ECONOMYNEXT – Sri Lanka had no practice of revealing International Monetary Fund programs to parliament early and tax changes can only be revealed to the parliament at the time of implementation, Central Bank Governor Nandalal Weerasinghe said.
Sri Lanka has had 16 IMF programs in the past after balance of payments trouble was triggered by Sri Lanka’s intermediate regime central bank which prints money to suppress market interest rates leading to forex shortages.
Sri Lanka’s finance minister usually signs a memorandum of economic policies with the IMF as part of a program, Governor Weerasinghe said.
“At that stage it has never been tabled in the parliament to my knowledge and has not even been submitted to the cabinet,” he said in a talk show hosted by Sri Lanka’s Newsfirst television.
While it was good for purposes of transparency to do that, there was market sensitive information in the program, he said.
Taxes are also not announced usually until they are implemented, he said.
“A lot of tax reforms cannot be informed to the parliament or announced in advance until that is basically implemented. Things like income taxes,” he said.
The IMF had mentioned wealth tax and higher income tax rates and base broadening and improving administration was part of the policies.
“Basically there is a limit to what can be shared with the public or parliament. It should be shared with the parliament because it is the authority on public finance,” Governor Weerasinghe said explaining past practices.
“At the time of implementation it will be submitted to the parliament, and then implemented.”
Harsha de Silva, who chairs the Committee on Public Finance of Sri Lanka’s parliament, has called for the IMF staff level agreement to be tabled.
Related Sri Lanka IMF deal should be tabled in parliament: Harsha
On a previous occasion current President Ranil Wickremesinghe promised opposition legislator M A Sumanthiran to also keep the parliament informed when the deal was struck.
It is not clear whether the staff level agreement will be shared with external creditors.
Sri Lanka’s recent IMF programs where the policies and targets contained in letters of intent signed by the Finance Minister and Central Bank Governor have been published by the Fund after they were approved by its Executive Board.
There have been accusations by activists that IMF programs are fundamentally illiberal and also undemocratic.
The IMF was set up mostly by New Dealers of the US, who were responsible for the most draconian economic interventions known in that country’s history during the 1930s which were also blamed on prolonging the Great Depression by triggering what is now called ‘Regime Uncertainty’.
US interventionists also devalued the dollar and barred the public from holding gold in the 1930s much like central banks in countries with monetary instability now print money to create forex shortage and cause police to arrest hapless members of the public who hold foreign currency to protect their meagre savings from the central bank.
However the Fund became more transparent from the mid-1990s and started to publish agreements and its economic analysis contained in Article IV staff reports with any market sensitive information redacted.
Sri Lanka’s central bank has sometimes blocked them.
There are also charges that state-owned central banks which impose a money monopoly on the people and where un-elected officials make decisions using illiberal and opaque processes to suppress market rates through ‘central bank independence’ are also undemocratic and unaccountable.
Sri Lanka is now set to create a law giving ‘independence’ to the central to operate discretionary ‘flexible’ inflation targeting and a ‘flexible’ exchange rate, which critics say is fundamentally flawed and was responsible to recent quick fire currency crises.
Meanwhile IMF official has said its plans has required that a 2023 budget to be made in line with the program be passed in parliament as a prior action to get public consent and legitimacy.
Sri Lanka started an unusually undemocratic practice of slamming taxes through midnight gazette and imposing new taxes after the budget especially in the 1970s going against the fundamental democratic practice of ‘taxation of consent’ which led to the birth of parliament in Britain.
Before parliaments were set up, taxes were imposed by ‘Royal Prerogative’ suddenly as in IMF programs and budgets in Sri Lanka.
However critics say through various practices including the midnight gazette, a ‘Minister’s Prerogative’ has returned.
Sri Lanka’s 2019 tax cuts were a classic case of violating the principle of taxation by consent. The taxes were done while there was no parliament – supposedly dating its roots to the Westminster system – even to rubber stamp it.
The principle of taxation of consent was established by the British Magna Carta after King John slapped a series of taxes known as scuttage; in the style Sri Lanka now slaps taxes without prior discussion on barons.
However barons, who had soldiers on their own, could fight back, unlike unarmed citizens of a modern nation state.
Royal prerogative on tax was formally abolished by the British Bill of Rights after William and Mary took the throne.
In Sri Lanka taxes were cut administratively in 2019 December apparently by “President’s Prerogative’ by interventionist economists to target a ‘persistent output gap’ with a deficit (fiscal stimulus).
Money was then printed by the central bank in large volumes to trigger excessive outflows and imports, make it impossible to collect dollars to repay debt from current inflows and eventually a pegged exchange rate was broken plunging the people into penury. (Colombo/Sept06/2022)