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Monday February 6th, 2023

Sri Lanka’s new central bank chief slams ‘neo-liberalism’

ECONOMYNEXT – Sri Lanka’s appointed central bank governor W D Lakshman said he wanted find alternatives to ‘neo-liberal’ policies that the island is said to follow, as there was a prevalence of poverty, under-employment and employment despite multiple state programs to change.

“Decision makers in different sectors of the economy are confronted with challenge of searching and identifying alternative policy sets of greater efficacy than the neoliberal policy set we have been working on so far,” Lakshaman told reporters after his first monetary policy meeting.

“I hope to be able to make my contribution in this search for alternatives.”

In Sri Lanka, policies followed by the United National Party under Ranil Wickremesinghe at one time were labeled neo-liberal by opposition activists such as Wimal Weerawansa who also wrote a book, Ratata Uwamana Wama.

Neo-liberalism also referred to policies devised in the 1980s developed by Western advocates as a push back against Keynesian style interventionism that became popular in the West and developing countries backed by unstable currencies.

Both UK and US currencies and Bretton Woods system itself collapsed in the late 1969 and 1970s, leading to stagflation in the West and the complete closure of Sri Lanka’s entire economy in the decade.

The UK also expropriated with leftist in power after World War II, and illiberal rulers in newly independent nations followed suit, expropriating both local and foreign investors, reversing freehold land and creating state Mercantilist monopolies in the style of the Dutch and Britsh East India companies, critics say.

Though Sri Lanka opened the economy in 1980s, there was no monetary stability, leading high inflation and depreciation.

The Keynesian interventionist policies were not adopted by Germany, Japan, Hong Kong or Singapore or Malaysia who opted for classical liberal style sound money as a foundation for policy.

Countries in Latin American in particular which had some of the worst soft-pegged central banks in the world – set up at the behest of US in some cases – also faced debt and currency crises.

Argentina whose GDP was a little behind the US and sometimes exceeded it began to decline rapidly after the BCRA was set up in 1935 and is an example to the world of bad central banking and debt/currency crises.

This led to a set of policies called the Washington consensus, involving free trade, smaller deficits, cutting state spending, lower marginal tax rates, respecting property rights, promoting foreign direct investment, but also more flexible exchange rates.

The semi-floating exchange rates however failed to provide monetary stability in many countries, dragging down entire policy frameworks including in Sri Lanka in the 1980s.

‘Neo-liberalism’ may however have more or less elements depending on who defines it.

“Questions are being raised extensively about the validity and relevance of Washington Consensus on neo-liberal type of policies to achieve the desired goals of inclusive, sustainable and shared development,” Governor Lakshman said.

“This questioning may also apply to central banking nowadays.”

Washington consensus was a term coined by British Economist John Williamson, and is also broadly called neo-liberal by some.

Many of the best performing countries in East Asia also followed policies of free trade, foreign direct investment, backed by hard money central banks with strong pegs or currency boards.

East Asian nations were among the first in the world to draw large volumes of foreign direct investments and benefitted from the wave of trade liberalization advocated by liberal policy makers, building so-called global value chains by exporting to the Western nations which had cut import duties.

Later countries like Vietnam also adopted similar policies, freeing trade – with no domestic crony private sector to oppose it – scrapping price controls and duties on especially on agriculture and fixing its central bank, drawing in FDI and now engaging in mass privatization.

Governor Lakshman said Sri Lanka had depended too much on debt and there was not enough foreign direct investment.

Analysts however had pointed out that Sri Lanka’s last UNP administration followed broadly illiberal policies of monetary instability, including currency depreciation to help export special interests at the expense of society, price controls, retrospective taxes, no privatization, pushing up state salaries, licensing and re-regulation.

The mis-mash of consfused policies had been dubbed ‘neo-illiberal’ by some.

You may also read:

Sri Lanka heading for Sozialpolitik not a social market economy : Bellwether

What went wrong; Sri Lanka’s illiberal economics and unsound money: Bellwether

Sri Lanka to ban grain imports in neo-illiberal high

The current administration has however cut taxes saying too many taxes were stifling the private sector, cut the marginal personal income tax rate to 18 percent, so that it works like a flat tax demanded by hard-right libertarians and also promised to de-regulate.

High rates of income tax destroy capital, investments and future jobs. (Colombo/Dec27/2019  – Update II)

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  1. Nick Hart says:

    Hmm. Head-in-the-clouds government policies will never work unless they are vigorously and fairly applied at ground level by the appropriate authorities.

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  1. Nick Hart says:

    Hmm. Head-in-the-clouds government policies will never work unless they are vigorously and fairly applied at ground level by the appropriate authorities.

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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