By Harsha Gunasena –
Harsha Gunasena
President Ranil Wickremesinghe in the capacity of the Minister of Finance presented the interim budget 2022 to the parliament recently. According to this budget proposals the economic direction of the country would be transformed in the sense the government would reduce its involvement in economic activities and would focus more on regulation.
The governments of Sri Lanka have, from time to time, changed the economic direction of the country and in some instances, it was a 180-degree reverse affecting the economy of the country. Now it is an essential decision change this direction since the economy of the country has fallen due to the imprudent economic direction the country followed.
President Ranil Wickremesinghe
This change is not in line with the political ideology of the Podujana Peramuna. However, they have taken practical decisions against their political ideology. Basil Rajapaksa presenting the 2022 budget to the parliament told that there were around 300 government enterprises and the government invested around Rs. 670 Billion. The government pumps annually around Rs. 75 Million to maintain those enterprises. He suggested efficient management to reduce this waste.
Profits can be improved by efficient management. Temasek Holdings owned by the government of Singapore is one such organization. In Sri Lankan political culture, which is a subset of a larger Sri Lankan social culture, a friend or a relative is selected over the qualified and the competent. The Singaporean Prime Minister changed this social and political culture forcibly.
The JVP is of the view and emphasizes that the political culture of Sri Lanka should be changed. Yes, it should be changed. Not only that, the social culture also should be changed as did by Lee Kuan Yew.
If the government can be smaller and focuses on regulation it would have a positive impact on reduction of the budget deficit which is a burning issue. Following is an incident where the dominant ideology of the country, that treating the known well over the natural justice and keeping the business entities in the possession of the government irrespective of the results, is upheld.
When Mahinda Rajapaksa was the president, SriLankan Airlines which was managed profitably by Emirates at that time, was requested to offload 30 passengers who have paid for their tickets and confirmed the passage in order to accommodate the president and his party who were not on official visit. Naturally the request was not accommodated. In retaliation the then president cancelled the resident visa of the Head of Emirates in Sri Lanka, whose wife was a Sri Lankan, and taken steps to take back SriLankan Airlines. The airline is in the front among the loss-making government entities and the losses are compensated even by the people who have never visited the airport.
The president identified in the budget speech that SriLankan Airlines, Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) were the prime institutions for restructuring. Stated capital, reserves and accumulated profit of Sri Lankan Airlines as at 31 March 2021 was Rs. 281 Billion negative and the loss for the same year was Rs. 45 Billion. Recently privatized Indian national carrier Air India was a much bigger company with much bigger losses.
The restructuring process of CEB and CPC was already started. Electricity and fuel prices were increased and brought to the level where there were no subsidies. Therefore, there should be a reduction of prices paid by the consumer.
It was proposed that 20% of the shares of Bank of Ceylon and Peoples Bank to be offered to the depositors and the employees. The main reason was that to improve the liquidity of those banks and the government was unable to do so. Parliamentarian Champika Ranawaka said that there was no point of going ahead with this proposal keeping the officials who released large sums of money to politicians including the present parliamentarians paving way to provide those loans as bad debts. In addition to that these banks were used to pump funds to the government institutions which were making huge losses.
In fact, there will not be a big change by providing 20% of the capital to the depositors and the employees but this will be the starting point of the restructure. This will be the start of the breaking of the ideology that the ownership of the state institutions which make profits should be kept with the state.
Around 50% of the ownership of these banks together with the management should be privatized. These two banks account for around 35% of the market share. Other private banks are in the shade of these two banks. All of them need a stimulation.
In this country where these government banks, private banks, rural banks and regional development banks are in operation an entrepreneur with a good business plan finds difficult to solicit a loan without a security to be offered. Giving loans with securities is not a difficult task since unconsciously detailed study is reduced to the level of reduced risk. Giving loans without security is a difficult task since there are persons who obtain loans with the intention of not to pay. Small entrepreneurs accounts for 52% of the gross domestic production of this country. The economy of the country cannot be upheld without giving a helping hand to these entrepreneurs.
Sampath Bank came to the market in 1986 and introduced technology to the industry. They installed first ATM machine out of which the customers and the bank were benefitted. After that the banking industry followed that path and it has awakened the industry.
I believe that connecting the private sector to the state banks would change the backward banking culture of this country. This change would also influence the family businesses of this country to abandon some of their foolish practices.
The president should establish without delay an institution which provides initial capital to the small businesses. Once the business is stable this capital could be recovered. These are the tasks to be done with great effort. A country cannot be transformed without engaging in this type of tasks.
Value added tax (VAT) has been increased from 12% to 15%. VAT at the time of previous yahapalana government also was 15%. Gotabaya Rajapaksa government in December 2019 reduced it to 8%. Along with that there were reductions of many taxes including income tax, and this was a cause for the present economic crisis. Ranil Wickremesinghe increased VAT in May this year to 12% and he increased it further and brought it to the previous level.
Due to the increased cost of living as a result of the unprecedented inflationary trend, it is hard for the people to bear this. But it is not correct to say that only the VAT which is affecting ordinary people was increased. In the budget speech it was mentioned that the tax increases announced in May this year would be effective from 1st October 2022.
Accordingly, tax exempt limit of Rs. 3.0 Mn for personal taxes was reduced to Rs. 1.8 Mn. This was previously at the level of Rs. 1.2 Mn and it was increased to Rs. 3 Mn level in January 2020. Personal tax rates also will be increased. Accordingly, the existing tax brackets, where first Rs. 3 Mn is taxed at 6%, second Rs. 3 Mn is taxed at 12% and the rest is taxed at 18%, will be changed to seven brackets comprising of Rs. 1.2 Mn each which will be taxed from increasing rates of 4% to 28%. The rest which is over Rs. 8.4 Mn will be taxed at 32%.
This is taxing the people who can pay. Also, it was proposed that all the citizens who are over 18 years of age should open a tax file. This is a good proposal, but it would face obstacles when implementing. The task of the Inland Revenue Department will be eased if the data bases of various departments of the government are amalgamated with giving more recognition to the information technologists.
The president has allocated a considerable portion of his speech for the concessions to the people who would be affected due to the economic catastrophe. Prevalent inflationary trend caused many difficulties to the fixed income earners. Subsidies enjoyed by the rich as well as the poor are being withdrawn. Therefore, it is the duty of the government to support the real persons who are affected. It was proposed to give direct cash transfers to their accounts.
After all these proposals the budget deficit is Rs. 2.3 trillion. The deficit of the Budget 2022 presented by Basil Rajapaksa was Rs. 1.6 trillion. Deficit was increased. Since several months of the year was passed the credibility of the figures is increased. The country will get the benefits of these budget proposals and the change of the direction of the economy in the future.
Published in Colombo Telegraph on September 1, 2022
https://www.colombotelegraph.com/index.php/interim-budget-2022-transformation-of-the-economic-direction-of-the-country/
SJ / September 1, 2022
“…in some instances, it was a 180-degree reverse affecting
the economy of the country.”
We suffered a serious 180 degree turn in 1978
and economic policy has not been reversed since.
*
“…imprudent economic direction the country
followed”? Can we be specific?
We borrowed a lot of money from different
lenders. Where specifically did each borrowing go?
Big borrowing from private lenders began during
the war and account for half of all foreign debt.
Why are we not talking of the ever rising
consumption of non-essentials, and its impact on balance of payments?
*
“The restructuring process of CEB and CPC was
already started. Electricity and fuel prices were increased”
Do not the massive devaluation and rise in
global fuel prices have a role in price increases?
The deplorable aspect is that the electricity
price subsidy for small users is gone. Only that points to a policy change– not
the suggested 180 degrees (or 360 degrees as the Maharajah TV network will have
it).
Restructuring is a separate matter altogether,
and in line with the JRJ policies.
*
BTW
Why should two well performing banks be
privatized to let some private bankers get rich?
This obsession with privitisation has cost the
country a lot.
The serious woes concern planning and
management.
Harsha Gunasena / September 2, 2022
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0
SJ- Thanks.
“180-degree reverse”
Yes. in 1978 and in 1956 and particularly in 1970. We were swinging this way
and that way.
After 1978 also there were changes although not 180 degrees, in 2005
“Imprudent economic direction the country followed”
This is the continuous budget deficits and lack of focus to exports-oriented
policy which created current account deficits. Borrowings were used for
consumption. Investments also did not provide adequate returns. i.e. Mahinda
Rajapaksa era investments. Finally, it was triggered due to the wrong policy
decisions of GR.
“CEB and CPC”
Yes, Rupee depreciation contributed. But the point I raised was that not there
is no subsidy included in the price.
Restructuring, no subsidies for all, and identifying the vulnerable people and
help them direct is the policy change.
Banks.
Banks are making profits. My point here is different which I have explained in
the article. For instance the objectives Illangarathne had when establishing
Peoples Bank are not the objectives the bank is having now. We need a fresh
start to the Banking industry. Among the top 20 companies there are quite a
number of banks, instead export companies should be there. I am not against the
banks. I am for the country.
Log
in to Reply
SJ / September 2, 2022
4
2
Sorry,
We had not swung significantly before 1978.
1956 marked freeing the country from foreign domination. I hope that you are
not an advocate of continued colonial control of our harbours and foreign naval
and air bases.
it was a steady drift towards ridding the country of foreign control of our
wealth. Even the UNP government of 1965-70 dared not touch them. in fact it
even encouraged state owned small-medium scale industries.
!978 was an absolute reversal from whose effects we are unable to escape.
A lot of reform is possible without privatisation. (What did Britain achieve by
privatising electricity, railways and water supply? It fed some fat cats.)
No subsidies is fine if there is fair treatment of all sections of the
population.
Harsha Gunasena / September 3, 2022
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SJ- We have fundamental
differences. My concept of socialism is to reduce as much as possible the
inequality of income distribution. This can be done through tax structure.
Benefits of whatever development should go to the masses. Your concept of
socialism is to keep the business enterprises under the state control.
We are currently seeing the inefficiencies of government enterprises.
Prior to 1956 we had virtually an open economy. In 1956 we have seen the
programme of nationalization of private business entities starting from public
transport, It continued under Mrs.B in 1960s and after 1970 as well. When oil
industry was nationalized in 1960s they have gone to Singapore and they were
welcomed by LKY. Then they started oil refineries which contributed to the
development of Singapore.
When Tea estates were nationalized in 1970s they have gone to Kenya. Now Kenya
is a strong competitor of Ceylon tea.
Because of this nationalization process there was depletion of private capital
in the country. We need private capital to develop a country. I think you
should learn from Deng Xiaoping.
Thanks for the dialogue.
Log
in to Reply
SJ / September 3, 2022
2
1
Thank you for the
lesson on socialism. But my reading says otherwise.
Have you any idea of what bus transport was like before nationalization?
The three oil vendors were here from god knows when, did they ever think of a
refinery here? What has the take over to do with whatever they did in
Singapore?
*
The nationalization of tea plantations had many benefits that are not spoken
about. The plantation workers had for the first time been allowed educational
facilities like the other people. Not only the literacy rose, their competence
too.
Kenya’s tea estates are no threat to any other country’s. (Kenya is a great
coffee exporter too.) Our fault was not in moving with the times and go for
other tea-based products and promote tea globally, so that it did not lose its
market to coffee.
*
The Chinese people too have learned from Deng so that fewer mention him there
now than those who mention JRJ here in a positive light.
Under Xi social welfare has received more attention than ever from the 1980s.
Can you suggest a better teacher than Deng!
Harsha Gunasena / September 4, 2022
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SJ- No it is not a lesson rather an identification of the
differences.
Yes, I have heard and read about the situation prior to nationalization of
public transport. I agree with you, but I believe that what the government
should have done was to introduce regulatory measures rather than taking over
the business.
If the oil companies built up a refinery it also would have been nationalized.
Yes, the living standards of plantation workers improved after nationalization
but at what cost to the national economy. Same results could have been achieved
with the involvement of the government
Deng and Xi, both are in the same line of thinking. One is at the beginning of
the process and the other is at the middle. Both believed the value of private
enterprises.
eeakdavi / September 2, 2022
18
7
The article draws attention to a huge problem. Nothing can be
done it seems because things have gone completely out of control. In China for
example Mahinda would face the death penalty for what the author describes
Mahinda did to Emirates-Air Lanka.
The death penalty should be introduced in SL with retroactive jurisdiction for
commercial crimes above a certain financial amount. Justice must the executed
summarily. There is no alternative.
Kumar David
Sinhala_Man / September 2, 2022
9
2
It’s interesting to see how investigations into crimes are
sabotaged. The airline lost so much, but when 3.5 million was paid for
inquiring into it, see what a fuss was made:
.
https://www.colombotelegraph.com/index.php/sri-lankan-airlines-weliamuna-inquiry-costs-rs-3-5-million/
.
Articles such as this exposed what had happened:
.
https://www.tisrilanka.org/shocking-details-of-corruptions-at-srilankan-pm-office/
.
As for the Peter Hill story there are plenty of reports:
.
https://www.sundaytimes.lk/071230/News/news0002.html
.
All that when the war against Prabhakaran was being fought.
.
I’ve now lost track of all the reports that I have looked at during the past
two hours. Here are some:
.
http://www.aircargonews.com/071229/peterhill071229.html
.
and here is mention of his Lankan wife and his house in Kotte:
.
https://www.sundaytimes.lk/071230/News/news0002.html
.
Readers should do their own googling!
.
https://www.sundayobserver.lk/2018/06/10/opinion/slfp-16-and-parable-peter-hill
.
Laymen like us can’t investigate this sort of thing. Once investigated, yes
“Justice must the executed summarily as Professor Kumar David says.
.
All citizens have to foot the bills for these crimes, but few of us can
understand all the details.
.
Panini Edirisinhe
Harsha Gunasena / September 2, 2022
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eeakdavi- Thank you for your comment. This is a well known fact.
I can very well remember the sequence of events. Please do more research and
raise the issue.
