Amid economic crisis, Sri Lanka might come to standstill without warning: Wijewardena tells WION

In an exclusive interview with WION, the former deputy governor of the Central Bank of Sri Lanka, WA Wijewardena talked about the economic crisis in the country.

In the latest development, Sri Lanka closed schools and halted non-essential government services on Monday (June 20), starting a two-week shutdown to conserve fast-depleting fuel reserves.

Also, an International Monetary Fund (IMF) team began bailout talks in Sri Lanka. But, Wijewardena said that there are fears that we are moving towards a situation where Sri Lanka or systems in the nation will come to a standstill without any warning.

WION:Dr Wijewardena, the economic situation of Sri Lanka is very bleak, even as of right now given that the fuel crisis has now raged to new lows with motorists camping out for days with the hope of obtaining even a little bit of fuel. What are your comments on this?

Wijewardena-This is not something unexpected because when Sri Lanka lost all reserves, and now Sri Lanka cannot finance the fuel imports unless some friendly country would come to its rescue, a country like India. We had an Indian credit line under which we were able to import that has fully exhausted now.

So, unless India would like to extend another credit line to Sri Lanka, Sri Lanka will have to manage whatever is available in its stocks. That's why there's an acute shortage of fuel, all types of fuels- petrol, diesel. We don't have it now, so we are moving towards a situation where Sri Lanka or systems in Sri Lanka will come to a standstill. Now without any warning, one day - the hospital system, educational system, public service, transport system, banking system, agriculture, industry, and exports, everything will come to a standstill without any warning and that is the fear that we are having in Sri Lanka today.

WION:A lot of people ask or focus their attention on IMF discussions that kicked off today with the PM. It's a 10-member delegation and what can we sort of expect in the coming few weeks knowing that high focus and finalising the agreement with the IMF?

Wijewardena:It is actually a good sign that the IMF came to Sri Lanka to start negotiations with the political authorities. Earlier the negotiations were taken at the technical level with the staff of the central bank and staff of the IMF. Now they have moved a little further forward and they are going to have discussions with the political authorities and in this case, the minister of finance and PM Ranil, they are meeting him. They will be meeting President and all the key ministers. So, it would be a very encouraging sight for Sri Lanka to have this mission field, Sri Lanka, by IMF but it will not help Sri Lanka immediately. The main reason not the preconditions for the support for Sri Lanka from IMF is the completion of the debt restructuring programme. It takes time because they have come with certain demands in the debt restructuring programme. One demand is that both China and India are not in the Paris club under which Sri Lanka will have to negotiate with all bilateral and multilateral credit to Sri Lanka. Then we have the London cup under which Sri Lanka will have to negotiate with the international holders, so both will have to proceed with both India and China on both. So, if Sri Lanka would give certain preference to China, all the ISB holders will demand that they should also be given the same treatment. Here we have come across very pertinent MP demand and unless this particular debt restructuring programme is under the IMF credit to Sri Lanka will be not given to us. This is where we have the problem right now. So, in my view, the debt restructuring might take a longer time period for which they need a stable government because the creditors will point out that there should be a stable government and whatever the agreement that they would agree with Sri Lanka, it should be taken by any government that would come to power in the future. It is very unlikely right now because of the political instability and failure of both Gotabaya Rajapaksa and Ranil to form an over-party government in Sri Lanka. All other parties have not during the all-party government ministers have been appointed by just looking at some people of the parties which should not satisfy the agenda. As a result, the creditors will insist that for them to come to an agreement that the government of Sri Lanka, there should be a stable government which should be supported by all the political parties there. This is one of the demands that we are facing today and probably this may be the leading matter to be discussed in the IMF mission which is in Colombo now.

WION:How successful do you think, Sri Lanka will be in fulfilling these parameters and these requirements that are being set down by the IMF?

Wijewardena:These are difficult things but of course not impossible. If we have the will to do that and of course, both president Gotabaya Rajapaksa and PM Ranil will have to take the position parties into confidence and get their support. So, it is actually a kind of a political mantuary than an economic manurey. So, if they are successful in doing that, probably we will be able to support maybe in the first quat of next year but not early than that. So, our problem is how to survive the remaining 6–9-month time period without any foreign exchange available in the country. So as a result, the country's situation would become worse day by day and as I mentioned earlier, there is a likelihood that we might come to a standstill without any warning.

WION:PM Wickramasinghe was seen saying that it's only this top situation that the country is in right now that will only last for a maximum of 2-3 weeks, but according to you Dr Wijewardena, it pretty much seems that the entire year is in limbo in terms of financing the country?

Wijewardena:Well if we look at the present situation in Sri Lanka, we have a massive gap in our balance of payments, which means, the foreign exchange is pretty much lower than the outflow of foreign exchange. Even with the debt restructuring, the Sri Lanka minister of finance announced that they would not repay any of the debts in the next time period, even with that, there's a massive gap in the balance of payments. During the first four months, it was 2.5 billion US Dollars. During the balance plot, it is likely that the balance of payments would be more than 8 billion US Dollars. So without this huge gap to be filled, I don't think PM Ranil would be able to complete these tasks within the 2-3 weeks time period because what happened was when he was sworn in as the PM, he promised to the nation that he will be able to bring about 5 billion US Dollars immediately to Sri Lanka and these dollars are to be received by the country even after one month. Unless he's able to get support from some source, to fill the gap that is there in the payment, it will not be over within the 2-3 weeks time period as he has hoped and of course, it will take longer than that and we guess that it will be mostly 6-9 months' time period.

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