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Monday February 6th, 2023

Crisis-hit Sri Lanka’s President banks on automation, robots to face aging population

ECONOMYNEXT – Sri Lanka may be looking at automation and robotics as potential solutions to labour shortages brought on by the country’s aging population amid a sharp rise in migration of skilled and unskilled labour, according to a remark by President Ranil Wickremeesinghe.

“Our population profile suggests there will be more older people and fewer young people. Why don’t we start now with being semi-automated and then go on to automation, to robotics?” Wickremesinghe said addressing the Post-Budget Forum 2023 organised by the Colombo University MBA Alumni Association last week.

An official from the Ministry of Technology told EconomyNext that the department under whose purview robotics comes is not functioning at present due to a staff shortage.

According to the World Bank report in 2021, Sri Lanka holds an aging population of 12.3 percent, showing the highest proportion of adults over 60 in the South Asian region.

The privately owned Sunday Times newspaper reported that Sri Lanka’s aging population for 2022 could be up to 16 percent and could increase up to 23 percent by 2032.

A research by H R Anulawathie Menike from the Kelaniya University shows that the high rate of aging population is due to a decrease in the rate of fertility, a decrease in child population and a drop in the rate of mortality, all contributing to increased life expectancy.

“In order for automation and robotics to be implemented in Sri Lanka, it must be established with clarity. For optimum results to be seen it will take two to three years. You cannot expect overnight results,” said Silmy Ahamed, an IT specialist.

“Sri Lanka has a decent workforce that can undertake these futuristic measures, but there are certain inefficiencies. Cost of automation is also a potential downfall.”

Speaking at the event, President Wickremesinghe said: “We might as well encourage for automation and robotics, for which we need a completely new system of education.”

The president stated that he had been criticised for the budget having insufficient allocation for education for 2023, as the country’s Education Ministry is still recovering from the pandemic.

“Even if you give more money, they will not be in a position to spend that money effectively. It is much better to plan and give them more money from next year onwards,” he said.

Nihal Ranasinghe, Secretary to the Ministry of Education, told EconomyNext that a draft policy document will be submitted to the president with regard to island-wide implementation of new procedures and developments that can be undertaken.

“The policy covers all these new developments that can be undertaken for futuristic approaches,” he said.

The official said that assistance is also being provided by the Asian Development Bank (ADB), the World Bank and UNICEF.

Senior Research Fellow at LIRNEasia Sujata Gamage told EconomyNext: “These are pipe dreams because our young people are leaving and when they leave who is going to assemble and put all this technology in place?

“To do automation and robotics we need a prepared population. They want to teach Artificial Intelligence (AI) in schools. That’s nonsense. They can barely teach and use Microsoft Word,” said Gamage.

Although Sri Lanka strives to leap into automation and robotics several industries claim that the country is not cash ready and culturally ready to accept the technological challenges posed. (Colombo/Nov21/2022)

 

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Sri Lanka’s banks may have to re-structure loans caught in progressive tax

ECONOMYNEXT – Sri Lanka’s banks should explore restructuring loans of salaried employees hit by progressive tax, Central Bank Governor Nandalal Weerasinghe said as progressive income taxes were imposed at lower thresholds amid high inflation following a sovereign default.

There have been complaints mainly by picketing state enterprise executives and also other workers of such agencies such Sri Lanka Port Authority that high progressive taxes were putting their bank accounts into overdraft after loan installments were cut.

“Yes, they have mentioned that,” Governor Weerasinghe said responding to questions from reporters.

“We have told the banks earlier as well. Because the interest rates are high and their business being reduced, the SME sector, the repaying capability has reduced.

“We have told them to explore their repaying capabilities and restructure their loans in order to safe guard both sides. At this time also we are asking the banks to do that.”

In the case of some state enterprises, the Pay-As-You-Earn tax, through which income tax is deducted from salaried employees in the past was not paid by the employee but the SOE.

Bad loans of the banking system overall had risen after the rupee collapsed, reducing the spending power in the economy, while rates also went up as money printing was scaled back, foreign funding stopped and the budget deficit widened.

The rate hike has prevented possible hyperinflation and a bigger implosion of the economy by stabilizing the external sector in the wake of previous mis-targeting of interest rates.

In the current currency crisis a delay in an IMF program due to China not giving debt assurances as well as fears of domestic debt re-structure has kept interest rates elevated.

Sri Lanka’s economic bureaucrats in 2020 cut taxes and also printed money, in a classic ‘Barber Boom’ style tactic implemented by UK economists and Chancellor Anthony Barber in 1971 to boost growth and employment.

The ‘Barber Boom’ ended in a currency crisis (at the time the UK did not have a floating rate and the Bretton Woods system was just starting to collapse under policies of Fed economists) and inflation of around 25 percent in the UK.

The UK implemented a three-day working week to conserve energy after stimulus while Sri Lanka saw widespread power cuts as forex shortages hit.

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Anthony Barber budget of 1971

Anthony Barber budget of 1972

Similar policies saw a worldwide revival as the US Fed economists injected money during the Covid crisis mis-using monetary policy to counter a real economic shock and boost employment while the government gave stimulus checques.

Now the world is facing an output shock as a hangover the Covid pandemic recedes.

The re-introduction of progressive tax at a maximum rate of 36 percent while tax brackets high jumped with the rupee collapsing from 200 to 360 to the US dollar had reduced disposable incomes further.

Salaries employees were encouraged to get loans in 2020 with the central bank mandating a 7 percent ceiling rate for five years.

However, any borrower who got loans on floating rates long before the scheme are now facing higher rates. (Colombo/Feb06/2023)

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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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