The Bar Association of Sri Lanka (BASL) has issued a statement on the concerns of a looming economic crisis in Sri Lanka.
The statement says that at its worst economic decline can result in a complete breakdown of Law and Order, but even prior to that, serious repercussions flow from growing financial hardships that have to be borne by citizens that perpetuates inequality and the ability of citizens to enjoy or vindicate their rights, be they public or private rights.
See the full statement issued by the BASL below.
The Bar Association of Sri Lanka (BASL) is gravely concerned of the signs of a looming economic crisis in Sri Lanka and its possible impact on the Rule of Law and Democracy and on the living conditions of the people.
The spiraling inflation, shortages of essential goods including gas, the unavailability of foreign currency, the inability to remit monies overseas, the downgrading of Sri Lanka’s ratings by multiple international rating agencies; the temporary closure of the fuel refinery at Sapugaskanda; reports of the operations of certain foreign airlines being suspended; warnings of a possible power crisis are all indicators which demonstrate the urgency of the need for the Government to address the economic crisis without any further delay.
In this respect, a downturn in the economy can have far reaching adverse consequences to the Rule of Law and Governance of a Country. At its worst, economic decline can result in a complete breakdown of Law and Order, but even prior to that, serious repercussions flow from growing financial hardships that have to be borne by citizens that perpetuates inequality and the ability of citizens to enjoy or vindicate their rights, be they public or private rights. It goes without saying that the worst affected by economic hardship are the most vulnerable in society.
It is an undisputed fact that since March 2020 there has been a gradual erosion of foreign reserves from approximately USD 7 billion. Although it was announced by the Central Bank that the reserves have increased to USD 3 billion, it remains to be ascertained how much of that are usable reserves to repay the debt and used to redress the prevailing balance of payments crisis. Even out of the available reserves a large proportion contains moneys obtained in the form of short-term foreign exchange swaps.
There have been several sovereign credit ratings downgrades in the corresponding period by all the major credit rating agencies. The latest being the downgrades by Fitch Rating Agency to CC and Standard and Poor’s (S & P) to CCC. The International Sovereign Bonds yields across all tenures have remained in double digits for over a period of 2 years. This has made rollover of maturing sovereign bonds not feasible.
There have also been reports of a flight of foreign capital both from the equities and as well as the money markets. Foreign participation in both markets at present is only negligible. The Economist magazine named Sri Lanka as one of the most vulnerable countries to the expected fallout in emerging markets from the anticipated raising of interest rates by the Federal Reserve of the United States.
Debt to GDP from approximately 85% in 2019 is now estimated to have risen to approximately 104% of GDP. However, in the same period the government revenue as a percentage of the GDP has fallen from approximately 12% to 10%. Year on Year headline inflation in the month of November 2021 was recorded at 9.92% and December 2021 recorded a double digit figure of 12%, the highest in the past 7 years. The Net International Reserve Position of the Country has been negative for over three months consecutively. All of this has resulted in the scarcity of foreign exchange to sustain essential imports.