Tuesday, October 12, 2021

Defense Expenses In Sri Lanka

By Harsha Gunasena –

Harsha Gunasena

The Minister of Finance presented the Appropriation Bill for the fiscal year 2022 to the Parliament. The highest allocation was made to the Ministry of defense, and this was the scenario for some time. At present the expenditure under the Ministry of Defense includes nonmilitary expenses such as the expenses of Multi-purpose Development Task Force as well. However, the direct military allocations comprising of the allocations to Sri Lanka Army, Sri Lanka Navy and Sri Lanka Air Force inclusive of both recurrent and capital expenditure was staggering Rs. 308 billion. This was 12.3% of the total estimated government expenditure of Rs. 2.5 trillion. In the Appropriation Bill of 2021, the direct military allocation was estimated as Rs. 283 billion which was 10.56% of the total estimated expenditure. Therefore, the allocation to direct military expenditure out of the total estimated government expenditure was increased by 1.74% in 2022. This is of course at the expense of various vital sectors of the country.

By Shanika Somatilake

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Sri Lanka is a country which is having high military expenses among the fellow nations. If a comparison is made with few countries across the world representing different levels of development, ideologies, and geographic locations this is visible. For comparison purposes with Sri Lanka the countries of Japan, Sweden, Bangladesh, Germany, China, Australia, UK, India and Israel are considered. As the indicators, military expenditure as a percentage of Gross Domestic Product (GDP), military expenditure as a percentage of total government expenses and military personnel as a percentage of population are considered and the relevant charts are given.

Source: https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS

As a percentage of GDP, Sri Lanka spent 1.93% in 2020 on military expenses whereas Israel spent 5.62% which was the highest. Japan, which is having external threats spent only 0.99%. Sri Lanka (10.29%) is second only to Israel (12.08%) in 2020 out of the selected countries in respect of military expenses as a % of government expenditure. The number of military personnel in Sri Lanka in 2018 was 317,000 which was lower than only China and India which countries maintain large armies. As a percentage of population in 2018 Sri Lanka (1.46%) was second only to Israel (2%)

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Source: https://data.worldbank.org/indicator/MS.MIL.XPND.ZS

The Sri Lankan problem, if any, is not similar to that of Israel. It could be solved very easily if not for the mindsets of the political leaders especially the current set who have no hesitation to grab the power even through blood.

Despite the end of the civil war in 2009, defense expenditure in the Sri Lankan budget was on the rise. A mentality was created in the minds of the people that defense was the most prioritized expenditure of the budget. Therefore no one including the opposition parliamentarians raised objections to the increasing defense expenditure of the country. Even at this juncture of the history of Sri Lanka where people are forced to undergo severe economic difficulties partly due to the bad economic management of the successive governments and partly due to the arrogant and foolish approach of this government in solving the issue, defense expenses are on the rise.

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Source: https://data.worldbank.org/indicator/MS.MIL.TOTL.P1

It is understood that during the war defense should be the topmost expenditure. When it continues after the war, year after year, it is an indicator that the peace is not there. The successive governments after the end of the war have not done enough to bring peace to the country. The blame goes to the previous government as well although it had done a lot in this direction.

The simple formula to bring peace is to sideline the extremist elements in all the sides and implement a moderate solution acceptable to all. This is not a difficult task for a leader with a vision. If so, the defense expenses can be reduced drastically and that can be used to more deserved sectors of the country. Instead, the political leaders of the country intentionally create unrest and fear among the ethnic groups in order to get the votes of the majority Sinhala community. Eventually they increase the allocation to the military expenses to safeguard the country from an unborn enemy.

published in Colombo Telegraph on October 12, 2021

https://www.colombotelegraph.com/index.php/defense-expenses-in-sri-lanka/

Saturday, October 2, 2021

මංගල නම් බෞද්ධයා

 

“මම කිව්වාම මේක සිංහල බෞද්ධ රටක් නොවෙයි මේක සියලුම ශ්‍රී ලාංකිකයන්ගේ රටක් කියල මට කුණුහරුපෙන් බැන්නා.  මේ රටේ බහුතරය බෞද්ධ බව ඇත්ත. නමුත් මේ රට සියලු ශ්‍රී ලාංකිකයන්ට අයිතියි....ඇත්ත වශයෙන්ම බුදුරජාණන් වහන්සේ දේශනා කල බෞද්ධ දර්ශනය රටකට ආගමකට ජාතියකට කුලයකට සිමා වුන එකක් නෙවෙයි.ඇත්ත වශයෙන්ම ඒක මේ ලෝකයට සිමා වුන දර්ශනයකුත් නෙවෙයි. මේක මුළු විශ්වය ගැනම කථා කරන දර්ශනයක්. ඇත්ත වශයෙන්ම විශ්ව නීතිය ගැන කථා කරන දර්ශනයකට තමයි අපි බුද්ධාගම කියල කියන්නේ.”

අභාවප්‍රාප්ත මංගල සමරවීර මහතා මේ අදහස් ප්‍රකාශ කලේ 2019 මැයි 23 දා පාර්ලිමේන්තුවේදීය. එවකට ඔහු මුදල් ඇමති විය. පාර්ලිමේන්තුවෙන් පිටත ඔහු ප්‍රකාශ කල මේ හා සමාන අදහස් නිසා ඔහු එවකට විශේෂයෙන්ම භික්ෂූන් ගේ බරපතල විවේචන වලට ලක් වෙමින් තිබිණ. සිංහල බෞද්ධ රටක් පිළිබඳව ඔහු මේ ප්‍රකාශ කරන්නේ සත්‍යයයි.  මෙය ලිබරල් මතවාදය බව සමහරු කියති. එසේම  නොවේ. එය සාමාන්‍ය නෛතික තත්ත්වයයි. මෙය සාමාන්‍ය විචාර බුද්ධිය ඇති සියලු දෙනාටම වැටහේ. එමතුද නොවේ. පසුව කරන ප්‍රකාශය මගින් ඔහු  අසාමාන්‍ය ලෙස බුදු දහම ඔසවා තැබීය. එසේ ඔසවා තැබුවද ඔහු භික්ෂූන් ගේ සහ සිංහල බෞද්ධයන්ගේ විවේචනයට ලක් විය.  මේ කෙටි ලිපියේ අරමුණ “එහෙම වෙන්නේ ඇයි” යන ප්‍රශ්නයට “අයි ඩෝන්ට් නෝ වයි” යනුවෙන් නොකියා යම් පිළිතුරක් දීමට උත්සාහ කිරීමය.

ක්‍රි. පූ. පළමුවන ශතවර්ෂයේ වළගම්බා යුගයේ  ඇතිවූ බැමිනිටියා සාගතයෙන් පසු එතෙක් මුඛ පරම්පරාගතව පැමිණි ත්‍රිපිටකය ග්‍රන්ථාරූඪ කරන ලදී.  එයින් පසුව අංගුත්තර නිකාය අටුවාවට අනුව පාංසුකූලික සහ ධර්මකථික භික්ෂුන් අතර ඇතිවූ විවාදයකදී නිවන් අරමුණු කරගෙන ප්‍රතිපත්ති රැකීමට වඩා ත්‍රිපිටක ධර්ම ඉගෙනීම උසස් බවට  මතයක් සම්මත විය. සාසනය පවතින්නේ ත්‍රිපිටකය තිබුනොත් පමණි. දීඝ සහ මජ්ජිම නිකාය අටුවා ද මෙය සනාථ කරයි. මෙය බුදුන්ගේ දැක්මට සපුරා පටහැනි වුවත් බැමිනිටියා සාගතය නිසා මතුවූ සමාජ තත්ත්වය එයට හේතුවන්නට ඇත. දැන් නම් ත්‍රිපිටකය අන්තර්ජාලයේද තිබේ.

ධර්මකථික භික්ෂුන් ශක්තිමත් වීම හේතුවෙන් මුල් කාලයේ භික්ෂූන්ගේ පරමාර්ථය වූ මේ ආත්මයේදීම නිවන් දැකීම අභිබවා මතු නිවන් දකින බලාපොරොත්තුවෙන් ශක්ති පමණින් ආත්මාර්ථ පරාර්ථ දෙකෙහි යෙදීම ඉදිරියට පැමිණියේය. එවකට අධ්‍යාපනය තිබුනේ පිරිවෙන් ආශ්‍රිතව බැවින් බෞද්ධ භික්ෂූන් ත්‍රිපිටකය මතු නොව වෙනත් ලෞකික විෂයයන් පිළිබඳවද දැනුම ලැබූහ. වර්තමාන භික්ෂුව සිය මූලික අරමුණින් බැහැරට ගෙන ආ පරිවර්තනිය ක්‍රියා දාමය මෙයයි.

එමෙන්ම මහා වංසයේ සිට මෙරට ඉතිහාසය අධ්‍යයනය කරන ලද්දේ ද්‍රවිඩයන්ට එරෙහි සිංහල බෞද්ධ  සංස්කෘතියේ ප්‍රගමනයක් ලෙසයි. නිදර්ශනයක් වශයෙන් එළාර බුදුදහම ආරක්ෂා කල බව මහා වංශයේම ඔහු ගැන එන විස්තරයෙන් සනාථ වුවත් දුටුගැමුණු ප්‍රධාන කොටගත් වීර කාව්‍යයක් ලෙස රචිත මහා වංශයේ සමස්තාර්ථය ලෙස ලැබෙන පණිවුඩය වන්නේ එළාර බුදු දහම විනාශ කල බවයි. අද පවා මෙරටට බරපතලම විනාශය කල ද්‍රවිඩයකු නොවූ කාලිංග මාඝ ට වඩා විනාශයක් එළාර විසින් බුදුදහමට කලැයි සිතන බොහෝ දෙනෙක් වෙති. එකල ජනවාර්ගික යුද්ධ නොවූ අතර යුද්ධ පැවතියේ රජවරුන් සහ කුමාරවරුන් අතර බලය ලබා ගැනීම උදෙසාය. එළාර ගේ හමුදාවේ හරි හරියට සිංහලයන් සිටි අතර මෙරට රජවරු මෙරට සිටි සිය ප්‍රතිමල්ලවයන් සමග යුද්ධ කිරීම සඳහා ද්‍රවිඩ හමුදා වල සහාය ලබා ගත්හ. එමෙන්ම සමහර සිංහල රජවරු දකුණු ඉන්දියාව ආක්‍රමණය කළහ.

නුවර යුගයේදී සිංහලයන්ද ද්‍රවිඩයන්ද මුස්ලිම් වරුන්ද ඔවුන්ගේ අනන්‍යතාවන්ට ගරු කරමින් එකට ජීවත්වූ ආකාරය එකල සමාජයෙන් අපට උගත හැකිය.

ඉංග්‍රීසි යුගයේදී අධ්‍යාපනය අනුක්‍රමයෙන් පිරිවෙන් වලින් ඉවතට ගොස් මිෂනාරීන් අතටද පසුව ගිහියන් අතටද පත්විය. ඒ යුගයේදී අනගාරික ධර්මපාල තුමා ගේ ප්‍රධානත්වයෙන් ඇතිවූ ජාතික පුනර්ජීවන ව්‍යාපාරයේ  සම්පුර්ණ අවධානය තිබුනේ සිංහල ජනවර්ගය  වෙත පමණි. මෙය ඉන්දීය නිදහස් ව්‍යාපාරයට සපුරා වෙනස් විය. ධර්මපාල තුමා මූලික වශයෙන් සිංහලයන්ගේ සානුකම්පිත තත්ත්වය සහ ඔවුන්ගේ දුර්වල ආර්ථික බලය ගැන දුක් විය. ව්‍යාපාරික පවුලකින් පැවත එන ඔහු රටේ ආර්ථික බලය අන්‍ය ජාතිකයන්ගෙන් සිංහලයන් අතට පත්වනු දැකීමට රුචි විය. එබැවින් ඔහු අන්‍ය ජාතිකයන් විශේෂයෙන්ම මුස්ලිම්වරුන් විවේචනය කළේය. සිංහල බෞද්ධ අනන්‍යතාවය ඔහු අවධාරණය කළේය. තේ රබර් වැවීම ඉංග්‍රීසින් අතට වී තිබේ. වෙළෙඳාම මරක්කල දෙමළ ජාතීන් අතට පත්ව තිබේ. අප නැති කරණ මත්පැන් වෙළෙඳාම පමණක් සිංහලයන් විසින් කරනු ලබන්නේ මන්ද?” (1911 දෙසැ 30 සිංහල බෞද්ධයා) යටත් විජිත යුගයේදී සිංහලයන්ට සහ බෞද්ධයන්ට විවිධ අතවර වලට මුහුණ පෑමට සිදුවුවත් ගුණදාස අමරසේකර සුත්‍ර ගත කරන පරිදි මෙය ජාතික චින්තනය නොවේ. එය බෙදුම්වාදයේ උපතයි.

මෙය වර්තමාන සිංහල බෞද්ධ ජාතිකත්වයේ ද උපතයි. බුදුදහමේ හරයෙන් ඉවතට ගමන් ගනිමින් සිටි භික්ෂූහු ද  මෙම ප්‍රවාහයට අසුවූහ.  පසුව බණ්ඩාරනායක විසින් බලයට ඒම සඳහා පාවිච්චි කලේද  මෙම බලවේගයයි. වර්තමාන පාලක පන්තියද බලයට ඒම සඳහා අවුස්සා ගත්තේ මොවුන්ගේ මේ චින්තන ධාරාවයි. මෙම දේශපාලන මැදහත්වීම් නිසා මෙය දැඩි විශ්වාසයන්ගෙන් සමන්විත ආගමක් බවට වර්ධනය වී තිබේ. එය බුදු දහම නොවේ.

මංගල සමරවීර අභියෝග කළේ මෙම තත්ත්වයට එරෙහිවයි. ඉතාම තාර්කික වූ මෙම ක්‍රියාව අපේ රටේ පවතින පසුගාමීත්වය විසින් විවේචනයට ලක් කර ඇත.

-          හර්ෂ ගුණසේන-‘මංගල’ කලාපය - සමබිම #98,  2021 අගෝස්තු, කාණ්ඩය 10 කලාපය 9

Thursday, September 9, 2021

Need Of Creating A New Political Structure

By Harsha Gunasena –

Harsha Gunasena

There is a dissatisfaction of the performance of the political parties of the country but at the elections not only people vote for the same political parties but also, they tend to elect most criticized persons as their representatives repeatedly.

For a long time, we have experienced an intentional inflammation of ethnocentrism and religiocentrism by the present leadership of the country which was used against the minorities making the claim of false protection of the majority from the minorities especially after the end of the war. They have intentionally inflamed a false patriotism against the Western countries claiming that the country was leaning towards them especially in relation to selling of state assets and promised that they would not engage in doing so once coming to the power. In addition, they have emphasized the need for strong leadership and centralization of power to spearhead the rapid development of the country. Now we have come to the end of all these dramas and in the run the country got wounded severely.


The country can be developed only by rallying all groups of people together rather than fragmenting the society. None of the developed countries achieved that status by giving a step motherly treatment to such a considerable percentage of its citizens. If there is a dispute, the leaders of the country and the people should be matured enough to negotiate and settle it. At least after a 30 year long civil war they should have been able to do it. Instead, what is happening is the so-called leaders use it to come to power. Also, it is getting established that the propaganda by the opposition during the previous regime against the Muslims were based on false information. The case of Dr. Safi was an example. In addition to that the present government punished the Muslims by enforcing cremation of the covid affected bodies against the health guidelines since the Muslims voted against them during the last elections.

Social activist Shehan Malaka Gamage said at a press conference that he had a doubt whether the Easter attack was designed as a part of a project to bring the incumbent president to power with the help of the former president. The Police had taken a long statement from him about this claim. If correct, this is the most disgraceful peak of the process of using ethnicity and religion to come to power, started in 1956.

Sri Lanka should be able to end the political ethnocentrism under the circumstances provided that the people are capable enough to understand reality. This is evident with the emergence of the social activists such as Shehan Malaka Gamage who are not from the traditional political lineage.


The present government came to power promising that they would not sell the state assets to foreigners. Those were empty promises since it was the previous Rajapaksa regime that sold the land where Shangri-La hotel is to them. In the case of Eastern Container Terminal (ECT) the previous government planned to give more than 50% of the shares of the company which would control the ECT, to the Port Authority. The decision taken by the government to allow the Port Authority to develop it and offer 85% shares of the Western Container Terminal (WCT) to an Indian company was not only against the previous position of the government but also was foolish. The government is not having funds and the reexported goods at the said terminal mainly comes from India so that their investment is sustainable for the industry. By this decision the company which would control the WST was given more than 50% of shares. 85% of the shares of the company which controls Colombo International Container Terminal was given to the Chinese company by the previous Rajapaksa regime.

Sri Lanka needs foreign investments especially considering the financial status of the country. It is the responsibility of the government to manage whatever the foreign investment the country receives from various sources. It could be a long lease or a sale. It should be done after a careful evaluation of the project with a view of the benefits accrued to the country and not the benefits accrued to individuals.

To the extent the people realize the gravity of the financial crisis faced by the country the resistance of the people to leasing or sale of the state assets will get reduced. Also realizing the conduct of this government, the political resistance to such acts would get diminished.


The government follows an unwise policy in respect of the issue of government debt which is a result of successive governments of Sri Lanka. The main problem of our economy is the long-term budget deficits and deficits in the Trade Balance. As a result of the policy of not soliciting the support of the IMF in balance of payment issues aggravated by the pandemic, the country is facing import restrictions and the government is moving towards price controls including the exchange rate, causing difficulties to the people. If the government seeks the assistance of IMF, the government will have to agree to the conditions aiming at the reduction of the budget deficit which would be beneficial to the country in the long run. Therefore, if the IMF option is taken at least there will be long term benefits compared to the present situation.

At the past two elections, the present ruling group campaigned heavily to convince the people that it was 19th amendment to the constitution which paved the way for anarchy in the country. After coming to power the President assigned himself tremendous power through 20th amendment to the constitution. His working pattern using authoritative powers without listening even to his own ministers, failing himself and the state in the process, proves beyond doubt that it is detrimental to the country to allow one person to hold such a vast power.

The latest development is declaration of emergency by the President which allows him to rule by Presidential decree. That strengthens the President more and eventually the country would experience more failures. We have a clue to another dangerous step the President might take. There were reports that there was an attempt of forcibly taking power in the night of the 2015 Presidential election day. Repetition of a similar act would be the next step if this process of centralization of power is not stopped.

We have to bear huge number of Covid deaths especially of the senior citizens due to the militarization of the Covid management without consulting the medical officers.

One main reason for the current situation of the country is that the tribal collectivist thinking of the majority of the people associated with their social inferiority complex. That is why the majority Sinhalese have a fear of extinction. That allows the politicians to arouse the sentiments of the majority against the minorities and the West and come to power. This deceitful politics prevailed in the country for a long time and now it has been intensified.

In 1970s people talked about the multinational companies which were exploiting the assets of the country. During the era of free economy emerged after that period there were lot of Sri Lankan companies transformed to the status of multinational companies. For instance, Hayleys and Aitken Spence started businesses in the foreign countries in 1980s and 1990s. Now those are multinational companies headquartered in Colombo. There are good number of such companies in Sri Lanka. People may not be aware of this. Understanding this is a way to move away from the social inferiority complex.

The international popularity of the song Menike Mage Hithe sung by young Yohani De Silva provides much comfort with positive thoughts in this dark period in moving away from the social inferiority complex. The World cup victory in 1996 and Olympic medals in 1948 and 2000 and recent Paralympics gold medal of Dinesh Priyantha were such instances. 

The country can use this positive thinking to reemerge during the possible anarchic situation in the near future. Recently since the government did not take any action to lockdown the country the trade associations spread throughout the country took steps to close the shops in their respective areas. This was exercising of power by the people even exceeding the expectations of the Opposition. This was a progressive move and if this trend could be continued it would help to line up the people for a far-reaching political change of the country.

If the power is transferred to the Opposition in the regular system of shifting of power with the promise of more concessions to the people, this disaster would continue. The country is facing this situation due to the operational method of the democracy. A democracy to function smoothly needs an intelligent participation of the people. If they can be hoodwinked by the political parties with vested interests, that country would end up in a disaster. The answer is neither an armed rebellion nor a military dictatorship. We have faced three armed rebellions and we understand the grave consequences the country faced. With the employment of military personnel in the various positions in the country under the present regime we have firsthand experience of their capabilities, let alone the disastrous consequences a country like Pakistan is experiencing.

Therefore, the answer is to create a new inclusive political structure through a broad people’s movement. It is a freedom struggle. This movement should be a broad-based one combining all the ethnicities, believers of all the religions and people of all the castes. Political parties also can be included in this movement. This movement which should be essentially democratic, non-violent and non-revenge taking, should be engaged from drafting a new peoples constitution to agreeing to a common policy framework for the country.

https://www.colombotelegraph.com/index.php/need-of-creating-a-new-political-structure/

Published in Colombo Telegraph on 4 September 2021

Monday, August 30, 2021

Imposing Import Restrictions To Continue With Budget Deficits

 By Harsha Gunasena –

Harsha Gunasena

The present government before coming to the power stressed that they would not seek assistance from the International Monetary Fund (IMF). After coming to power, they have followed the same policy direction which the Central Bank also adhered to.

The main reason for not seeking assistance from the IMF is the conditions associated with the loans. According to the IMF, when a country borrows from them, its government agrees to adjust its economic policies to overcome the problems that led it to seek financial aid. These policy adjustments are conditions for IMF loans and serve to ensure that the country will be able to repay the IMF. This system of conditionality is designed to promote national ownership of strong and effective policies. The aim of IMF is to help the country concerned to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while correcting underlying problems.

The IMF provides loans to the countries who are members of the IMF to solve their balance of payment problems. On the part of the IMF, it is justified to impose the conditions to overcome the problems that led the country to seek financial aid and to ensure that the country will be able to repay the loan and on the part of the country also it should be justified. However, the issue is that some of these conditions are politically unattractive.

Democratic governments in Sri Lanka are mainly focused on the short-term popularity and winning the next election. It is true that there is no point of serving the country if they cannot win at least the next election. Especially when there is a strong opposition which is keen to get into power in whatever way possible, it is extremely difficult to implement the policies which would be beneficial to the country in the long run, and which would cause difficulties to the people in the short run.

On the other hand, there can be ideological differences of the government about the policy recommendations of the IMF. The government thinks that even though the demand for the dollars is higher than the supply of the same in the forex market due to the higher imports compared to lower exports, it can keep a constant exchange rate. That thinking goes against the thinking of the IMF. The Mahinda Rajapakse government was successful in doing so with the manipulation of foreign loan funds in the forex market except in two instances where the rupee crashed rapidly against the dollar. However, this government could not follow that mechanism due to short supply of foreign loans and deteriorated forex income due to pandemic. Hence it has resorted to pressing the commercial banks to keep arbitrary exchange rate resulting in the creation of a black market. The governor of the Central bank calls this process a “gentlemen’s agreement” with the commercial banks. The Commercial banks started to breach this so-called gentlemen’s agreement by charging additional amounts to dollar purchases in credit card transactions.

In the previous letters of intent given by the Sri Lankan governments to the IMF when obtaining assistance, signed by the then Finance Ministers and the Governors of the Central Bank, the Sri Lankan governments indicated to the IMF that their intention was fiscal consolidation by way of increasing the tax revenue and enhancing the tax base, reducing the subsidies provided through the government institutions and reducing the losses of government owned institutions such as Sri Lankan Airlines, Ceylon Petroleum Corporation and Ceylon Electricity Board.

This is the way of imposing conditions by the IMF and in fact constant budget deficits created by spending funds on unnecessary and unproductive way was one of the main reasons of the balance of payment crisis faced by Sri Lanka today since a part of those budget deficits were financed by foreign loans and some of them are comparatively on short term. The other reason is the deficit of the trade balance.

When the present government came into power, they have abandoned all these policy directions of IMF which were accepted by the previous government and the government prior to that under the president Mahinda Rajapakse.

That was the starting point of the economic crisis faced by the country today which was aggravated by the pandemic.

Subsidies to the people of Sri Lanka in most of the time goes to all including the affluent. If this is stopped and effective system of social security addressed to the needy persons can be introduced, government expenses on these subsidies can be reduced.

As a result of the government policy of not seeking the assistance of IMF, it had to  obtain loans from friendly countries such as currency swaps which do not come with conditions. However, these loans are not sufficient and there are shortages of the imported goods in the market due to short supply of foreign exchange creating hardships to the people. The government indicated that there can be more import restrictions creating more hardships to the people. If the ultimate intention of the government of not seeking the assistance of the IMF is to avoid creating the hardships to the people eyeing the next election, it is ironic that the alternate policy decision of the government is also creating the same hardships to the people, again hampering the vote machine.   Any person with common sense could have envisaged that.

The government is having one political advantage of restricting imports against streamlining the internal government finances. That is the ability to hoodwink the voters by putting forward the patriotic card. People who are the followers of the ideology of the present governments think that it is patriotic to manufacture the goods in Sri Lanka even at a higher cost. It was true that under the open economic policies the country imported the goods which were really not necessary, and which could have been manufactured in Sri Lanka but the quantum was not that material. We should have local manufactures who could compete in the international markets.

The European Union, which is the second largest export destination of Sri Lankan goods and with which Sri Lanka is having a favorable trade balance, expressed dissatisfaction of the import restrictions imposed by Sri Lanka. Apart from that Sri Lanka is having an issue of the continuation of GSP+ concessions offered by the EU.

Therefore, the policy direction of the government is suicidal to the government, people, and the country.


(published in Colombo Telegraph on 27 August 2021)

https://www.colombotelegraph.com/index.php/imposing-import-restrictions-to-continue-with-budget-deficits/

Monday, July 19, 2021

No other way than hiking fuel prices

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Governments tend to keep the fuel price low irrespective of the price hikes in the international market if they feel that the increase would affect the people, resulting in budgetary pressure

 


There is a controversy regarding the increase of fuel prices. 

It is a fact that the Sri Lankan governments and opposition political parties use the price of fuel to get political benefits. Prices were changed or kept constant by the governments based on political climate rather than economic situation. Therefore, when the Sri Lankan Government sought assistance from the International Monetary Fund, the Government was advised in May 2018 to introduce a price formula to the fuel prices so that the selling price of fuel is directly linked to the oil price in the world market.

The IMF suggested this formula to reduce the impact of the oil price to the Government budgets. The behaviour of the governments in this respect is twofold. On one hand the governments tend to keep the fuel price low irrespective of the price hikes in the international market if they feel that the increase would affect the people, resulting in budgetary pressure. On the other hand, they keep the local fuel prices high when the international prices were low if they feel that the people can afford it, and in this case, there is no pressure to the budget deficit and rather the policy of the price of oil facilitated the reduction of the budgetary pressure.

In order to examine these patterns, Table A was presented with the local fuel prices on the dates where the prices were changed along with the international crude oil prices and the relevant exchange rates. In a separate graph change of the international crude oil prices over a period is given. To assess the impact, profitability of the Ceylon Petroleum Corporation (CPC) and Lanka IOC PLC (IOC) are also given in Table B.

In February 2012 auto diesel price was Rs. 115 per litre whereas the indicative crude oil price was $ 119 and the relevant exchange rate was Rs. 117 per USD. In December 2014 auto diesel price was Rs. 111 per litre whereas the indicative crude oil price was $ 65. A reduction of 50% of crude oil price was reflected in just Rs. 4 of the auto diesel price. However, the exchange rate was Rs. 131 per USD and there was a 12% increase. 

Up to 2014 July crude oil prices were over $ 100 per barrel and it started to go down from July 2014. It went down to $ 47 per barrel in January 2015.When the new Government came into power and reduced the fuel prices, LP 92 price went down to Rs. 117 from Rs. 150 per litre. There were further reductions of the international oil prices, but the Government did not give those benefits to the people. In January 2016 oil price per barrel went down to $ 30.

This is reflected in the annual reports of CPC and IOC. CPC accounts are maintained for the calendar year, the years ended 31 December and IOC accounts are maintained for the years ended 31 March. In 2015 CPC made a loss of Rs. 19 billion whereas IOC made a profit of Rs. 2 billion for 2014/15. The local fuel price reduction may have caused the losses of CPC. In the following year, both the companies were profitable taking the advantage of the reduction of oil prices in the international market which was not passed on to the people.

In 2017 there was an upward trend in the international market and by December 2017 price per barrel went up to $ 66. Since there was no price revision in the local market CPC profitability was reduced. IOC profitability cannot be compared since the period was different. The price formula was introduced in May 2018 and at that time the international price was $ 77 per barrel. CPC made a loss of Rs. 106 billion in 2018 which comprised of an exchange loss of Rs. 82 billion and a gross loss of Rs. 3 billion. The Annual Report of the Ministry of Finance reported that the formula did not cover the full cost of the CPC. 

At the time of introduction of the price formula there was much controversy. The price formula introduced by the previous Government is as follows:  

The maximum retail Price (MRP) = V1+V2+V3+V4 

V1 = the landed cost, based on Singapore Platts price per barrel + weighted average premium per barrel + losses due to the evaporation + losses due to the exchange rate.

V2 = the processing cost + local port charges + transport cost +dealers’ margin including losses due to evaporation+ stockholding cost.

V3 = the administrative cost including personnel cost+ depreciation + other cost elements, 

V4 = customs import duty+ excise duty + ports and airports development levy+ nation building tax+ any other tax

During the 52-day political crisis the formula was abandoned. It was not exercised during the time of the introduction of Budget 2019 in April 2019 and in October 2019 when the Presidential candidates were announced for the Presidential Election and in November 2019 when the Presidential Election was held. In certain months the price was kept constant or reduced despite the increase of prices internationally. 

Soon after the President assumed office in November 2019 the price formula was abandoned and the oil prices started to decline from December 2019 and that benefit was not given to the people. Extent of that price reduction can be seen in the graph. Instead, the Government claimed that they would create a fund and the additional money collected from the people would be credited to that fund so that in case of a price increase increased price could be borne by that fund rather than passing it to the people. Now there are different comments about that fund. This shows how disorganised the Government is.

Oil prices is a key element of the economy and Government should not take undue profits from oil prices since there is a ripple effect of the fuel price to the economy. Now the oil prices are increasing in the international market amid the COVID-hit economy of Sri Lanka. Taking into consideration the Government finances, the Government has no other option than increasing the fuel prices. The prices might be increased further. I believe that if the price formula is applied the fuel prices would be higher than the current increased price, calculating it on the limited information available, especially with the current exchange rate.

This is the price the country has to pay due to the abandonment of the fiscal consolidation process by the present Government, which was started by the previous Government. If that was in operation, taking into consideration the plight of the people in this difficult time, the Government would have the capacity to postpone the price hike. Government sources think that the omnipotent Basil Rajapaksa is capable of giving a solution.

On the other hand, increased efficiency at the CPC would push the local fuel price down. V3 of the price formula can be reduced by this way. CPC efficiency would keep the price at certain level and as a result IOC can make super profits covering under the inefficiencies of CPC. It is visible in the financial accounts. Those who criticise the Government for the price hike should focus on this matter as well and demand that the efficiency of all the Government institutions be improved.

However, if the Government decides to keep the local prices constant due to political reasons while the international prices are going up IOC would be in a very difficult situation. This happened in 2018 prior to establishment of the price formula. It was reflected in IOC accounts. Hence, IOC also would have exercised pressure on the Government to increase the local prices.

In this type of situation all parties should support the Government. Responsible political parties should not give a wrong impression to the people that the Government is having the capacity to reduce the fuel prices. The Government as well as the Opposition should tell the truth of the economy to the people rather than giving false promises to them. All of them should show by example that they are reducing the waste.

https://www.ft.lk/opinion/No-other-way-than-hiking-fuel-prices/14-720583

Published in DailyFt on 19th July 2021