finance (MoF).

After the SOEs are brought under the MoF then the conversion of the 36 corporations into companies should be looked at. This can be easily carried out with the Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act, No 23 of 1987[ii].

  1. 2 Interim Arrangement

If there is undue delay in setting up the holding company structure then in order to expedite the reform process, an alternative model can be looked at. Upon examining the experience of various SOE agencies Sri Lanka has had over the past couple of decades, such as Strategic Enterprise Management Agency (SEMA) and State Resources Management Corporation Ltd (SRMC), we recommend that this alternative model in the interim period, be an agency established by an Act of Parliament similar to the Public Enterprise Reform Commission (PERC), which had many successes including the divestment of Sri Lanka Telecom, Distilleries Corporation, Cement Corporation, Ceylon Oxygen, and Orient Lanka, amongst others. Pending legislative enactment, it can operate as a Unit under the Ministry of Finance.

However, this will only be a sunset agency until all the SOEs are brought under the Holding Company. Once all the SOEs are under the holding company, the agency under the Act of Parliament will cease its existence. This agency established by the Act of Parliament can also drive the first round of divestments and this can be taken over by the Holding Company later on when the agency ceases to operate after it has completed the task of bringing all SOEs under one umbrella.

  1. 3 Appointments to SOE Boards

In addition to bringing all the SOEs under one umbrella and moving away from the dual ownership model, competent boards of directors for all SOEs should be appointed through a robust and transparent mechanism. This would further help SOEs to operate at greater arm’s length and limit political interference, since, a board bears the ultimate responsibility for the stewardship and performance of the SOE, and not a line a ministry or any other supervisory body. In this regard, its composition and functioning have a significant impact on the governance of the SOE and thereby on its operational and financial performance.

We propose a similar mechanism to what is available in Malaysia where the SOE agency carries out the appointment process of SOE boards. Here, the nomination committees of listed SOEs in Malaysia identifies potential board candidates in conjunction with Khazanah (the holding company) and others. It prepares the short list for approval by the board, and then submits the approved list to Khazanah for appointment.

After the initial boards are appointed to the SOEs by the SOE agency/holding company as applicable, a system of rotation can also be introduced so that the board continuity is maintained with a couple of directors retiring each year and being available for re-election or replacement. No director should be permitted to serve more than two consecutive terms of office.

As the Board of Directors of the Holding Company will have significant power and influence over the appointment of boards to SOEs under it, there must be a transparent and independent process to appoint this Board, to ensure those with high standing and no apparent conflicts of interest are selected.

  1. 4 Internal Structure

Finally, we propose that the SOE agency operates under the Ministry of Finance (MoF). Countries such as Singapore, Malaysia, India and UK too have their SOE agency under the MoF. The agency will have three main operational departments, namely; the Divestment Unit, Performance Management Unit and Restructuring Unit. These units will be supported by other service departments such as Legal, Communications and Finance.

2)     Framework for Practical Implementation of SOE Reform

As a first step in identifying SOEs for divestment, the subcommittee on SOE Reforms developed a framework to understand if the SOE should remain under government ownership or not. The framework followed is given below.

  1. Whether it provides an essential good or service
  2. Whether Private sector is capable of delivering it
  3. Whether sufficient competition is there to ensure appropriate quality and pricing

In this regard, 19 SOEs were identified as entities that require government ownership, 127 SOEs were identified as SOEs that do not require government ownership and 4 entities that require decoupling of regulatory and operational activities after which some parts can be spun off and considered for divestment. A further 10 SOEs were identified as those requiring more in-depth analysis using special expertise to restructure or liberalise.

Next, the SOEs that were identified for divestment (SOEs that do not require government ownership), were prioritised under immediate, medium and long term. The framework for segmentation was developed with four metrics. These four are;

  1. Impact on Budget         
  2. Absence of Controversy            
  3. Ease of Implementation            
  4. Ability to attract Global Players            

When an entity scored high for the above metrics, it received a score of 3, medium received a score of 2 and low received a score of 1. The prioritisation under different phases was done according to the score each SOE obtained. When an SOE received a score of 8 or above it was placed under the Immediate Divestment category and scores between 5 and 7 were placed under Medium Term Divestment category.

The results obtained relayed 108 entities for immediate to medium term divestment and 19 entities for liquidation. This is in addition to the 19 entities that were identified for government ownership, 4 entities for decoupling and 10 entities which require specialised expertise to divest. 

The liquidation of the SOEs identified in that category can be carried out immediately without bringing them under the SOE agency or the holding company. Other entities will fall under the following divisions with the assigned mandate given below.

Table 01: Summary of Department for Each SOE Reform Category. Referencing the Holding Company (1.1 above) / Interim Agency (1.2) above.

Category TypeProposed ActionDepartment in Charge
SOEs under Immediate to Medium Term DivestmentDivestment and Performance ManagementDivestment and Performance Management Units of SOE Agency  
Entities that require Decoupling Regulatory and Operational Activities Restructuring and Performance Management Unit of SOE Agency  
SOEs that will be under Government OwnershipAdvising and providing guidelines for restructuring  Restructuring and Performance Management Units of SOE Agency  
SOEs that require Special Expertise to Restructure or Liberalise   Restructuring and Performance Management Units of SOE Agency  

Therefore, we believe by carrying out the above proposed model for the SOE restructuring agency, holding company and proposed framework to carry out SOE reforms, it can help transformation of existing SOEs from fiscal burdens and into value creators so that SOEs can be an impetus for Sri Lanka’s growth and development, rather than serving as stumbling blocks.

The full submission can be accessed via SOE Reforms Submission Final 11Nov.pdf

[i] Based on the SOEs identified for divestment (excluding entities for liquidation and government ownership)


1 3 4 5 6 7 9