Bilateral creditors must give the necessary assurances for the IMF program to move forward, with India being the first one. Thanking India, the Sri Lankan foreign minister in an exclusive sit-down interview said, “there was a stalemate but for a long period of time and then India came forward and gave the assurances the way IMF wanted. And Paris Club followed”. Although China had also given some assurances, they were not compatible with the IMF’s requirements, the visiting minister pointed out that Beijing has “its own concerns”. The minister called the India-Sri Lanka relationship “one of the most important and multi-pronged relationships for Sri Lanka” even as he explained how both sides are working on trading in national currencies that will particularly help Indian tourists. He also spoke about his country’s ties with China, US and Japan.
Watch | Sri Lanka’s FM Ali Sabry thanks India, says ‘It understood Lanka’s debt & gave financial assurances’
WION: My first question to you is about the ongoing economic crisis in your country. Can you give an update on it?
Ali Sabry: Yes, Sri Lanka went through an unprecedented economic crisis last year, we have seen that. There was so much publicity all over the world, but compared to what it used to be last May, last March, May, and July, you would see that people were on the street people. They had a fuel crisis. There was a potential place of violence because people are frustrated. And then even if you were there, in queues for gas for one month, you will not get it. There were food shortages. And there were so many issues at that time, and the rupee was totally out of control. People were not sending their money through the proper channels. And tourism was also distracted, but nine months down the line right now, especially after the President had taken over, things had settled down to a great extent.
The tourists are back and that’s one of the low-hanging fruits. We have seen about six months of month-to-month appreciation of tourists coming into the country and we could see that more Sri Lankans are sending their funds through the normal channels. Rupee had stabilised to a great extent. In fact, that appreciated about 78 per cent during the last week or so. Almost all those queues have evaporated and so there is a bit of some sense of normalcy and recovery on the page, but a long, long way to go. And it could be saved with the primary balance surplus after so many months and then also there is inflation under control. It used to be 94 per cent, which came down to about 50 per cent. And we were basically the second highest inflation country last year but are now the 16th, so that means it is not only Sri Lanka’s crisis, but a crisis of the world. So yes, a semblance of recovery. There is a long way to go. But if we all work together, I think we should be able to pull this out.
WION: So you were at the helm of the crisis. In fact, you became the finance minister when many would not like to be on that hot chair. So if you can talk about that experience, it must be a very difficult experience personally for you.
Ali Sabry: Yeah, I thought somebody would take up the challenge. You cannot run from the challenges. It is up to the Sri Lankans. Everybody else can help. But it is Sri Lankans who have to put their money into the firing line, whatever it takes, as I told you when I addressed the parliament, I said that this probably will be my last term as a lawmaker, but I will take those difficult decisions. And I’m glad that I took those decisions. I approached the IMF; I suspended the debt on the advice of the Monetary Board. And then I repurposed those funds to day-to-day activity, and that is why we were able to eliminate the fuel queue, the queue for fertiliser and were able to provide them medicines, and then over a period of time we stabilised that and that laid the foundation for today’s recovery.
So looking back, I could say honestly, humbly, and proudly say that I took that very difficult, challenging decision, paving the way for my country’s recovery. I think people will not understand but someday down the line, they will realise those difficult decisions have prevented us from going down the path of some other countries. We had power cuts for about a year but we have managed to take that out. There is no power cut, no queues, tourists are coming and people are sending money back. Long way to go but the foundation has been set. That is my honest opinion and assessment.
WION: One-million-dollar question, that everyone is asking about the IMF bailout. India has extended support, but are there countries that are not very open about it?
Ali Sabry: Right now, we are very optimistic. Once again India took the lead. There was a stalemate because there are two stages of the IMF program — if your country is declared unsustainable with your debt, then you have to first restructure the debt, to lay the foundation for that. So for that, the most important thing is the bilateral creditors, who must give you assurances.
The stalemate lasted for a long period of time and then India came forward and gave the assurances the way IMF wanted. Soon Paris Club followed.
China had given some sort of assurance but it’s not compatible with the IMF, but we are still talking to them. So we are very hopeful that China will also give appropriate assurances, but they have their own concerns, but they will also come back on track. So hopefully with everybody’s support, we will get the IMF bailout within this month. We are very, very hopeful and things seem to be all going in the right direction. Difficult hard work, but as far as Sri Lanka is concerned, there are 15 prior actions that we need to take. We have taken all of them.
WION: How optimistic are you that Sri Lanka will get the bailout by the end of this month?
Ali Sabry: I am very optimistic. I am pragmatic because we have done everything and you couldn’t have asked anything else for Sri Lankans to do. We have raised the taxation. We have put a stop to capital projects which we can’t sustain. We have suspended the debt payment and cost-reflective pricing has been introduced. These are unpopular and difficult decisions but we have taken those decisions and people are revolting. Naturally, they will, but educated people who are financially and economically literate, understand that difficult decisions are to be taken and we are glad that they understand, and they are supporting us. So, therefore, it’s up to the IMF now. President spoke to the Managing Director of the IMF and all indications are there. We are all very optimistic, both in terms of the institutions as well as a country that will realise this month.
WION: You pointed out that China has two concerns. Is China dragging its feet when it comes to extending the support for IMF bailout and what according to you are the reasons that China has been a laggard when it comes to its support?
Ali Sabry: No, I wouldn’t say so. China has its own concerns because it had been a huge lender during the last 10 years or so. So naturally, they are very careful because they have given to so many countries, anything which happens here could become a precedent. So we need to give them a little bit of time because they are not used to it like the Paris Club or many other countries who have been traditional creditors and lenders for a long period of time.
India of course, is our friend and stood with us and took that challenge and came first but China needs a little bit of time and space. We have provided that and I am sure they will also come around. It is important not only for Sri Lanka but for all the debt-ridden countries. It’s important that this debt treatment comes and that is a prerequisite for the world’s economic recovery from the pandemic. So everybody understands that. I’m sure we will come back. Everybody will come back. And maybe we’ll get some sort of relief sooner than later.
WION: But do you think the Chinese are responsible for the debt crisis not only in your country but globally as well? There’s a perception when it comes to China: there’s a Chinese hand behind the debt crisis. That’s the story that all of us have read.
Ali Sabry: Yeah, but I don’t agree with that. To be honest, I think the Chinese have not come forcefully and given us money and said that take it and put it into this project. We have designed our own project and sought funding; the Chinese have come and given it to us.
It is for us to ensure that you must put funding into a project which will give you a return so that you can pay back. So if we have not done that properly, so you can’t blame anyone else. So it’s our problem, Sri Lanka went through this because of bad debt, bad policies, as well as the circumstances because of what happened due to Covid. Our entire tourism income was kind of taken away from our foreign currency reserves. And then what happens in the Ukrainian crisis, the commodity prices, the coal prices, the fuel prices, the grain prices, the fertiliser prices, not one or two times, or even three, four times so, these are the problems that we have to face.
So basically, I wouldn’t blame anyone else other than us, including myself. So we must take responsibility as Sri Lankans and face the situation. Everybody else can support but it is up to reclaim our country. So I am grateful that India as our greatest friend and ally for a long, long period of time, has taken the lead to help us but still, it is the Sri Lankans who must take the lead and learn from the past and learn from other countries and do the right thing. So basically, we are not a government proponent of the blame game. We are here to work with everybody and reclaim our country.
WION: So because of the IMF policies, you are putting in place policies, which will let you get the bailout package now. Do you think that it will lead to a political crisis because first there is no formation of a unity government? The elections have been postponed. And there have been, of course, reports of protests coming in from your country because of these measures being put in place by your government. Do you also see a political crisis emerging with people coming back on the street?
Ali Sabry: The kind of protests that we saw in the last year were generic, organic. When you don’t have electricity for 13 hours when you don’t have gas for one month when you can’t get fuel pumped into your car for four or five days, people will protest. This is a public outcry of the normal. What is happening right now is a politically motivated protest by the opposition like in any other country, there is a huge difference between those two. In a democracy, people have the right to express themselves. So this protest has nothing to do with what we saw last year.
Naturally, reforms, whether with the IMF or not are going to be unpopular. We know that governments know, the problem Sri Lanka is facing today is populist policies without looking at the structural alteration of that and the long-term sustainability of it.
I’m glad that my president has taken it head on, despite this being very unpopular, taking those decisions and the results are there for everybody to see. I saw the bond rate of US dollars has come down to 334 rupees, which is the lowest since last May, inflation which was 94 per cent has come down to 50 per cent. I am sure with the lower base, by May- June it will come down to a single digit. So these are massive achievements.
Tourists have started to visit, I’m sure by the end of the year, we will have a lot of money from that. Sri Lankans who are living abroad have a lot of faith in the system where year on year from January 2022 to 2023, 68 per cent premium on remittances came into the country. So, all the indications are there. We are en route. Of course, that’s where the opposition gets a little restless because they know they are losing the opportunity right now. Because if the country stabilises, if the results are there for everybody to see, it is bad for the opposition. Good for the country means bad for the opposition, unfortunately. So the opposition is probably becoming very restless.
Yes, it’s a challenge to sell these reforms which are necessary. Sri Lanka is in today’s condition because of the populist policies. A welfare state, cannot be sustained if a good revenue stream is not sustainable. So this would have happened anyway to Sri Lanka. Good that it happened today rather than in 10 years because you have learned the lesson and in 10 years, hopefully, laid the foundation. If my country is back on track for development, a sustainable growth path, that’s what it means. It is just like what the Indians did, in the early 90s when you went through this kind of a crisis. the bold steps taken by then Prime Minister, Mr Narsimha Rao, and the then finance minister, Dr Manmohan Singh had laid the foundation for modern great India and the current leadership is taking it to a different level. So these foundations are necessary for us to lay and I think we are not going to shy away from that responsibility, we will do what is right, whether we get kicked out from the government or not.
WION: How will you characterise the relationship between Sri Lanka and India?
Ali Sabry: Sri Lanka-India relationship is one of the most important, if not the most important for Sri Lanka because it’s not based on a singular angle. It is based on a sharing of civilisation you know. If you look at the religious, cultural, social, economic, and neighbourhood, we have had a multi-pronged relationship for a long period of time. If you look at Buddhism it is cherished by Sri Lankans. About 70 per cent of Sri Lankans follow Buddhism, it is a gift from your country. So therefore it is a great relationship. It is nothing like any other relationship so therefore, it’s very, very important. And more than that, right now, with India rising with so much potential and so much advancement it is taking, there’s a great opportunity for Indians and the Sri Lankans to collaborate together and create a situation which is win-win, good for Sri Lanka, good for India and good for the region.
So we are looking forward and we have to be honest, we are very excited to see how India is progressing because we know that can spill over and that can influence Sri Lanka and the whole region. I’m a firm believer in the regions that develop, European Union, the North American region, the Middle East region or the ASEAN region, this is the turn for South Asia. India is leading it and we all want peace, stability and progress for all so we are very hopeful for exciting times ahead.
WION: Any plans for a trading arrangement when it comes to the Indian rupee and the Sri Lankan rupee?
Ali Sabry: Of course, it is happening big time. We are looking at what you did with the Singaporeans, we are talking and even I saw there were discussions going on. We are very keen to do that. Because we understand if there are 300 million Indians travelling, why not come to Sri Lanka, and use your own currency? So we are trying to provide a platform for that. That’s the great potential of doing it. And I’m sure there will be significant milestones in months to come in terms of renewable energy, in terms of integration, in terms of currency swaps, and also integration with the whole Indian apparatus so, so that’s what I say that exciting time for whole South Asia led by India.
WION: Can it be said that by the end of this year, an Indian tourist going to Sri Lanka will be able to use the Indian rupee to buy a souvenir?
Ali Sabry: That’s what we are looking at and hopefully it will happen. We want more connectivity. We are also grateful that one of the Sri Lankan private airlines is flying now to Mumbai, and private airlines are now flying from Madras to Jaffna. Vistara too has just started. So more connectivity is happening. We are also looking at a ferry service from Tamil Nadu to Jaffna, which is 18 kilometres or 40 minutes. So this is the kind of connectivity we want to create, support people-to-people contact. We cannot be living in the past forever. There is a great relationship we have had for a long period of time. It is a time for us to rekindle it and strengthen it.
WION: What about a Defence partnership?
Ali Sabry: Recently we had defence discussions here in New Delhi. We have always underlined the fact that any legitimate concerns of India will be taken into consideration but like any sovereign country, you will still work with all the countries in the world. So we understand and we continue to talk and there is a good level of understanding between senior officials in both defence, and External Affairs, and all the ministries together. Issues will come up from time to time, and we should not be too bothered about them. We should sit, discuss and resolve those things. And I’m sure we all understand that and we will find a way to strengthen the relationship and create absolutely peaceful environment, both in the region as well as in the Indian Ocean, so it is good for everybody.
WION: The relationship between India and Sri Lanka is very good, but every substantive relationship has its own set of problems. One of the key issues has been India versus China, we saw the Chinese spy ship visiting and in your last interview with WION, you talked about the kind of procedure being put in place so that there will be no such crises in the future if we could talk about that. Has India sought any assurances?
Ali Sabry: So, basically, we are working on that, we will put an SOP in place so that there are no surprises. That’s important, but in the meantime, we will also have made it very, very clear that as I told you last time also, Indian legitimate security concerns will be taken into consideration in all our decision-making. So of course, being in the Indian Ocean, the busiest shipping line, it’s important that Sri Lanka exploit that position. It is a primary source of our income. And so we want to work with all the countries and allow a smooth sailing of these resources while doing it, we should not threaten our neighbour or anyone else’s legitimate security concerns. But I must underline it has to be legitimate. Because sometimes what happens is unfortunate, sometimes some of the media or some of them who don’t understand the complexity of it, are almost forcing us to choose sides.
I mean I don’t think in any relationship you can say either you are with me, or you are with them. That’s not the issue you have with everybody you know, so that is the way forward, we need to continue to do that while preserving those age-old relationships that we have and the legitimate concern we all have. More commerce, more interrelationship, and more movement are good for commerce for every country. You know, your biggest trading partner is China, despite the differences. That is what globalisation has brought in, and it’s good. So globalisation, working with everybody, and synergies with countries, even while the differences exist and talk and try to sort it out, is important for all of us. So, therefore, I’m sure the decision-makers understand this, and then we must continue to work on that. Differences will be there when we must start out with discussions and diplomacy.
WION: Another area of difference is the fisherman issues, what is your view, and can you give assurances there will be no instances in the future?
Ali Sabry: Actually, we had a couple of rounds of discussions when your External Affairs Minister, Dr Jaishanker during his visit to Sri Lanka. He met the fisheries minister. Similarly, when the deputy foreign minister visited Jaffna recently, to open the Indian Cultural Center at that time too, decisions happened and we are all looking forward to a peaceful, long-lasting, sustainable solution which is both acceptable to our fishermen who are primarily from the north and Tamil speaking and the fishermen in India and Tamil Nadu. This is an issue which is very sensitive. We need to sit again and do it in a mature manner. There are a number of suggestions on the table. We are evaluating it and of course, there are politicians from all corners who will try to exploit the situation. But politicians doing politics in the party line and people who run the administrations in the countries even though they are politicians are two different things. So we need to probably sit and discuss this and resolve this issue. Hopefully, we will resolve it and there are a number of suggestions which are not which are on the table. We’ll continue to talk and try to resolve this so that is good for all.
WION: Speaking of global geopolitics, Russia Ukraine conflict is dominating every capital; New Delhi and Colombo are no different. How has this conflict impacted your country and is it one of the reasons that your country went through the economic crisis?
Ali Sabry: Yeah, that’s one of the reasons, I won’t say that it was the sole reason. My president used to say, whenever he addressed the ADB, that when elephants fight, it is the grass that gets trampled. So the fight is somewhere else, but we are all feeling the pinch. We could see that oil prices, which used to be $40-$50 went up to $200. The coal prices, which were up to $70 went up to $300. It came down recently. Then the grain prices went up. Then fertiliser prices are unbelievable. You know, which was about $85-$150 went up to $800. So Sri Lanka has been disproportionately affected by it because those two countries both Russia and Ukraine were our export destination and tourist destination. So with that, we are all suffering, and that is why it’s important unless everyone is safe, no one is safe.
You can simply say that it’s something happening somewhere else, and therefore it is no impact on us. But it is important that everybody gets together and gives diplomacy a chance and resolves this issue as soon as possible. Because otherwise, the problems with Sri Lankan so, may not be the first, not good for the world.
WION: While this conflict has been dominating global issues, India is the chair of the G20. The nation has also been saying that it’s the voice of the global south. India in fact, hosted the Voice of the Global South Summit. So how do you see the Indian presidency of the G20?
Ali Sabry: India’s leadership is very important. I was in New York when Dr Jaishankar hosted the foreign ministers to revive the global south. And in the global south countries like India, countries like Brazil, and countries like South Africa must take the lead in order to propose some sort of middle path. India, holding this very prestigious position of the championship the G20 is a great opportunity. So as the prime minister very correctly pointed out, we are a global family, and in order to achieve that we need to proactively work towards that and give diplomacy a chance. And of course, the UN Charter has to be respected, and the sovereignty of the other countries has to be respected. So subject to that. I think differences need to be ironed out and discussed. Diplomacy must win. The moment diplomacy fails war begins. In order to promote that India has a great role to play, India is rising, and people are taking notice of it, its population, and its economy. It has historically been in a strong position to play a good role and give leadership to the global south. I am sure, India exploits the situation for the betterment of humanity and the global and I wish India and its presidency and PM Modi all the very best.
WION: Finally, let’s talk about your relationship with Washington and Tokyo. We have seen high-level visits from the US to your country. Do you think the Japanese are still miffed due to the cancellation of the port deal?
Ali Sabry: There was a little bit of disappointment, if I say no, it won’t be correct. But Japan has been a great friend of Sri Lanka for a long period of time. As the Sri Lankan finance minister in the famous San Francisco summit told, hatred will not be ceased by hatred but by peace and allowed Japan a chance. We have a great relationship with Japan, and Japan will play a massive role in Sri Lanka’s rebuilding. We are working on that, and of course, we had a number of disappointing episodes, as any other relationship has. We are working on that, the role they played in convincing the Paris club and in supporting the IMF talks is a testimony of the relationship we have despite the differences we have. America is Sri Lanka’s biggest market; the highest number of our export goes to America. So that is important, we work with everybody. Sri Lanka is a peace-loving country, and we will continue to work with every partner in the world and try to bring peace and stability to the region and the world.
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