Sugath Kulatunga

The Government is due to have discussions with the IMF team which is now in the Island and later with the IMF management in Washington. This note is to emphasise that Sri Lanka is bound only by the Letter of Intent signed by the President and the Governor of the Central Bank. It sums up all that the GOSL has agreed with the IMF. There is no doubt it was impelled by the IMF Staff. Following are the relevant articles in the Letter of Intent where GOSL has agreed with the IMF but where the last regime has gone beyond the Agreement.

6. To achieve the needed fiscal consolidation and to realize a primary fiscal surplus of 0.8 percent of GDP by 2024, we will revamp the VAT system.

In particular, we will abolish the vast majority of exemptions. In parallel, we will take measures to

significantly speed up valid VAT refunds and abolish the Simplified VAT (SVAT) system.

(iv) raised the standard VAT rate from 12 to 15 percent, removed a selected list of VAT

exemptions, and lowered the VAT registration threshold to Rs 80 million.

( Remark- VAT rate was raised to 18 percent from 1 January 2024)

13. Structural reforms are needed to strengthen the governance of SOEs and make them financially viable. To strengthen the governance of SOEs and enhance their financial transparency, we will:

• clarify the mandates of key SOEs through Statements of Corporate Intent and hold their management accountable for delivering satisfactory results informed by key performance indicators;
• (ii) review the framework for selecting SOE board members to ensure that they are qualified and independent; and (iii) ensure that all 52 major SOEs publish their audited financial statements, which could be accessed on a dedicated website. For 2021, 33 SOEs have so far published audited financial statements for 2021. We will ensure that the remaining 19 major SOEs will also publish audited financial statements for 2021 and that audited financial statements for 2022 will be published by end-June 2023.”
• ( Remark : There was no agreement with the IMF to privatise SOEs)

21. We will phase out the administrative measures imposed to support the balance of

payments, including those introduced on an emergency basis, once conditions allow. These

measures include import restrictions, exchange restrictions, multiple currency practices (MCPs), and

capital flow management (CFM) measures.

(Remarks: Reference foot note 36 of the main CFM measures introduced or tightened in 2020-2022 and currently in force include: (i) a repatriation requirement for exports of goods and services; (ii) a surrender requirement for exporters on proceeds from exports of goods; (iii) a surrender requirement for banks on purchases of export proceeds; (iv) a surrender requirement for banks on purchases of inward worker remittances; (v) suspension of outward remittances on capital transactions; (vi) restrictions on purchases of Sri Lankan ISBs by local banks”.

It is incomprehensible why the IMF forced these conditions on the Sri Lanka Government and why the government agreed to them. One cannot understand the rationale behind the acceptance of these iniquitous and pro racketeer conditions and the reluctance to reveal them.

Foreign Exchange is a national asset and does not belong as a matter of right to exporters. The textiles and garments export in 2021, which earned an export revenue of USD 5.435 billion, consumed roughly USD 3 billion worth on import of raw material. If one adds the consumption by the sector of the value of investment goods to this figure the total consumption of foreign exchange by the Textile and Garments sector would be around 4 billion USD which is 74 % of its export value. The major component of the balance is the contribution by the local workers.

This scam was the focus of the debate in Parliament on 23.8.23 where Dr. Wijeyadasa Rajapakshe repeated that according to a Global Integrity Report during the last 22 years export proceeds that should have been repatriated back to the country but not sent back was USD 53.5 billion.

A think tank of the Peradeniya University estimated the country was deprived of a staggering USD 6.8 billion in 2022 alone.)

26.  We are fully committed to trade liberalization, which is critical for attracting investment and

boosting productivity growth. In this regard, we will revisit the 5-year plan for rationalizing

remaining para-tariffs developed under the 2016-20 EFF arrangement, aimed at removing an

important impediment for foreign investment.

( Remarks: the Term Trade liberalization is a euphemism for import liberalization which is a primary objective of the IMF which has to be resisted.)