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Saturday June 15th, 2024

National security concerns over Sri Lanka Telecom shares sale unfounded: Harsha

ECONOMYNEXT – Robust regulation is the best way to address any national security concerns associated with telecommunication services, and questions of ownership are largely immaterial, according to opposition MP Harsha de Silva.

The main opposition Samagi Jana Balawegaya (SJB) legislator told EconomyNext Saturday June 10 morning that fears of a national security risk posed by the proposed sale of Sri Lanka Telecom (SLT)’s shares have no basis in fact.

While risks certainly exist, said de Silva, appropriate regulation is the way to mitigate them.

The MP, who also chairs the parliamentary Committee on Public Finance (COPF), was commenting on a recommendation made by the Sectoral Oversight Committee on National Security that SLT should not be further divested as doing so could “expose the country’s strategic communication infrastructure and sensitive information to private companies that are motivated by profit, which could pose a threat to national security”.

MP de Silva said that, since telecom operators are issued a license to use the frequency spectrum, which is public property, the regulator has the authority to withdraw the license in the event of any violation. It is the regulator’s responsibility, he said, to enforce adherence to standards of quality of service, cyber security, data protection and other considerations.

“Therefore, the ownership of the infrastructure is not really going to be a deciding factor,” he said, noting also that the phone numbers for the president, prime minister and the chief of defence staff saved on his own phone were all issued by a private operator.

“What happens if somebody calls from a Mobitel phone to [said private operator’s] number?”

Incidentally, Mobitel, SLT’s mobile network, was a build-operate-transfer project by Australia’s Telstra.

“It is how you make regulations and operating procedures that will ensure the safety of data. I do appreciate that there is a possibility for snooping, and cyber security threats do exist. But the way to mitigate those risks is through appropriate regulation,” said de Silva, citing examples from the United States and elsewhere.

The US Federal Communications Commission (FCC) in November 2022 banned approvals of new telecommunications equipment from China’s Huawei Technologies and ZTE citing an “unacceptable risk” to U.S. national security.

This, too, was done through regulation, noted the MP, reiterating that a robust regulatory framework  was “absolutely” sufficient.

While this is the MP’s personal view, the SJB has yet to officially communicate the party’s position on the committee’s recommendation. However, de Silva said his party will likely share his opinion on the matter upon discussion.

“I can’t tell you exactly what the party view is going to be, but as a senior member I can tell you that my views would certainly influence the view of the party at the end of the day,” he said.

The SJB as recently as early May expressed opposition to the privatisation of strategically important state-owned enterprises (SOEs) while also advocating an end to state monopoly in sectors like power and energy through competition.


Sri Lanka’s SJB opposes sale of strategic SOEs, wants competition

Meanwhile, the president’s office has all but snubbed the Sectoral Oversight Committee’s report on the sale of SLT’s shares, noting that it “lacks a logical or scientific data analysis pertaining to the subject matter.”

However, the cabinet of ministers will peruse the committee report and also consider recommendations from the information and communications technology (ICT) sector before arriving at a final decision on Monday June 10, a statement from the president’s office said Friday evening.

Former Director General of Telecommunications Prof Rohan Samarajiva has also dismissed the concerns raised by the oversight committee. Its recommendations were baseless and betrayed an ignorance of the history of Sri Lanka’s telecommunications sector as well as developments in the region, he told EconomyNext on Friday.


Opposing Sri Lanka Telecom share sale on national security grounds baseless: expert

The subject of SOE reforms in the wake of Sri Lanka’s agreement with the International Monetary Fund (IMF) has been politically sensitive with various groups including sections of the opposition accusing the government of “selling national assets”, which critics say has become a euphemism for increased state participation in the economy. It has also been a rallying cry of the leftist National People’s Power, led by the Marxist-Leninist Janatha Vimukthi Peramuna (JVP) which has historically opposed privatisation of most SOEs. The administration of President Ranil Wickremesinghe, however, has defended their reform agenda as being vital for economic recovery as well as for Sri Lanka’s long term development. (Colombo/Jun10/2023)

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  1. Trevor Perera says:

    Harsha, are you now saying this because you were given the Chairmanship by the ruling Government? You would probably say the complete opposite if you were denied this position. Furthermore, you are no expert in this field to make such a judgement.

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  1. Trevor Perera says:

    Harsha, are you now saying this because you were given the Chairmanship by the ruling Government? You would probably say the complete opposite if you were denied this position. Furthermore, you are no expert in this field to make such a judgement.

Sri Lanka beats key IMF program targets for March 2024 amid rupee stability

ECONOMYNEXT – Sri Lanka has exceeded key quantitative targets set in an International Monetary Fund program for March 2024, based on preliminary data the Washington based agency said in a report.

The March data are not performance criteria on which reviews are conducted but are indicative targets which shows the progress of the program and are a stepping stone for a September review based on June data.

An indicative target for the primary balance (roughly overall deficit minus interest costs), was assessed at 316 billion rupees more than four times the 70 billion rupee target set in the program.

Primary balance can be a big surplus if the interest bill is high and capital expenditure is cut and is a type of crisis management tool after a central bank triggers a currency crisis by cutting rates with inflationary liquidity tools.

However, Sri Lanka’s Treasury has also kept a lid on most current spending. A state salary hike is however due after the currency collapse made life difficult for everyone.

Meanwhile more taxes have been collected from the people to finance the island’s bloated state.

A 750 billion rupees central government tax revenue floor has been exceeded to reach 837 billion rupees.

Central bank credit to government (outstanding stock) has been reduced to 2,691 billion rupees in March compared to a target of 2,800 billion rupees. In December the CB credit was calculated 2,742 billion rupees.

Net international reserves of the central bank were brought up to a negative 1,268 million US dollars exceeding the target of a negative 2,035 by almost 700 million dollars.

In order to collect foreign reserves, which is a type of appropriation of domestic savings of the people by the central bank (taking in deposits) and exporting it to the US and other countries to finance their deficits or by other agency debt in reserve currencies.

In order to collect such ‘deposits’ the central bank has to prevent them from being invested domestically.

It is achieved with deflationary policy through sell-downs of down its Treasuries holding to domestic banks or others, at a market rate, collecting interest from the government or repayments of re-finance credits, subject to any nominal changes in reserve money at a given exchange rate.

In 2024 the central bank allowed the exchange rate to appreciate, which can also reduce prices of traded goods boost real and nominal savings and make it easier to collect foreign reserves.

When domestic credit is weak it is easier to collect reserves. Reduced domestic credit and collection of reserves, including by private banks which then cannot be invested domestically, can push the external current account into surplus.

The central bank also met a 5 percent 12-month inflation target, with an achievement of 4.3 percent.

Sri Lanka’s economy grew 5.3 percent despite reserve collections, amid the stability provided by the central bank.

There were no central bank purchases of Treasuries from the primary market.

However the central bank injected overnight and term money to banks (not on a net basis) showing how easy it is for a rate-obsessed monetary authority to get around the requirement and create external instability again as soon as private credit recovered.

The central bank also allowed excess liquidity from dollar purchase to remain unsterilized for an extended period under its ad hoc pegging arrangement, getting a short term falls in rates, but triggering pressure on the rupee as a result in May and June.

It is not possible to collect reserves with a free floating exchange rate. (Colombo/June15/2024)

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Sri Lanka GDP grows 5.3-pct in first quarter of 2024 amid monetary stability

ECONOMYNEXT – Sri Lanka’s gross domestic product grew 5.3 percent in the first quarter of 2024 data from the state statistics office showed as the central bank continued to refrain from generating monetary instability.

Instead of printing money to cut rates under ‘flexible inflation targeting’ and printing money to boost growth by taking into account ‘potential output’ as permitted by its new monetary law, the central bank ran deflationary policy and also allowed the rupee to appreciate.

“The Sri Lanka economy experienced a more favorable economic condition[s] in the first quarter 2024, when compared to the first quarter in the year 2023,” the Department of Census and Statistics said.

“The high inflation had prevailed in the first quarter of year 2023, gradually reduced to a lower level by the first quarter of 2024 and this low inflation incentivized the economy by providing inputs at [a] much lower price.

The agriculture sector grew 1.1 percent in the first quarter of 2024, after also growing 1.6 percent last year.

Industry grew 11.8 percent in the first quarter, against a 24.3 percent last year.

The economy grew amid falling prices, the statistics office said in sharp contrast to the Anglophone macroeconomic claim that inflation is needed to boost growth, on which Sri Lanka has 5-7 inflation target has apparently been set.

Related Sri Lanka central bank pushing for high inflation target to boost growth

“Among ‘Industrial activities’, coinciding with the decline in input prices, the ‘Construction industry’ grew by 14.2 percent, parallel to this, the ‘Mining and quarrying’ industry too expanded by 18.3 percent during this quarter,” the Statistics Department said.

Sr Lanka’s services sector grew 2.6 percent, against a decline of 4.6 percent recorded last year.

The International Monetary Fund has also urged the central bank to give priority to stability.

Sri Lanka dropped the stability mandate in the earlier monetary law which was violated after the end of a civil war to push the country into serial currency crises especially after the International Monetary Fund gave technical assistance to calculate potential output.

Related Sri Lanka has a corrupted inflation targeting, output gap targeting not in line with monetary law: Wijewardena

Sri Lanka survived a 30-year civil war by giving priority to a stability mandate despite shortcomings in its operational framework but defaulted in peacetime amid activist monetary policy which denied monetary stability to the people. (Colombo/June12/2024)

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Sri Lanka’s NPP notes five-point crisis for economic growth sans details

Former JVP MP Sunil Handunneththi

ECONOMYNEXT — The leftist National People’s Power (NPP) has identified five crises that need resolving for Sri Lanka’s economy to progress, much of which emphasise a production economy targeting export growth though sparse on the detail on resource allocation.

NPP spokesman and former parliamentarian Sunil Handunneththi speaking at an event in Mulaitivu on Thursday June 13 said Sri Lanka is grappling with firstly, a collapse of the production economy, second, a budget deficit, third, a balance of payment crisis which has, fourthly, created a debt crisis, and finally, a resultant gap between haves and have-nots.

“We must first understand the crisis. We reocgnise five main crises that have the same impact irrespective of differences between the north and south.

“The first is the collapse of the production economy. We can see this historically. Agriculture that used to be some 30 percent of gross domestic product (GDP) has now fallen to 8 percent. Essential food is imported. We cannot produce the rice needed for the small population here. Things that can be made here are also imported.

“Second is the income crisis. For the people, their expenses are twice their income. The budget deficit is two or three-fold every day. Banks cannot give loans to businesses and industries because the government takes funds to address the budget deficit. The government takes most of the people’s savings for this,” he said.

The balance of payment crisis Sri Lanka is facing the third crisis, according to Handunneththi, which has triggered a debt crisis, in turn leading to a crisis of income disparity among the people.

“Third is the balance of payments crisis. Imports are two or three fold export income. The government has to take 11 to 12 billion US dollars in loans from foreign countries. When GDP is 80 billion US dollars, debt has gone over 100.”

“All this creates a massive gap between haves and have-nots. Without finding solutions to these crisis, there is no point distributing goods,” he said.

Handunnethi’s remarks appear to be departure from the NPP’s anti-corruption rhetoric which had centred its economic development policy agenda primarily on fighting corruption.

‘Fighting corruption’ and ‘recovering stolen assets’ have been popular slogans since the Aragalaya protests in Sri Lanka and the NPP has made it its central theme in its bid for power. The leftist outfit had also adopted a position that’s cautiously critical of the International Monetary Fund (IMF) and the reforms the international lender has prescribed for Sri Lanka in exchange for a 2.9 billion-dollar bailout.

However, NPP leadership had recently acknowledged the need to continue the IMF programme since the agreement has already been signed.

The Marxist-Leninist Janatha Vimukthi Peramuna, which controls the NPP, though it was never in government barring a brief stint in an Sri Lanka Freedom Party (SLFP)-led coalition in the early 2000s, has been instrumental in driving popular support against privatisation.

Three key policy pillars articulated by the JVP from 2001-2004 and embraced by mainstream politician Mahinda Rajapaksa’s administration in 2005 onward have been highlighted by experts.

From 2005, Sri Lanka halted privatisation, started recruiting tens of thousands of unemployed graduates into the public service every year with lifetime pensions, expanding an already bloated public sector and denying any benefit of a peace dividend to the country.

Sri Lanka also abandoned a price formula for fuel that had helped keep the rupee stable and inflation low from 2001 to 2003 even as global commodity prices went up from the ‘mother of all liquidity bubbles’ fired by the Federal Reserve from 2001.

From 2001 to 2003, state workers fell from 1.164 million to 1.043 million. By 2020, the public sector cadre has grown to 1.58 million with another batch of 53,000 unemployed graduates being paid tax money. (Colombo/Jun14/2024)

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