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Monday February 6th, 2023

Controversies Highlight Need For Greater Mindfulness About Repercussions

ECONOMYNEXT – The formulation of the draft 20th Amendment and its unanimous acceptance by the cabinet is indicative of President Gotabaya Rajapaksa’s dominant role in the government. The unanimous cabinet decision to approve amendment uncritically has paved the way for the political embarrassment the government currently faces with no one prepared to accept responsibility for it. It, therefore, took more than a week for the government to reach an agreement to appoint a committee to review the 20th Amendment after strong opposition criticisms highlighted several problems in the draft law. The president’s role stems from both his track record and popularity with the majority who voted for him and what he stands for. The president is seen not only as a leader who is committed to strengthening the country but also as a leader who will get things done with firm resolve.

Among those that the president is impressing are sections of the business community especially those who are seeking to be producers rather than traders. They see the president as being willing to cut through bureaucratic hurdles and provide approval for productive enterprises without getting tied down in problems of getting permits and approvals. Obtaining these permits which have proven to be tedious and discouraging in the past due to both inefficiency and attempts by those playing gatekeeper roles to extract bribes. The government’s prioritization of development as the way forward by expending decision making processes, both to improve the living standards of people and to make conflicts less intractable may explain some of its more controversial actions.

The permission given to engage in developmental activities in environmentally protected spaces is an indicator of the privileged position given to the goal of fostering development. The government is trying to promote import-substitution policies as the country is suffering from a foreign currency deficit in the aftermath of the Covid pandemic. Large loans taken in the past have to be repaid, foreign remittances from migrant workers have fallen and exports are more difficult with the results that imports need to be curtailed. It will be necessary for the government to be mindful of the inter-connections and the repercussions that can follow. A step by step approach might be preferable in reorienting the economy into one in which domestic production is prioritized as many economic outputs require imported inputs.

Natural Environment

Two of the main political debates in the country at the present time concern the 20th Amendment and the issue of environmental degradation that is taking place. There is an element of excess in both of these which need to be considered. An example would be the construction of a road in the protected reserve of the Sinharaja forest. The government’s go-ahead to develop the road was justified on the basis of impoverished village people asking for a wider road that would ease their burdens of transport and access to the markets outside. However, this same incentive would motivate others with much greater resources to come to that area and make use of the road for their own commercial benefit that could lead to greater deforestation. Environmentalists have complained that the road expansion is already causing many disturbances to the forest including illicit felling, removing soil and dumping it on slopes. An option to have considered would have been the relocation of the village rather than harming the forest.

In the aftermath of the new government coming to power, there has been a spate of development activities at the cost of the environment. Lagoons and forest lands are being utilized for development activities in many places. There is a need for Environmental Impact Assessments (EIA) of these activities. EIA is a process of evaluating the likely environmental impacts of a proposed project or development, taking into account inter-related socio-economic, cultural and human-health impacts, both beneficial and adverse. In addition, cost-benefit analysis needs to be done that goes beyond mere finances, but also includes social and long term costs and benefits.

Social cost-benefit analysis is a method to survey all the impacts caused by a development project or other policy measure. It comprises not just financial effects such as investment costs, direct benefits like profits and taxes but all the societal effects such as pollution and the impact on the environment. The main aim of social cost-benefit analysis is to attach a price to as many effects as possible in order to uniformly weigh the above-mentioned heterogeneous effects. As a result, these prices reflect the value society attaches to the caused effects, enabling the decision-maker to form an opinion about the net social welfare effects of a project.

Such a social cost-benefit analysis would incorporate factors such as the affinity of high-end tourists for Sri Lanka’s natural environment and for ethical development. Due to the three decades of war and the many atrocities that occurred during that period, Sri Lanka has gained an unfavourable international image that was being improved in the aftermath of the end of the war and the commencement of the national reconciliation process. However, the government’s withdrawal in February 2020 from the commitments given to the UN Human Rights Council in October 2015 and the failure to replace them with an indigenous model as promised can continue to jeopardise the country’s international image. There is a need for the government to be mindful of the repercussions of what it is doing. Political leadership involves all-round assessments much as a social cost-benefit analysis is needed in development project activities.

20th Amendment

A similar approach is needed in the case of the controversy that has erupted over the 20th Amendment. This constitutional amendment has been put on hold with a government-appointed committee to go into it and propose further amendments. The main feature of this proposed law is to transfer power away from other institutions and place it with the presidency. Both parliament and the judiciary which, together with the executive, form the three great branches of government, will become subordinate to the presidency if the 20th Amendment is passed into law in its current form. The question is the degree to which the strengthening of the presidency is appropriate in the context of constitutional governance.

The protests against the 20th Amendment have grown stronger with the passage of just a week. Initially, it was only the opposition parties that objected to it and raised their voice against it. But now even sections of the government and state apparatus have become emboldened to speak against the proposed law. The Sri Lanka Audit Inspectors’ Association has sent a letter to the president stating that the proposed 20th Amendment will harm the independence of the Auditor-General and the scope of public audit, and also to the mechanism for the exercise of public financial control. They have pointed out that several government departments and some 120 State-owned companies will be exempt from centralized government audit under the proposed 20th Amendment to the Constitution.

Objections have also begun to be voiced by government parliamentarians themselves. The 20th Amendment gives the president the power to dissolve the parliament after a year of its election and to sack the prime minister and any minister at any time and appoint others in their place. This may not be a problem at the present time when President Gotabaya Rajapaksa’s own elder brother is the prime minister. But this can become a problem in the future when different individuals are in those important positions. For longer-term democracy and political stability different arms of the government should not be subservient to the other but have their values and powers intact for better governance. The key factor to keep in mind is that politics and development are not only about going from one point to another in a straight line or in the shortest possible time. There is a need for greater mindfulness about possible repercussions and assess whether the overall cost-benefit analysis is positive.

Jehan Perera is the Executive Director of the National Peace Council

(Colombo, September 15, 2020)

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Sri Lanka to address SME tax problems at first opportunity: State Minister

ECONOMYNEXT – Problems faced by Sri Lanka’s small and medium enterprises from recent tax changes will be addressed at the first opportunity, State Minister for Finance Ranjith Siyambalapitiya said.

Business chambers had raised questions about hikes in Value Added Tax, Corporate Income Tax and the Social Security Contribution Levy (SSCL) that’s been imposed.

It should be explored on how to amend the Inland Revenue Act, Siyamabalapitiya said, adding that the future months should be considered as a period where the country is being stabilized.

Both the VAT and SSCL are effectively paid by customers, but the SSCL is a cascading tax that makes running businesses difficult.

In Sri Lanka SMEs make up a large part of the economy, accounting for 80 per cent of all businesses according to according to the island’s National Human Resources and Employment Policy.

(Colombo/ Feb 05/2023)

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Sri Lanka revenues Rs158.7bn in Jan 2023 up 51-pct

ECONOMYNEXT – Sri Lanka’s government revenues were 158.7 billion rupees in January 2023 but expenditure and debt service remained high, Cabinet spokesman Minister Bandula Gunawardana said.

In January 2022 total revenues were Rs104.5 billion according to central bank data.

Sri Lanka’s tax revenues have risen sharply amid an inflationary blow off which had boosted nominal GDP while President Ranil Wickremesinghe has also raised taxes.

Departing from a previous strategy advocated by the IMF expanding the state and not cutting expenses, called revenue based fiscal consolidation, he is attempting to do classical fiscal consolidation with spending restraint.

President Ranil Wickremesinghe has presented a note to cabinet requesting state expenditure to be controlled, Gunawardana told reporters.

State Salaries cost 87.4 billion rupees.

Pensions and income supplements (Samurdhi program) were29.5 billion rupees.

Other expenses were 10.8 billion rupees.

Capital spending was   21 billion rupees.

Debt service was 377.6 billion rupees for January which has to be done with borrowings from Treasury bills, bonds and a central bank provisional advance of 100 billion rupees, Gunawardana said.

Interest costs were not separately given. (Colombo/Feb05/2023)

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Sri Lanka’s Ceylon Tea prices down for second week

ECONOMYNEXT – Sri Lanka’s Ceylon Tea prices fell for the second week at an auction on January 31, with teas from all elevations seeing a decline, data showed.

“In retrospect, the decline in prices would be a price correction owing to the overall product quality and less interest from some key importers due to the arrival of cargo at destinations ahead of schedule,” Forbes and Walker tea brokers said.

The weekly sale average fell from 1475.79 rupees to 1465.40 rupees from a week ago, according to data from Ceylon Tea Brokers.

The tea prices are down for two weeks in a row.

High Growns

The High Grown sale average was down by 20.90 rupees to 1380.23 rupees, Ceylon Tea Brokers said.

High grown BOP and BOPF was down about 100 rupees.

“Ex-Estate offerings which totalled 0.75 M/Kg saw a slight decline in quality over the previous week” Forbes and Walker said.

OP/OPA’s in general were steady to marginally down.

Low Growns

In Low Grown Teas, FBOP 1 was down by 100 rupees and FBOP was down by 50 rupees while PEK was up by 150 rupees.

The Low Growns sale average was down by 8.55 rupees to 1547.93 rupees.

A few select Best BOP1s along with Below Best varieties maintained.

OP1                     Select Best OP1’s were steady, whilst improved/clean Below Best varieties maintained.   Others and poorer sorts were easier.

PEKOE                 Well- made PEK/PEK1s in general were steady, whilst others and poorer sorts were down.

Leafy and Semi Leafy catalogues met with fair demand,” Forbes and Walker brokers said.

“However, the Small Leaf and Premium catalogues continued to decline.

“Shippers to Iran were very selective, whilst shippers to Türkiye and Russia were fairly active.”

This week  2.2 million Kilograms of Low Growns were sold.

Medium Growns

Medium Grown BOP and BOPF fell by around 100 rupees

The Medium Growns sale average was down by 33.40 rupees to 1199.4 rupees.

“Medium CTC teas in the higher price bracket witnessed a similar trend, whilst teas at the lower end were somewhat maintained subject to quality,” Forbes and Walker brokers said.

“Improved activity from the local trade and perhaps South Africa helped to stabilize prices to some extent.”

OP/OPA grades were steady while PEKOE/PEKOE1 were firm, while some gained 50-100 rupees at times.

Well-made FBOP/FBOPF1’s were down by 50-100 rupees per kg and more at times.

(Colombo/Feb 5/2023)

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