Hon. (Prof.) Anil Jayasinghe

¶ 01 It shows that compared to 2021, inflation increased by 124% in January 2022; by December it was 187%. Even for that year as a whole, the index had risen by about 80%. In 2023, the index that was at 188 again rose to 200; inflation increased by a significant amount. In 2024, the inflation index that was at 200 is now 191. So, it has been brought under a degree of control and stabilized at a point. However, that is not a deflationary situation. We call this a disinflationary condition. Our responsibility is to firmly control this inflationary situation.

¶ 02 But a problem can arise here. Generally, when a country’s inflation is around 5% or lower, it benefits the economy. However, increases of 70%, 80%, 90% are abnormal. Although it has now come down, we have seen negative inflation: in December the headline inflation was negative 1.78, and core inflation was a positive 0.88. That is a very low level. At times, this can even contribute to economic contraction. Since negative inflation was recorded for two quarters, the Central Bank, using its independence, may have room to pursue monetary expansion. What we must understand from this is that inflation, in some way, determines the prices of goods. In that sense, there isn’t a severe pressure building now. The public understands this.

¶ 03 An important point about prices is that what matters to people is the real wage and not the nominal wage. At present, we face a challenge in this regard. Real wages have not increased to a level that enables people to live adequately. I will present some data. Relative to 2021 and 2022, and then to 2023, if we take a nominal wage of Rs. 100, what quantities of goods and services could they purchase? In 2022, compared to 2021, the real wage of public sector employees fell by 20.6%—that is, their purchasing power declined. By 2023, it had fallen a further 7.5%. In the formal private sector, real wages fell by 22.7% in 2022 and by 7.1% in 2023. In the informal private sector, it fell by 17.5% and 17.6% respectively.

¶ 04 This is the kind of battered economy we had—people’s lives were diminished. We must emerge from that situation. What is the option? In the current situation, with the economy having disinflated, we cannot implement options that destabilize it. Therefore, inevitably, we must use various measures to rescue those who have been harmed. That is why we increased the amounts under various assistance schemes including agriculture support, extended their durations, and tried to re-enlist those who had not benefited, so that they, too, could receive support. To live a dignified life and to afford proper meals, people fundamentally need a higher real wage. Therefore, we also have to discuss a significant increase in wages. Our Members have spoken about it; we will consider it at the Budget. We must understand this situation.

¶ 05 Next, it was suggested there is a shortage of goods. In fact, what we did was to avert a situation where cartels would try to create artificial shortages within a corrupt system. We are gathering accurate information to see whether such a shortage has been created. There are signs of some scarcity. But that is not something that arose within the two months during which we managed this. Please look at how, during the pandemic and the economic crisis, shortages were created and used to frighten people. We managed the shortages and provided suitable responses. We even intervened in the rice issue, which affects the most essential commodity. Occasionally, there can be such issues with one or two items. It is the responsibility of a government to intervene appropriately, and we are deploying proper mechanisms to do so.

¶ 06 It was also stated that we are controlling prices and thus distorting prices in relation to rice. We will never act like policemen and slap price controls on the market arbitrarily. However, when activities that are economically significant destabilize the market—when such actions create instability—we will have to intervene. Rice is our staple food. When the price of that staple fluctuates excessively, the farmer collapses and the ordinary consumer faces difficulty affording their staple. Moreover, about 25–26% of our labor force is engaged in the agriculture industry that supplies this staple. The entire economy is entangled there. Therefore, we cannot remain silent. As per our Cabinet Paper, we explained how we managed prices and how we temporarily allowed importers to bring in rice.

¶ 07 Another misconception raised was that withholding tax was increased by 5% and that we are imposing tax upon tax, while people cannot buy goods, there are shortages, and they cannot live. That is false. Withholding tax is not a tax in itself; it is a collection of tax in advance. If someone is liable to pay tax, when they file their tax return, they can credit it against their liability. Any citizen liable to tax can do so. We are facilitating that. However, there is an issue: even among those not ultimately liable for income tax, when such amounts are withheld, many do not claim refunds from the Inland Revenue Department. We acknowledge this and are addressing it.

¶ 08 Even though we have increased the rate from 5% to 10% now, earlier 5% was being withheld and no one complained then. At that time, people with low interest income paid tax to the Government; no one spoke about the common people then. The objective here is not merely to increase revenue. We know the tax system was undermined by non-payment, evasion, and inefficiency. Our tax net is not broad. In developed countries, collection at source is standard practice. We are doing this to move step by step to that place and to bring more people into the tax net. Nevertheless, we are providing relief to ordinary people who are not taxpayers. The Inland Revenue Department is preparing the procedures; we will issue guidance to banks and deliver that relief to the public. What was presented to mislead the public is a story.

¶ 09 Let me also say this: the small question raised under the Adjournment Motion today is a short-term, temporary issue amid the march forward of the entire economy, livelihoods, and society. It is wrong to attempt to judge economic performance within a month or two. It takes time.

¶ 10 In a normal economy, at least six months are needed. We just assumed office; we took over a shattered economy. Therefore, allow at least a year to assess our performance. By the end of 2025, we assure you strongly that we will advance all economic indicators to levels better than before.

¶ 11 Members of the Opposition, either deliberately or out of ignorance, ignored the broader indicators that capture the totality of the economy. Let me cite a few. One is the Index of Industrial Production, which is published by the fully independent Central Bank. For 2024, the base value is 100. Previously—barring one indicator—values were below 100. By October and November 2024, all these indices had increased. Among them: non-metallic mineral products, 102.8; coke and refined petroleum products, 104; beverages, 125.5. What do these show? They indicate a trend of increasing productive capacity in the industrial sector—a momentum. That is a sign of the economy orienting towards growth. We do not claim that the whole economy has developed, but this is the direction. When we formed the Government in November, the current Opposition tried to say that our direction would destroy the economy, the world would not engage with us, and investors would not return. Despite such claims, we have achieved this situation.

¶ 12 Another important aspect is stabilization within the economy. When we set about stabilizing the economy, some cherry-picked pieces of our policy statements and said “Do this; do that.” But we proceeded on our correct path without wavering. The number one priority was stabilization. To improve our productive economy, stabilization must proceed without any dilution. The first priority is to establish domestic financial stability. We have been able to do that. For the first time in history after a crisis period, interest rates have been stabilizing and gradually declining. During this period, we were able to bring down the policy rates—to 8.25% and 9.25% for deposits and lending, respectively. That is very significant. As a result of lower interest rates, entrepreneurs and investors are bringing their savings to do business again. When lending rates are at 20%, 30%, 40%, no one invests; to operate a business at 30% interest, you need profits of 40–50%. Then attracting investors is difficult. Now, financial stability is emerging.

¶ 13 Another indicator you did not mention is the yield curve. During your administration, especially in the crisis period, we had a negative, inverted yield curve—higher interest for short-term instruments (6–12 months) than for longer tenors (5–10 years). That indicates fear and uncertainty. Now, it has gradually shifted to a positive yield curve. Along with the favorable movement in interest rates, we have been able to stabilize the exchange rate at a more stable level. In this way, we have achieved financial stability.

¶ 14 Looking at banking sector stability, a year ago the net foreign assets of Sri Lanka’s banking system were negative—the system owed foreign countries. By last October, the banking system had increased its net foreign assets to USD 407 million. These are signs of stability, also reflected in the stock market.

¶ 15 Sri Lanka’s foreign debt ratings have been upgraded by three notches only during this period, based on renewed investor confidence. We also proactively completed work with the IMF and concluded debt restructuring. We faced various criticisms—“This is Ranil Wickremesinghe’s agenda; do something else”—but we studied the markets and took the correct actions. As a result, in December we were able to complete the debt restructuring agreements, exchange the old ISBs for new bonds, and complete the exercise. The first result is that the debt ceiling, which had to be increased by Rs. 3,000 billion from the 2024 interim account to 2025, can now be removed.

¶ 16 The debt ceiling for 2024 is Rs. 7,350 billion. Compared to that, for 2025 we will have a more comfortable, lower borrowing requirement—limited to Rs. 4,000 billion. The newly issued bonds are now trading on the secondary market in Singapore. According to Central Bank data, the yields on the secondary market have been improving, meaning investors are more willing to buy these bonds. The first bond matures in 2028, and it has been delivering higher returns than two weeks earlier. There are many such indicators. We do not have time to elaborate further.

¶ 17 My view is that this Adjournment Motion was simply an attempt to mislead the public with falsehoods while we are steering the country onto the right path. I emphasize that we are managing this situation properly and moving forward. As the first step of that program, we will present the 2025 Appropriation Bills, and with that, I conclude my remarks.

¶ 18 Thank you very much.