Hon. (Dr.) Anil Jayantha - Minister of Labour and Deputy Minister of Finance and Planning

Hon. Speaker, on behalf of the Hon. Prime Minister, I answer the Question raised by the Hon. Ravi Karunanayake under Standing Order No. 27(2) on 11.11.2025. 1) Dr. P. N. Weerasinghe was the Governor of the Central Bank of Sri Lanka at that time. Details of past Governors of the Central Bank are available on its official website. 2) The “interim debt standstill” was declared on 12th April, 2022, in line with international experience and the prevailing situation in the country. A debt standstill refers to the full or partial cessation of debt servicing in the event of a debt crisis as part of an orderly workout procedure to provide leeway for a restructuring during a predefined and limited time. 3) Yes. The Monetary Board recommended the debt standstill to the Ministry of Finance on 11th April, 2022. The debt standstill was announced by the Ministry of Finance on 12th April, 2022. Under the provisions of the Monetary Law Act, the Governor or the Monetary Board of the Central Bank of Sri Lanka had no direct communication channel to Parliament. The following members were in the Monetary Board at the time the Ministry of Finance announced the debt standstill: Dr. P. N. Weerasinghe; Mr. S. P. Jayawardena, PC; Dr. R. Jayamaha; and Mr. K. M. M. Siriwardana. 4) On several occasions prior to the announcement of the debt standstill by the Government of Sri Lanka, the Monetary Board of the Central Bank of Sri Lanka provided detailed reports to the former Ministers of Finance on the precarious economic condition of the country, reasons thereof and remedial measures to be taken, acting in terms of Sections 64 and 68 of the Monetary Law Act. Those reports explained the depleted position of gross official reserves and the country’s challenges in honouring external debt obligations. Since the power to enter into foreign loans and guarantees related to the Government of Sri Lanka was vested with His Excellency the President and the Minister of Finance under the Foreign Loans Act, No. 29 of 1957 (now repealed), the announcement of the debt standstill was initially approved by the former President and the former Minister of Finance on 11th April, 2022, pending debt restructuring supported by an IMF programme. At the time of granting the said approval, the Minister of Finance agreed to submit a Cabinet Memorandum for ratification at the earliest possible Cabinet meeting. Based on the approvals given by the then President and the Minister of Finance, on recommendations of the Monetary Board of the Central Bank of Sri Lanka, the Ministry of Finance took steps to publish the “Interim Policy regarding the servicing of Sri Lanka’s External Public Debt” on 11th April, 2022, in a note to the Cabinet, which can be provided as an Annex. The then Minister of Finance submitted a note to the Cabinet of Ministers on the said policy and the same was ratified by the Cabinet of Ministers on 16th April, 2022. That Annex can be provided. On 4th May, 2022, the then Minister of Finance made a statement at the Parliamentary session on the current economic situation and negotiations with the IMF and informed Parliament of the debt standstill and the debt restructuring process. If there were any objections by Parliament, there was still time before 18th May, 2022, to reverse the debt standstill with alternative measures, as the debt service suspension would be formally effective only after a grace period of one month from the scheduled date of suspended debt service payment. All subsequent external debt restructuring agreements and the IMF Agreement were approved by successive Ministers of Finance. As explained in Answer to Question No. 2, the initial decision on the debt standstill approved by the former President and the then Minister of Finance was ratified by the Cabinet of Ministers. It is observed that the Attorney-General had been informed of the said Cabinet decision, which ratified the Interim Policy regarding the servicing of Sri Lanka’s external public debt, including the debt standstill. The Central Bank of Sri Lanka reiterates that the decision to announce the debt standstill was a decision taken by the Government of Sri Lanka considering the precarious macroeconomic conditions that prevailed in the country during the period under review. The Interim Policy of the Government regarding the servicing of Sri Lanka’s external public debt explains the prime reasons for such a decision. The following relevant documents and approvals are available for reference: - Cabinet Paper No. CP 22/0568/304/042 - Central Bank Letter dated 11th April, 2022 - Cabinet Decision No. CP 22/0568/304/042 Yes, they are available. I table those. Placed in the Library. 5) Please refer to the Answer given in Question No. 4. It explains how the process took place under the purview of the Central Bank of Sri Lanka. 6) The suspension of debt repayments materialized with the approval of the former President, being the Head of State, together with the former Minister of Finance, and the said Minister of Finance took steps to apprise Parliament of the decision. However, there was a Fundamental Rights Application bearing No. SC FR 309/2022 filed by two petitioners against the Governor of the Central Bank of Sri Lanka, former Secretary to the Treasury and a few others. Having considered the said Application, the Supreme Court held that there was no merit in the Application and dismissed the same without granting leave to proceed. 7) Does not arise, as there was no violation of the Constitution. To manage public debt of the Government, Parliament has already passed the new Public Debt Management Act, No. 33 of 2024. 8) A Letter of Intent (LOI) requesting an Extended Fund Facility was signed by the former President in his capacity as the Minister of Finance and the Governor of the Central Bank of Sri Lanka on 6th March, 2023. The EFF was approved by the Executive Board of the IMF on 20th March, 2023. The EFF Agreement was not submitted to Parliament before it was approved by the IMF. The current Government has been able to amend several commitments during the fourth review of the EFF. Further negotiations are being conducted with the IMF to accommodate additional spending needs after the cyclone. As soon as the Hon. President Anura Kumara Dissanayake assumed office, the Government took immediate steps to renegotiate certain terms under the third review of the programme. Consequently, at the conclusion of the Staff-level Agreement in November 2024, several amendments were introduced to ease the burden on the general public and ensure more equitable outcomes. The following decisions were taken to provide relief to the people based on the discussions between the Sri Lankan authorities and the IMF. 1. Personal Income Tax Relief - The tax-free threshold for Personal Income Tax was increased from Rs. 1.2 million to Rs. 1.8 million per year of assessment. - The tax bracket was expanded from Rs. 500,000 to Rs. 1,000,000 per year of assessment with a tax rate of 6 per cent. 2. Tax Reforms to Support Local Industries and Equity - VAT was removed on the production of local fresh milk and yoghurt made from domestically produced milk to promote child nutrition and local agriculture. - Taxes on properties based on imputed rental income will not be levied until a proper valuation methodology and administrative procedures are established. - The Corporate Income Tax rate on service exports was reduced from 30 per cent to 15 per cent. - The 10 per cent Withholding Tax will not be applied to individuals whose total annual assessable income does not exceed Rs. 1.8 million. Despite the continued commitment under the IMF-EFF to achieve a primary surplus target of at least 2.3 per cent of GDP and maintain primary expenditure below 13 per cent of GDP as required under the Public Financial Management Act, No. 44 of 2024, the Government successfully negotiated with the IMF to protect social spending and introduced further relief measures, including: 1. Social Protection and Welfare - The monthly pension was increased by Rs. 3,000. - The monthly benefit allowance for vulnerable groups increased: - Mainly for poor households: from Rs. 8,500 to Rs. 10,000. - For extremely poor groups: from Rs. 15,000 to Rs. 17,500, effective from January 2025. - An education allowance of Rs. 6,000 is given per student from low-income families to purchase school books and stationery. - The monthly allowance for kidney patients and persons with disabilities was increased from Rs. 7,500 to Rs. 10,000, and for elderly citizens, from Rs. 3,000 to Rs. 5,000. 2. Public Sector Support - The minimum basic salary of Public Servants was increased by Rs. 15,750, from Rs. 24,250 to Rs. 40,000, with effect from April 2025, implemented in three phases. - The annual salary increment was raised by 80 per cent (Proposal 39 of the Budget Speech, 2025), increasing the minimum increment from Rs. 250 to Rs. 450. - The Distress Loan limit for Public Servants was raised from Rs. 250,000 to Rs. 400,000. Through these initiatives, the Government has taken several measures to ensure that the IMF-supported reform programme remains citizen-centred with strong emphasis on equitable burden-sharing, enhanced social protection and transparency in implementation. Further, the declaration of a debt standstill affected Sri Lanka’s international reputation and creditworthiness. Major credit rating agencies downgraded the sovereign rating to default categories and the country was effectively excluded from global capital markets. This limited access to new foreign financing, raised the perceived risk premium for Sri Lankan debt, and constrained private investment inflows. Rebuilding credibility required the Government to demonstrate consistent policy commitment, fiscal discipline and transparency in negotiations with creditors and international institutions. The ongoing implementation of the IMF-supported programme and the progress achieved so far have been instrumental in gradually restoring confidence among investors and development partners. It is common knowledge that the rating agencies do not impose any specific terms and conditions for reinstating Sri Lanka’s access to concessional and commercial borrowing. Since the IMF assessed Sri Lanka’s sovereign debt as not sustainable in early 2020, the IMF was unable to provide any financial assistance to Sri Lanka even during the COVID pandemic. In order to restore IMF financing, the Sri Lankan Government had to fulfil two conditions: mainly, to receive financing assurances to restructure external debt from all official bilateral creditors, and to engage in good faith to restructure commercial debt with all external commercial creditors. 10) The Minister of Finance announced the Interim Policy regarding the servicing of Sri Lanka’s External Debt on 12th April, 2022, suspending selected external debt servicing for an interim period pending an orderly and consensual restructuring of those obligations in a manner consistent with an economic adjustment programme supported by the IMF. However, now, the Government has been able to establish macroeconomic stabilization with positive indicators mainly in the fields of inflation, GDP growth, interest rate stabilization, private sector credit growth, growth of official reserves, exchange rate stabilization, Government revenue, fiscal consolidation and the Budget deficit. Thank you.