Jonathan Alles, Chief Executive and Managing Director of Hatton National Bank Plc,Clive Fonseka, Chief Executive of state-owned People’s Bank, and Sanath Manatunga, Chief Executive and Managing Director of Commercial Bank of Ceylon Plc, reflected on the big changes that would confront the banking sector in 2024 during the Echelon Turning Point video series in November 2023. Following are excerpts of the discussion, which ranged from the new Banking Act to banking consolidation, high non-performing loans, international sovereign bond restructuring, ROEs, policy consistency, SOE reforms, widening the tax net and optimism about the economic recovery.

It looks like Sri Lanka’s economy has bottomed out. We are looking for economic growth as economic activity picks up. When you look at what we’ve been through, what are your expectations for 2024 onwards, how does that change priorities for banking?

Sanath: In the banking sector, priorities shift with the context. Last year, we faced rising interest rates and inflation, economic instability, and early-stage IMF negotiations. Now, conditions have improved: interest rates have halved, foreign exchange availability has increased, and inflation is under 5%. This positive shift demands a change in banks’ strategies.

Banks need to reassess their risk appetite and growth perspectives. The focus should be on empathetically supporting the economy and our customers, who have endured hardships since 2019, including the Easter Sunday attack, the pandemic, and socio-economic turmoil.

Looking ahead, banks should identify and prioritize sectors in need, like SMEs, and address overlooked areas such as
export promotion, local manufacturing of import substitutes, renewable energy, and tourism. Tourism, in particular,
has rebounded significantly since 2019. Additionally, the construction sector, which can stimulate the economy at all
levels, should be viewed favourably.

Overall, banks need to adopt a supportive and positive outlook for these industries, shaping their 2024 plans to revive the economy effectively.

Clive: Under the new Banking Act, limitations on lending to State-Owned Enterprises (SOEs) will be implemented.
This change is partly influenced by the cost-plus pricing of utilities like electricity and water, which reduces the funding needs of state banks. Consequently, our focus is shifting towards private sector lending, targeting corporates and SMEs. This strategic shift leverages our extensive network of 747 branches and our large customer base, which includes 14.5 million customers and numerous SMEs.

People’s Bank’s lending to the state sector, including SOEs, constituted 53% of our total loan portfolio in the past
and we have observed a decrease in this proportion to 44%, and aim to reduce it further to below 40% by February 2024. This reduction is driven by substantial loan repayments from SOEs and ongoing loan activities. Additionally, there’s a proposal to transfer the debt of the Ceylon Petroleum Corporation (CPC) from the corporation to the Ministry of Finance, which would significantly lower the SOE component in our portfolio. In summary, these changes mark a business transformation, with our bank increasingly orienting its lending practices towards the private sector, including corporates and SMEs, while gradually reducing its exposure to the state sector.

Jonathan: The shift in inflation and interest rates presents an opportunity for us to focus on credit growth. However, we must be mindful of the high level of Stage 3 non-performing loans (NPLs), currently at 13% or approximately Rs 1.5 trillion in a banking industry with a Rs 11 trillion balance sheet. With impairments nearing
a trillion, addressing these challenges is crucial.

Our strategy involves working in parallel to encourage customer repayments and to collaborate with government and regulatory bodies. Successful loan repayments enhance liquidity, which is further boosted by reduced government and SOE borrowing. This increased liquidity allows us to maintain lower interest rates and channel funds into productive sectors.

Simultaneously, it’s imperative to focus on recovery efforts to support industries like tourism and construction and to explore new growth areas. Import substitution, manufacturing, and export promotion are key areas. Despite global economic challenges, Sri Lanka, as a small economy, can still significantly impact its exports with targeted growth strategies.

Central to this approach is fostering entrepreneurship. We aim to encourage  our top corporates to diversify and support SMEs, fintechs, and young innovators. This entails integrating entrepreneurship and business concepts into our education system and creating a financial and regulatory landscape conducive to entrepreneurial growth. By nurturing an entrepreneurial spirit and risk-taking ability, we can build a supportive infrastructure that propels Sri
Lanka’s economic development.

What can the industry do about the high levels of banking sector non-performing loans at 13%? As CEOs, does this occupy considerable bandwidth?

Jonathan: The banking sector anticipates a decline in the current 13% non-performing loans (NPLs) by year-end, a trend supported by substantial collateral and significant impairments made by banks, totalling nearly a trillion with over 50% coverage for Stage 3 loans. This has enhanced stability and absorbed major financial shocks in the past two to three years.

Going forward, the focus is on nurturing honest relationships with customers striving to improve their finances, offering patience and support as they generate cash flow. Addressing willful defaulters, who have the means but avoid payment, is also crucial. The proposed credit authority for responsible lending is a positive development and a similar emphasis on responsible repayment is needed. Strengthening legal, arbitration, mediation, and insolvency frameworks will emphasize the importance of repayment. Concentrating on responsible lending, repayment, and
supporting dedicated customers will lead the sector towards a more stable and sustainable future.

Sanath: At the year’s start, we anticipated non-performing loans (NPLs) might reach 15% or higher. However, recent trends show stabilization, attributed to decreasing interest rates and a partial economic revival, which has eased pressure on loan repayments. This improvement in repayment capability is encouraging and better than last year’s expectations.

A key approach in the banking sector is empathy and support, rather than resorting to foreclosures, except in cases
of willful default. Foreclosure benefits neither the borrower, the bank, nor the economy, especially given the challenges in liquidating foreclosed properties.

Banks are more inclined to assist customers who proactively communicate their financial difficulties. While impairments affect profit and loss, supporting customers through tough times can lead to future reversals of these situations. This supportive stance is particularly important for SMEs, who may lack extensive financial knowledge and are prone to seeking highcost borrowings from informal lenders, worsening their situation.

We encourage SMEs to view banks as partners and openly discuss their financial challenges. Our experience with various customer scenarios and restructuring processes equips us to offer effective guidance. The banking industry has shown flexibility through measures like loan moratoriums and rescheduling, demonstrating a high tolerance level during these challenging times.

Clive: For People’s Bank, the focus is on shifting from lending to State-Owned Enterprises (SOEs) to increasing SME and corporate lending. This transition is being managed through regular communication with state-related borrowers, including the Ministry of Finance, ensuring clarity in the absence of new SOE lending requirements.

To support SME and corporate customers, People’s Bank has implemented a rehabilitation programme, which has proven to be highly successful. This programme involves restructuring and rescheduling loans, and sometimes extending their tenures. These measures have been effective, as evidenced by many success stories where early intervention by both the borrower and the bank has led to loans returning to performing status.

This approach demonstrates the bank’s commitment to fostering growth in the SME and corporate sectors, while responsibly managing its transition away from SOE lending. Such strategies are crucial for the bank’s future growth and the broader economic health of these vital sectors.

The regulatory landscape is also seeing several changes with the proposed new Banking Act. What will this change for the banking industry?

Jonathan: These are indeed exciting times, though I feel a tinge of sadness as I’m nearing the end of my tenure. I often think how beneficial these changes would have been if implemented a decade ago. Key developments include enhanced governance, particularly in selecting board members and key management personnel, which leads to stronger, more independent boards. The IMF governance diagnostic study outlines useful do’s and don’ts in this area.

We’re also seeing significant changes in the single borrower limit and a strengthening of related party transaction policies. This will necessitate a reduction in concentrated lending and lower our risk exposure, while encouraging us to diversify our portfolio across different sectors, including SMEs, emerging corporates, microfinance, and digital lending.

For corporates with heavy exposures, these changes highlight the need to diversify their capital structures beyond leverage. With fluctuating global interest rates, incorporating equity becomes crucial. This shift may lead to more overseas borrowing and stock market listings, fostering greater local and international market participation.

These developments are prompting banks to focus more on specific areas like investment banking, commercial banking, SME banking, and development banking. By becoming more structured and specialized, banks can effectively support their niches. Meanwhile, corporates are encouraged to deleverage and mitigate risks, aiding in their recovery. These changes collectively mark a significant and positive shift in the banking industry.

For People’s Bank, the Ceylon Petroleum Corporation and the Ceylon Electricity Board are two of your biggest customers. The new Banking Act will bring limitations on how much you can lend to any single party. How will this impact People’s Bank?

Clive: The new regulations on the single borrower limit (SBL) will also apply to State-Owned Enterprises (SOEs), which is a significant development. Fortunately, there’s a grace period of about two or three years for these entities to adjust their exposures to comply with the SBL. This timeframe is critical for a smooth transition.

We are actively engaging in discussions with several SOEs, and I can confirm that one or two of them are fully committed to meeting this requirement. After reviewing their projected cash flows, we are confident that these particular entities can achieve compliance with the SBL in a shorter timeframe than what the central bank has stipulated. This proactive approach and commitment from the SOEs are promising signs for the banking sector’s alignment with regulatory standards and financial stability.

Sanath: If I may add, the ongoing consultations regarding the new Banking Act are a crucial step in enhancing the sector’s governance and resilience. The Central Bank and stakeholders are working together to refine the Act, taking into account existing regulations, such as those proposed by the Colombo Stock Exchange (CSE) on listing rules related to governance. This consultative process is vital to address any potential contradictions and ensure a cohesive regulatory framework.

I agree with Jonathan’s emphasis on governance and resilience. These developments could lead to consolidation within the banking sector. Considering that the top five banks control over 75% of the industry’s assets, consolidation seems a logical step, especially given the current landscape of over 20 banks in the country. This consolidation, driven by factors like single-borrower limitations and ownership restrictions, is expected to result in a more
resilient and robust financial system.

The Banking Special Provision Act No. 17, gazetted this year, is another significant development. It focuses on creating resilience across the banking ecosystem, encompassing aspects like payment and settlement systems and handling stress situations in banks. Such measures will undoubtedly enhance the industry’s robustness and its impact on the economy.The Banking Special Provision Act No. 17, gazetted this year, is another significant development. It focuses on creating resilience across the banking ecosystem, encompassing aspects like payment and
settlement systems and handling stress situations in banks. Such measures will undoubtedly enhance the industry’s
robustness and its impact on the economy.

Looking ahead, with the anticipated implementation of the new Banking Act next year, along with the special provisions and the direction on technology resilience, there’s likely to be increased confidence in the sector. The push towards consolidation could lead to the formation of larger banks, potentially expanding their reach regionally and internationally in the next five years. This proactive and forward-thinking approach by the regulatory authorities
is essential for the sector’s stability and growth.

Consolidation has been talked about for a long time, but there hasn’t been a genuine attempt. Is this because the banks aren’t willing to do this?

Sanath: The success of the banking sector’s consolidation and transformation hinges on more than just willingness; it requires a firm commitment from both shareholders and management. This commitment must extend beyond protecting personal or institutional interests and focus on the broader industry and organizational goals.

Leadership within banks plays a crucial role in this process, as does the regulator, in guiding and facilitating these changes. Additionally, external support will be vital. Financial assistance from international institutions like the World Bank and the Asian Development Bank (ADB), along with technical expertise from global bodies, can
significantly aid the local banking industry in navigating this uncharted territory of substantial consolidation.

Given that this level of consolidation is unprecedented in our industry, there’s a natural lack of confidence about the outcome. However, with the right mix of internal commitment and external support, the banking sector can effectively manage this transition, leading to a more robust and efficient banking system that can better serve the economy and its stakeholders.

Is consolidation a conversation you will have from 2024 onwards?

Jonathan:The ongoing dialogue about banking sector consolidation has been a significant topic for many years. Regular discussions with banks and shareholders, accompanied by numerous proposals to the board, have highlighted our interest in consolidation. With the upcoming changes in the new Banking Act and the potential alterations in the single borrower limit, banks must adapt, especially as their capacity to lend to large corporates may be affected. Looking ahead, there’s a need for larger, well-capitalized banks capable of expanding regionally, recognizing the crucial role they play in the country’s economy. Successfully conveying this vision, despite the challenges of integrating systems, rationalizing branches, and managing staff, is essential.

The current trend of banking staff seeking opportunities overseas coincides with the need for consolidation. The industry’s move towards digitalization, automation, and the use of technologies like robotic process automation (RPA) and artificial intelligence (AI) align with this. These advancements reduce the need for physical branches and staff, as more customers embrace mobile and digital banking.

The consolidation strategy is supported by several factors: the Banking Act, digital transformation, staffing challenges, balance sheet limitations, and regulatory backing. The Central Bank’s clear support for consolidation presents an opportune moment for banks to seek partnerships and pursue consolidation voluntarily, positioning themselves for future growth and regional expansion.

Sanath: The challenges of talent attrition and the inefficiencies in the current banking setup are
indeed pressing concerns. In a typical locality with, say, ten banks, each bank operates its ATMs and pays foreign vendors for digital platforms, leading to a significant outflow of dollars overseas. Consolidating into two or three
larger banks could offer substantial cost savings and economies of scale.

Such consolidation provides an opportunity to develop homegrown technology and software.
Investing in local IT development not only retains money within the country but also nurtures the domestic talent pool. This approach aligns with the broader concept of import substitution, extending beyond physical goods and services to include technology and expertise.

Jonathan’s point about retaining IT talent is particularly pertinent. By focusing on local development and investment, we can create a more attractive and dynamic environment for our IT professionals. This shift towards
nurturing and utilizing local talent and resources not only strengthens the banking sector but also contributes to the broader economic and technological advancement of the country.

One of the conversations you will be having with shareholders is your ability to give them a decent return on equity. That has possibly been very challenging in the last few years and your shareholders are not going to be patient forever. How do you address this and will consolidation be a big ticket to fix?

Sanath: Addressing the short-term challenges in the banking industry, particularly the impact of the Sri Lanka Development Bond (SLDB) and International Sovereign Bond (ISB) restructurings, is crucial. Banks, having lent to the government, are facing significant haircuts, with many already provisioning for a 45-50% loss. This situation, essentially treated as bad debt, puts considerable strain on the sector.

One key step towards boosting confidence in the sector would be for local banks to recover a portion of these funds
in rupees, similar to the SLDBs. This move would not only reassure shareholders but also strengthen the narrative for banks seeking to raise capital in the market nextyear . Demonstrating that the government and regulators have supported the banks in this crisis can encourage investment and support banks’ growth trajectories.

However, the unresolved taxation issue on these haircuts poses a significant challenge. If banks face both haircuts and taxes on profits, it results in a double burden. This situation needs to be addressed to prevent further weakening of the industry. A weakened banking sector means reduced capital availability for loans, which in turn hampers the ability to support the broader economy.

Moreover, the banking sector currently faces undervaluation in the stock market, with most banks trading at around 0.5 to 0.6 of their book value. This indicates investors’ reluctance and concerns about the industry’s future.

Therefore, the ISB restructuring stands as the most pressing issue for the short to medium term. The industry, regulators, government, and external creditors must collaborate to find a solution that supports the banking sector. Such a concerted effort is essential to ensure the industry’s stability and its role in the economic recovery of the country.

 Sri Lankan banks hold ISBs worth over $2 billion. Do you suggest that there is a case for Sri Lankan banks to be treated differently when debt restructuring negotiations commence with external creditors? 

Jonathan: Recognizing the need for a level playing field and respecting existing agreements is crucial, but there’s also a need to consider the broader context of the crisis.

International creditors, particularly those looking at newly restructured bonds post-haircut, rely on the economy’s recovery for their repayments and the value of their bonds. However, if the banking industry, the primary catalyst for economic growth, is destabilized and weakened, their prospects diminish. This interdependence suggests that a narrow focus on isolated transactions like the International Sovereign Bonds (ISBs) is insufficient.

The banking sector has endured significant challenges in recent years, including managing a substantial portfolio of Stage 3 credits and navigating the repercussions of the COVID-19 pandemic. However, it’s important to recognize that these challenges stem largely from an economic crisis driven by poor governance and leadership.

Both bilateral and bond creditors need to understand that the current predicament is not simply the result of isolated financial mismanagement but a culmination of various factors. The banking industry has already borne a significant share of the burden. Acknowledging this, creditors should adopt a more understanding stance, allowing the banking sector the opportunity to fulfil its role in revitalizing the economy.

This broader, more empathetic approach is crucial for enabling the banking industry to effectively contribute to the country’s economic recovery and demonstrate its full potential in driving growth.

    As a principle, everybody ought to be treated equally and fairly, right?

Sanath:  Yes, fairness is essential, but equality must be contextualized, especially in the banking sector. Sri Lankan banks have a distinct role and risk profile compared to other creditors. The local banking sector indeed invested in bonds at par value, demonstrating a commitment to national economic stability. In contrast, some international creditors may have purchased these bonds at lower prices, driven by investment opportunities.

While this might seem a weaker argument from a strict investment perspective, it’s crucial to understand the different motivations behind these investments. Sri Lankan banks were compelled to invest under different circumstances than those influencing international creditors. My point, representing the industry, is to highlight these varying contexts and motivations. This understanding should inform discussions about the distribution of financial burdens arising from the economic crisis, ensuring that the unique position of the local banking sector is duly considered.

  People’s Bank has virtually no exposure to ISPs. However, the bank is looking to reduce its exposure to state institutions. Is this a considerable challenge?

Clive: That’s right. A fundamental mindset shift is crucial across our entire banking network, affecting every level from the remotest branch to the head office. This shift is necessary to fully leverage the latest industry trends and changes.

Each branch, including its approach to credit evaluation, plays a critical role in this transformation. This change must then extend to our 25 regional operations across the country, ultimately aligning with head office directives. Concurrently, we must focus on capacity building at all these levels to ensure a smooth and effective transition.

We are on the cusp of a significant business shift, representing our main challenge in the upcoming year. Successfully navigating this change will require concerted effort, strategic planning, and adaptability across the entire organization.

   What is the biggest risk looming over the banking sector?

Clive: For me, the primary risk to our bank lies in the volatility of exchange rates and interest rates, with the latter posing a greater threat. Banks operate within Net Open Position (NOP) limits, which means our exposure to exchange rate fluctuations is somewhat controlled and doesn’t significantly impact us.

However, the situation with interest rates is different and more challenging. A large portion of our retail loans and advances are issued at fixed rates. We’ve witnessed interest rates surge from single digits to as high as 30%, which can have a profound effect on both the bank and our customers. It’s in everyone’s interest to maintain interest rates within a reasonable range.

While extremely low rates, such as 5-6% or single digits, might not be optimal, a manageable range, perhaps within a 2-4% band, is more practical and sustainable for us. Operating within this range would be favourable for the bank’s stability and our ability to serve customers effectively.

Jonathan: The people risk is a significant concern for me. As our youth are increasingly encouraged to seek opportunities abroad, the banking industry faces a staffing challenge. Determining our staffing strategy for the next five years, including recruitment and maintaining a diverse staff portfolio, is crucial. We must also be mindful of operating risks, especially in terms of security, encompassing technology, information security, cyber security, and physical security. The need for heightened awareness and preparedness has never been greater.

Credit risk remains a major concern. As Sanath mentioned, we need to diversify our portfolio, explore new areas, and fulfil our role as financial intermediaries by not limiting ourselves to only high-grade (AAA or AA+) lending. This approach aligns with the incoming regulations supporting a broader lending base.

However, political stability, economic stability, and policy consistency are vital for effective strategic planning. The current unpredictability makes it challenging to forecast key metrics like year-end exchange or interest rates. This volatility, with interest rates fluctuating drastically, complicates our lending strategies and balance sheet management, especially when fixed deposits are priced at higher rates.

Managing the balance sheet under these conditions is challenging. We recognize the need to manage capital efficiently, expand overseas, become more efficient, automate, and digitalize while enhancing our staff’s skills and knowledge. Support from the macroeconomic environment and fiscal policy would greatly aid our efforts. A more equitable tax system that doesn’t disproportionately burden the banking sector would also be beneficial. This holistic approach is essential for navigating the current challenges and ensuring the banking industry’s resilience and contribution to the economy.

Sanath: Jonathan emphasized the importance of policy consistency, which ties into the volatility Clive discussed. We must avoid prematurely celebrating our recovery over the last six months, even though it’s been better than IMF predictions. There are global examples showing that early celebrations can lead to a relapse if policy consistency and seriousness are not maintained. To prevent this, we need firm ownership of decisions and governance, especially in light of the upcoming election.

Short-term gains should not derail our economic course. Successful countries, like India, have demonstrated the value of maintaining policy consistency regardless of political changes. In contrast, our history of changing policies, straying from financial discipline with the IMF, and prioritizing votes over sound monetary practices has been detrimental. Additionally, the lack of transparency in how tax money is spent is a concern.

Therefore, it’s crucial to fix these policy-level issues and ensure serious, consistent adherence to sound economic principles. Only then can we look forward to a sustained period of celebration and economic growth?

   High taxation is something the banking industry has been living with for a long time. Do you think now is the time to start thinking about changing that?

Sanath: Addressing the tax challenges is crucial for the banking sector and the economy. Banks are currently subject to high tax rates, over 55%, and as employees, we have consistently paid our taxes. The economic crisis, originating from a fiscal deficit due to inadequate tax collection since 2019, highlights the need for broader tax reform.

We have repeatedly urged governments and institutions to expand the tax net instead of overburdening existing taxpayers. As the economy contracts, relying on the same tax base inevitably results in diminished returns. Other countries implement various methods to effectively tax their citizens. For instance, the recent budget proposal requiring tax files for opening bank accounts is a step in the right direction.

Additionally, leveraging technology can significantly widen the tax net. Simple measures, like recording petrol purchases via QR codes, using vehicle details from the RMV, and analyzing electricity bills, can help identify potential taxpayers. These methods can quickly increase the tax base.

Furthermore, enabling digital collection accounts for Inland Revenue, Customs, and other authorities through banks is a feasible solution that can be implemented in a few months. The banking sector is ready to support this digital transition, as demonstrated by past collaborations in vehicle imports and LCA amendments.

However, willingness at the highest levels is essential to make these changes effective. Without efficient tax collection, the country risks repeating the same economic cycles. Equally important is the transparent and responsible use of collected taxes. Without proper prioritization and accountability in spending, even increased tax revenues won’t resolve the underlying fiscal issues—it’s akin to filling a bucket with a hole.

What can the banks do to help the government widen this tax net? 

Jonathan: We initially had concerns about customer confidentiality in our banking operations, which is a cornerstone of our service. However, when it comes to regulatory bodies requesting information, we are obligated to comply, balancing confidentiality with regulatory requirements.

The recent budget mandate, requiring a tax identification number (TIN) to open a current account, is a step towards greater fiscal transparency. As Sanath pointed out, there are numerous ways to broaden the tax base, such as monitoring utility and telephone bills, and vehicle and property purchases.

Digitizing all government payments is another crucial aspect. Our aim to digitalize the country aligns with reducing the substantial cash economy. People earning cash from multiple sources often go unrecorded. Digitizing these transactions not only reduces cash circulation but also brings more transactions into the banking system for potential taxation.

Supporting SMEs and the microfinance sector is also pivotal. We can incentivize them to maintain proper accounts and pay taxes. For instance, offering lower interest rates or channelling low-cost funds from organizations like ADB to those who comply with tax regulations and produce audited accounts. Banks should consider lending practices that encourage fiscal responsibility, like refraining from lending against management accounts without audited financial statements.

Such measures will prompt more entities to maintain proper accounts and contribute taxes, ensuring a more equitable economic playing field. This holistic approach is vital for every participant in the economy, not just a select few.

Sanath: Implementing digital IDs is a crucial step towards modernizing and streamlining our tax system. If India can successfully create digital IDs for over a billion people, Sri Lanka can certainly achieve this in a relatively short time, possibly within a year. Digital IDs would link everything together, facilitating easier and more efficient tax collection.

In many developed countries, paying taxes is a routine and accepted duty, largely because it’s efficiently managed and everyone is expected to contribute their fair share. There’s less of a mentality of “if others aren’t paying, why should I?” which is something we need to address in Sri Lanka. In these countries, tax evasion is treated as a serious criminal offence, even for high-profile individuals like celebrities and sports stars. We need to foster a similar culture of fiscal responsibility and accountability.

As Jonathan mentioned, the digital connection of financial activities is key. For example, in India, QR payments have become widespread even for small transactions. This digitalization ensures that everyone contributes to the tax system, reducing the common complaint of unequal tax burdens.

To establish this culture, a strong initiative from the top is essential, coupled with a commitment to adhere to these new systems. This approach will not only streamline the tax process but also encourage a more equitable and responsible financial culture.

    It seems like our taxation administration and infrastructure are not ready to facilitate a widening tax net. How do we fix the capacity constraints at the tax administration level?

Sanath: Similar to the audit trainee schemes in audit companies, we can tap into the pool of aspiring accountants to strengthen tax collection efforts. By employing these graduate trainees in revenue authorities and equipping them with digital tools, we can significantly enhance monitoring and enforcement.

Imagine hiring 5,000 such trainees at a salary of 50,000 each. The potential revenue they could help collect would likely surpass the investment by 20 to 30 times. The primary issue currently is the inadequacy of the tax net and the lack of pursuit of those evading taxes. There are numerous untapped sources of revenue.

Additionally, there is no shortage of potential employees. Some government institutions reportedly have an excess of degree holders. Instead of employing them in roles that may not fully utilize their skills, why not deploy them in the Inland Revenue Authority, Customs, and other relevant departments? With proper training, these individuals could significantly contribute to tax collection, easily justifying their employment costs through the revenue they help generate. This approach would not only enhance tax collection efficiency but also provide meaningful employment to many graduates.

    In conclusion, can you tell us what gives you hope as we head into the future?

Jonathan: I am optimistic about Sri Lanka’s future and firmly believe we have a tremendous opportunity ahead. While some might view our current situation as being at rock bottom, with the only way forward being up, I see it differently. We frequently arrive at a crossroads, and now is the time to make the right choices.

We shouldn’t overly rely on further assistance from the IMF or expect more reschedulings and discussions. It’s crucial to make the most of the current situation. We need to overcome any signs of lethargy or procrastination and commit to our respective roles—whether as regulators, government officials, or private sector participants.

Every stakeholder, including those in charge of SOE divestment, small government management, and the private sector, must actively contribute. We should focus on managing our foreign exchange, boosting tourism, supporting exports, aiding migrant workers in establishing local businesses, fostering entrepreneurship, and enhancing transparency and governance.

Sri Lanka, with its unmatched beauty and wonderful people, should be a magnet for tourists and business investors alike. Our Board of Investment (BOI) should aim higher than its current achievements, looking to match or exceed the success of neighbouring countries.

This is a pivotal moment for Sri Lanka, and with honesty, dedication, and a collective effort, we can turn our situation around and realize the potential that our beautiful country and its people truly have.

Clive: Reflecting on our progress as a country, it’s evident we’ve come a long way and have faced tough decisions head-on. For instance, consider the significant increase in electricity prices, a move few anticipated. This decision exemplifies the difficult but necessary choices we’ve made. I commend the authorities for their willingness to take these bold steps.

Now, it’s crucial to maintain this momentum. We shouldn’t lose sight of our objectives or falter in our resolve. With these hard decisions behind us, I believe we are on a path of growth. Our focus should be on continuing this positive trajectory, ensuring that the strides we’ve made translate into sustainable progress for the country.

Sanath: The primary issue we face is a lack of effective leadership and political support. As I’ve mentioned before, our current situation is largely a man-made disaster. Rectifying this aspect could set many things right. However, this has been a persistent challenge for the last 50 to 60 years, leading to numerous missed opportunities.

Consider the multinationals that entered Sri Lanka only to leave, or the major universities that considered establishing campuses here. Even large manufacturing opportunities, which India capitalized on, were missed due to our lack of commitment. Time and again, it’s been clear that what we need most is dedicated leadership and a genuine willingness to contribute to the country’s progress.

With the right leadership and political will, Sri Lanka can undergo a significant transformation. Five years could be sufficient for a remarkable turnaround if these critical elements are in place. Our focus should be on cultivating this leadership and fostering a political environment that truly prioritizes the nation’s welfare.