Ahead of his first official visit to India this week, Sri Lanka‘s President Ranil Wickremesinghe will hold talks with the Tamil National Alliance (TNA) on Tuesday in Parliament in a bid to settle the long-standing Tamil minority demand for political autonomy, sources said here on Monday. TNA is an alliance of parties that represent Tamils from the North and East regions. The TNA-Wickremesinghe parley is to take place on Tuesday afternoon in Parliament, sources said.
Wickremesinghe leaves for New Delhi on July 20 and on July 21, the President will meet Prime Minister Narendra Modi, officials in the foreign office here said.
Since December, Wickremesinghe had opened dialogue with the TNA in a bid to settle the long-standing Tamil minority demand for political autonomy.
Wickremesinghe mooted the idea for full implementation of the India-backed 13th Amendment which came to be opposed by the powerful Buddhist clergy in a case of history repeating itself.
The 13A provides for the devolution of power to the Tamil community in Sri Lanka. India has been pressing Sri Lanka to implement the 13A which was brought in after the Indo-Sri Lankan agreement of 1987.
The Tamil side insisted on resolving the immediate issues of concern such as the release of private lands held for military purposes, the release of Tamil political prisoners and conflict reparations.
Although some of the lands came to be released and a few prisoners were also released but the Tamil side remain largely dissatisfied.
A few former militant Tamil parties who are not part of the TNA have also written to Prime Minister Narendra Modi urging him to pressure Wickremesinghe into full implementation of the 13th Amendment.
The group includes the Democratic Fighters Party of rehabilitated ex-member of the Liberation Tigers of Tamil Eelam (LTTE) who ran a three-decades-old separatist war to carve out a separate Tamil state.
They demand that land and police powers retained by the central government be granted to the northern provincial council including holding of the election postponed since 2018.
Meanwhile, the state minister of fisheries Piyal Nishantha said the thorny issue of illegal fishing in the Sri Lankan waters by Indian fishermen would be discussed during the visit to New Delhi.
Sri Lanka has had a long history of failed negotiations with the Tamils.
An Indian effort in 1987, which created the system of a joint provincial council for the Tamil-dominated North and East, faltered as the minority community claimed it fell short of full autonomy.
The LTTE ran a military campaign for a separate Tamil homeland in the northern and eastern provinces of the island nation for nearly 30 years before its collapse in 2009 after the Sri Lankan Army killed its supreme leader Velupillai Prabhakaran.
According to Sri Lankan government figures, over 20,000 people are missing due to various conflicts including the three-decade brutal war with Lankan Tamils in the north and east which claimed at least 100,000 lives.
International rights groups claim at least 40,000 ethnic Tamil civilians were killed in the final stages of the war, but the Sri Lankan government has disputed the figures.
Parliament Media Unit quotes Secretary-General Kushani Rohanadeera that Party Leaders had approved a motion to appoint a Select Committee to ascertain whether the privileges of MPs have been violated by the former members of the Election Commission: Opposition Leader Sajith Premadasa says the Govt move is to intimidate public officials.
Gampaha Magistrate’s Court orders the Range Forest Officer of Gampaha to appear before Court on July 21, to submit facts pertaining to the removal of the endemic endangered tree “Crudia Zeylanica” also known as “Pandu Karanda” from the area of Daraluwa in Veyangoda, along the path of the Central Expressway: previously, the Highways Minister Bandula Gunawardene has said the endangered tree was cut down as per a Cabinet decision.
While the Census Dept has reported that the economy had undergone severe contractions of 8.4%, 11.8%,12.4% & 11.5% in the last 4 quarters (2Q22, 3Q22, 4Q22 & 1Q23), the Inland Revenue Dept says Sri Lankans paid Rs.697 bn as taxes to the IRD in the first half of 2023, compared with only Rs.362 bn in 2022, indicating an increase of Rs.335 bn (92%).
Popular local newspaper reveals that their findings of interviews indicate that people living at the grassroots level and middle-income earners are “cutting corners” to deal with the ever-increasing cost of living: also reveal that such situation has brought the daily life of many households to a standstill.
Health Minister Keheliya Rabukwella appoints a 5 member expert committee headed by Professor Chandima Jeewandara to probe recent deaths in Govt hospitals and various other issues reported in Govt hospitals.
Agriculture Minister Mahinda Amaraweera says 512,000 hectares of paddy fields were cultivated in the “Yala” season after 10 years, due to President Ranil Wickremesinghe’s new fertiliser policy: also says that under the Agriculture Modernisation Programme, it is planned to achieve 80% of the agricultural production output of the country’s consumption by 2025.
JVP Propaganda Secretary and NPP MP Vijitha Herath says the Govt is planning to introduce a 12-hour workday: also says the Govt is trying to deprive the workers of their legitimate rights by abolishing 13 Acts including the Shop and Office Employees Act and the Wages Boards Ordinance, at the behest of the IMF.
Secretary of the GMOA Dr. Haritha Aluthge says one of the main reasons for the sorry state of affairs in the health sector is corruption: urges the Health Minister to show his sincerity by sacking officials who are facing serious allegations: adds that health officials had ignored the repeated warnings of professional organisations.
SL Buddhist Lawyers’ Association President, Uditha Egalahewa says that the SLBLA strongly condemns the partisan and selective approach of the Bar Association with regard to the issuance of statements, although it agrees with the sentiments expressed by the BASL to uphold the rule of law and safeguard the independence of the judiciary.
President of the Trichy based “Indian Origin Upcountry Tamils Front” M S Selvaraj says those Tamils of Indian origin who were repatriated to India under the Sirima-Shastri Pact are living in a state of limbo for over 6 decades: also says the Group would demand an “international intervention” into their miseries, socio-economic backwardness, and the division of their families from India, Sri Lanka and UK at the International Court of Justice: Tamil Progressive Alliance Leader and SJB MP Mano Ganesan also participates at the meeting.
Colombo (LNW): The Experts Health Committee appointed by Health Minister Keheliya Rambukwella to probe the recent events happened in the Health Sector surrounding controversy is set to convene today (18).
The Committee was appointed following reports of patients who experienced allergic reactions upon being administered with antibiotics at two leading hospitals in the country, some of which led to fatalities.
The six-member Committee of Health Experts is expected to focus on its future course of action and submit a report on the issue in the next three weeks.
Meanwhile, the government of Sri Lanka is being met with severe pressure by a number of parties, including the Opposition, civil activists and concerned parties over the collapsed Health Service, evident of which two women, including a pregnant mother, were pronounced dead at the Peradeniya Teaching Hospital after being administered with an anaesthetic drug, and a 21-year old girl who was receiving treatment for a stomach ailment was pronounced dead.
Colombo (LNW): The Parliament Select Committee appointed to probe the country’s bankruptcy is set to convene for the very first time today (18) in Parliament.
The meeting will focus on the Committee’s future course of action, and discuss the names of the parties who will be first to be summoned before the PSC pertaining to the matter, said Committee Chairman, SLPP Secretary General Sagara Kariyawasam.
The PSC appointed by Speaker Mahinda Yapa Abeywardena to probe Sri Lanka’s economic downfall met with immediate backlash upon its formation in the allegation that it is being chaired by and represented by some of the key respondents to the very bankruptcy against which it was appointed.
Both the Samagi Jana Balawegaya (SJB) and its allied parties and the National People’s Power (NPP) dropped themselves out from its membership, calling the Committee ‘bogus’.
Meanwhile, the SJB has decided to appointed an alternative committee to probe the bankruptcy situation.
PMD: As a result of the new fertiliser policy of President Ranil Wickremesinghe, 512,000 hectares of paddy fields were cultivated in the Yala season after 10 years, Minister of Agriculture Mahinda Amaraweera said.
The minister added that 80% of the nation’s agricultural production is expected to be produced by 2025 as part of President Ranil Wickremesinghe’s strategy to modernise the agricultural industry.
The use of contemporary technologies in agriculture can improve production of fruits and vegetables intended for export and reduce the amount of agricultural crops that are imported, Minister Amaraweera added.
He expressed these views today (17) during a press conference themed ‘One Year of Progress’ held at the Presidential Media Centre (PMC).
Minister Mahinda Amaraweera further commented;
Within a year of taking office, President Ranil Wickremesinghe promptly fixed the farmers’ issues and tried to get them back to farming.
Without a doubt, the country’s circumstances were dire when President Ranil Wickremesinghe assumed office and I took over the Ministry of Agriculture. Farmers protested on the roads demanding fertiliser. The youths of the farming families left the farms and moved to other areas.
Some young people even left the country. The biggest issue in this case was guiding them back to the farmland. The public had no confidence in the Ministers. Even at the meetings on this problem, the farmers stayed away.
If they wish to return to the fields, they demand to be provided fertiliser. Although 275 000 hectares were supposed to be cultivated in that Yala season only 212, 000 hectares were cultivated. At that time, President Ranil Wickremesinghe negotiated with the Indian Government and arranged to provide 6,500 metric tons of fertiliser under the Indian loan scheme. However, the Indian loan arrangement does not allow for the provision of fertilisers. The fertiliser was imported from Oman. Only after learning that a ship carrying fertiliser was approaching the Port did the farmers venture back to their fields. This allowed for the cultivation of 512 000 hectares. It is now the most cultivated hectares in the Yala season after ten years.
The farmers arrived back at the farmland in this manner. A global food crisis was anticipated at the time, according to the warnings. Despite considerable success during the Yala season, 800,000 metric tons of rice had to be imported due to the fertiliser issue. The amount of rice that the government had to import was 300 million USD. For animal feed, another 100 million USD was invested. The farmers received fuel and financial aid to carry out the required farming tasks. Additionally, steps were taken to give small-scale farmers a supplementary urea fertiliser subsidy. Money was deposited to farmers’ accounts so they could also purchase organic fertilisers.
The Yala season has now begun. After three seasons, measures were taken to make mud fertiliser available without charge. The newly imported urea fertiliser is offered for Rs. 9000. A voucher of Rs.2000 is issued per one hectare to purchase Bundi fertiliser. The farmers have now received an unexpected subsidy. They did not request for free fertiliser. However, President Ranil Wickremesinghe is of the opinion that more help should be given to improve the status quo.
There is a chance to advance the level of our nation’s agriculture on a global scale. Modern technology is being introduced to agriculture through many means. There may be several difficulties here. However, every effort is made to develop agriculture using contemporary technologies. Numerous individuals, both inside and outside of the political sphere, have criticised these actions. They have alleged that imported fertilisers to be substandard and the harvest to be poor.
There are still plenty of initiatives to dissuade farmers. Despite what they claim, the farmers have returned to their farms. The Agricultural Services Act is currently being amended. In addition to the current subsidies, steps are being taken to provide subsidies in the cultivation of other crops. There are several areas where paddy agriculture is not profitable. The government is ready to help them grow other crops. They have the potential to earn more income by switching to other crops.
The farmers in this country would not only have abandoned their fields if the President had not come into power, but many of them might have also taken their own lives. And we could have become a weak nation due to scarcity of food.
When the President assumed office a year ago, food inflation was nearly 90%. So far, food inflation has decreased to 4.1%. All the farmers of this country deserve the respect and praise of the citizens for being committed to create a renaissance in the country’s agriculture and creating food security in the country. Also, the country has saved 400 USD as the farmers have resumed cultivation.
President Ranil Wickremesinghe gave instructions to establish an Agricultural Modernisation Secretariat for the modernisation of the agricultural sector in the Presidential Secretariat in parallel to accelerate the country’s sustainable economic growth. The main responsibility of the Agricultural Modernisation Secretariat is to solve problems related to various dimensions of modernisation, including specific problems affecting various sub-sectors. It envisages preparation of roadmaps for each sub-sector to modernise agriculture with time-bound measures and performance benchmarks.
In order to formally implement this responsibility, the Agricultural Modernisation Secretariat has been established by involving all ministries, private sector and universities related to the subject of agriculture. This Agricultural Modernisation Secretariat has been operating since May 31 this year based on improving the production and productivity of the agricultural, livestock and animal products sectors using modern technology, increasing the farmer’s income, and increasing the export income.
A national policy framework is currently being prepared under the leadership of Professor Gamini Senanayake of University of Ruhuna as per the instructions of the President in order to get the agricultural sector’s assistance in creating a ‘Developed Sri Lanka’ by the year 2048 through sustainable agricultural development, production of export-oriented agricultural products, assurance of local food security and the transformation of the youth group into ‘Agribusiness Entrepreneurs associated with new technology’. The goal is to have this policy framework completed by the end of August 2023.
The average yield of paddy in this country is about 3.7 metric tons per hectare. A set of farmers from Hambantota have been able to obtain 10.25 metric tons of paddy per hectare by following good agricultural practices and using quality seed materials. Therefore, the primary goal is to double the current average annual yield for paddy by six seasons from 3.7 metric tons to 7.4. metric tons.
Average maize yield in Sri Lanka is about 3.7 metric tons per hectare. By the end of 2026, it is expected to increase it up to 60 metric tons. Steps will be taken to construct high-tech model cultivation plots as pilot projects for both crops and livestock in each province, with the help of the Provincial Council, the line Ministry, the Central Government, private sector and universities.
Secretary of the Ministry of Agriculture Gunadasa Samarasinghe, Director General of Agriculture P. Malathi, Agricultural Services Commissioner General A. H. M. L. Abeyratne, Chairman of Fertiliser Corporation Dr. Jagath Perera, Director of National Fertiliser Secretariat Chandana Lokuhewage were also present.
Colombo (LNW): Several spells of showers will occur in Western, Sabaragamuwa and North-Western provinces and in Kandy, Nuwara-Eliya, Galle and Matara districts, and showers or thundershowers may occur at a few places in Uva province and in Ampara and Batticaloa districts during the evening or night, said the Department of Meteorology in its daily weather forecast today (18).
Fairly strong winds about (40-45) kmph can be expected at times in western slopes of the central hills, Northern, North-Central and North-western provinces, and in Monaragala, Hambantota and Trincomalee districts.
General public is kindly requested to take adequate precautions to minimise damages caused by temporary localised strong winds and lightning during thundershowers.
Marine Weather:
Condition of Rain:
Showers or thundershowers will occur at several places in the sea areas off the coast extending from Colombo to Matara via Galle.
Winds:
Winds will be south-westerly and speed will be (30-40) kmph. Wind speed may increase up to (45-55) kmph at times in the sea areas off the coast extending from Hambantota to Pottuvil and in the sea areas off the coast extending from Puttalam to Trincomalee via Mannar and Kankasanthurai. Wind speed may increase up to (40-50) kmph at times in the sea areas off the coast extending from Puttalam to Hambantota via Colombo, Galle and Matara.
State of Sea:
The sea areas off the coast extending from Trincomalee to Pottuvil via Kankasanthurai, Mannar, Colombo, Galle and Hambanthota will be rough at times. The other sea areas off the coast extending from Puttalam to Hambantota via Colombo, Galle and Matara may be fairly rough. Temporarily strong gusty winds and very rough seas can be expected during thundershowers.
Colombo (LNW): With borrowing costs easing, inflation cooling and foreign exchange inflows coming again into play, the Central Bank expects the economy to recover faster than expected in the second half of the year, potentially revising the mild recessionary projections made earlier.
While the Central Bank forecasts the economy to contract by 2.0 percent in 2023 as the second half growth is offsetting much of the contraction seen in the first half, multilateral lenders including the International Monetary Fund (IMF), project contractions by between 3.0 to 4.0 percent for the year.
Sri Lankan economy contracted by a sharp 11.5 percent in the first quarter and the expectation was it to have contracted modestly in the second quarter, wrapping up what was the worst and deepest recession the country was ever to have gone through since its independence.
But now all eyes are on recovery prospects although much more needs to be done to restore and uplift the economic wellbeing of the people which hit rock bottom levels last year.
“Based on the information we have, we think we can have a higher than anticipated growth in the second half. But it is still premature to estimate what that would be. We think we would be able to revisit our growth projection after the second quarter output is out,” Central Bank Governor Dr. Nandalal Weerasinghe said.
Sri Lanka’s economy is getting a breather as the foreign currency inflows which fizzled out are now starting to flow back despite some temporary weakness in the export proceeds due to the softening global demand.
Also, the global commodities prices have moderated due to both supply and demand conditions coming into parity after a sharp imbalance seen during the pandemic and at the beginning of the Russia-Ukraine war. As a result the inflation is softening globally.
The foreign debt standstill and the weaker domestic consumption are also helping the authorities to regain some policy space. This helped authorities to change tack and ease policies to cut borrowing cost and take more imports into the country which will directly help to stimulate production and consumption starting from the second half.
To this end, the Central Bank has already cut policy rates by as much as 450 basis points within five weeks to ensure credit flows into the real economy and is dialing back much of the policy tightening that was done since the second quarter last year.
This article sheds some light on the monetary myth of inflation control power of the monetary policy pursued at present in Sri Lanka and how it helps business of government and money dealers.
The present CB Governor blames the previous regime for historically high inflation in 2022 as a result of printing of Rs. 250 bn for refinance credit by following modern monetary theory and home grown economic model. However, he also has been effectively pursuing same modern monetary theory, but with a foreign grown economic model prescribed by the IMF.
This article shows that the monetary policy model presently pursued in Sri Lanka has got no inflation control power in the real economy. Instead, the CB uses it for monetary financing of the government and money dealers without any trace over its impact on prices. However, the CB like a parrot talks on price stability and control of inflation at mid-single digit in the medium to long-term.
At the beginning, the CB Governor claimed that inflation would be controlled by shrinking the economy first through higher interest rates and the economy would then be rebuilt with the price stability. This is a highly undemocratic hypothesis that aims to push the people to the poverty trap.
Present Sri Lankan monetary policy model – Key instrumentsThe two key instruments followed at present are given below.
Policy rates corridor as the target for overnight inter-bank interest rates
Policy rates are the standing deposit facility rate (SDRF) and standing lending facility rate (SLFR). These are the CB’s overnight interest rates applied on its transactions with banks and primary dealers. SDFR is the interest rate paid on overnight deposits held with the CB. SLFR is the interest rate charged on overnight borrowing from the CB against the collateral of government securities. As a result, call money rates or inter-bank overnight interest rates are expected to remain within the policy rates corridor (see Chart 1 below).
For this purpose, the CB should stand ready to lend or accept deposits at policy rates without limits. Therefore, this is not different from the maximum price and floor price imposed on certain goods. Accordingly, policy rates set the target for the inter-bank interest rates volatility.
As such, the primary monetary policy decision taken from time to time is the setting of policy interest rates, i.e., hike or cut or unchanged. At preset, SDFR and SLFR are 11% and 12%, respectively, from 6 July, 2023.
The CB claims that policy interest rates are pursued for controlling the inflation at a target of 4%-6%, which is rhetorically called as flexible inflation targeting monetary policy framework.
Statutory reserve ratio (SRR)
This is the portion of deposit liabilities of commercial banks that should be kept with the CB. At present, it is 4%. This is intended to limit lending of banks and the CB does not pay any interest on these deposits whereas a penal rate of 36.5% is charged on the amount in the short of SRR. However, SRR is not an active monetary policy instrument.
Is this monetary policy model credible? No
This model is flawed in controlling inflation or maintaining the price stability due to several lapses. Six of them are presented blow.1. No link is established between policy rates, inter-bank overnight interest rates and determination or movements of prices of goods and services.
Central bank economists believe a transmission mechanism of policy interest rates to affect prices through bank credit/financing conditions and demand for goods and services over a period of 12-18 months to control inflation as they wish.
Further, their direct impact on the supply side through the cost of production and investments is well known to have counter effects on monetary policy goals although central banks are ignorant of such effects on theoretical grounds.
However, despite modern economic research, nobody has any acceptable research findings on this transmission and its roots and lags except talking. Modern economies are not static systems to find such monetary transmissions to demand, prices and inflation.
However, all text books teach students that inflation is a monetary phenomenon that can be controlled only by central banks through the monetary policy/interest rates. Political leaders for their political benefits tell the public that inflation is a matter for the central bank who is independent to do that. However, the public punishes the political leaders for unbearable inflation as they are not aware of central banks’ inflation control story.
2. New OMO rule has invalidated the monetary policy principle.The corridor-based monetary policy principle is the unlimited access to finance at policy interest rates. However, the CB has restricted SDFR and SLFR windows effective from 16 January 2023, i.e., SDFR only five days a month and SLFR only up to 90% of the SRR at any date for a bank. This is no different from rationing imposed at controlled prices. In general economics, the rationing should lead to the black money market. Therefore, the CB’s present monetary policy model has collapsed in its principle concept.
As banks are reluctant to lend their excess funds in the inter-bank due to current stability concerns and acute shortage of liquidity together with black market developments, overnight inter-bank interest rates tend to move beyond the SLFR. Therefore, the CB has commenced injecting new liquidity lavishly through reverse repo auctions on a daily basis in order to neutralize the cap on SLFR access. In most cases, banks receive reverse repo funds at interest rates lower than SLFR and, therefore, they are now better off at costs to public funds.
From January 2023, the total injection through reverse repo auctions until the end of the last week is Rs. 3,490 bn as against the auctioned amount of Rs. 4,715 bn. In addition, multi-billions are offered for during-the day-settlement free of interest (intra-day liquidity facility).3. Inflation target is an annual statistical exercise not practical for measurement of price stability.
Central bank economists use the year-on-year percentage change of the consumer price index (CPI) as the inflation indicator for the monetary policy. This is the percentage increase of the current month’s CPI over the same month’s CPI in the last year. Therefore, this is a statistical estimate driven by the base effect, i.e., the level of the last year’s CPI as the denominator. The inflation number rising so fast in 2022 up to September and falling so fast from May 2023 are largely a base effect phenomenon as the current CPI marginally rises or remains unchanged.
As such, inflation in Sri Lanka is like to fall to zero towards the end of 2023 and possibly negative in early 2024 if prices of basic food items are to fall.
Therefore, the CB has commenced cutting policy interest rates by celebrating the victory of the return of the statistical annual inflation towards their target of 4%-6%. However, this is a meaningless policy as the general public continues to suffer from prices that rose or more than doubled in 2022. I do not understand why internationally trained CB’s economists do not grasp this simple fact on prices understood by any man on the road. 4. Inflation is the phenomenon of rising prices over a period affecting the cost of living and real income of the general public.
To the general public, inflation is a phenomenon of rising prices over a longer period, not a 12-month period. Prices and CPI in Sri Lanka commenced rising since early 2020 due to a composite of factors. Accordingly, the general price level represented by the CPI basket in June 2023 is roughly 86% higher than that at the end of 2019. Therefore, prices of consumer essentials confronted by the general public at present are almost twice to thrice the prices that prevailed prior to the present inflation waive.
However, the CB who believes statistical annual inflation has so far cut policy interest rates twice in total of 4.5% by celebrating the inflation rate fallen to 12% in June 2023 from its peak of 69.8% in September 2022 together with a forecast of falling it further to mid-single digit at the end of 2023 than anticipated.
Therefore, the CB pursues its monetary policy on a myth of inflation and price stability that does not serve the general public.5. Policy rates cannot resolve supply side bottlenecks and costs that have caused the inflation.
The present waive of inflation in Sri Lanka as well as in the globe is a phenomenon connected with supply side bottlenecks and cost push. In Sri Lanka, its major was the grave market uncertainties caused by political and social instability seen in 2022.
However, central banks attempt to control rising prices by raising interest rates to suppress the demand side of the economy in line with tribal monetary concepts. Therefore, policy interest rates cannot resolve present inflation problem. That is why even after 18 months of consecutive hikes of policy interest rates by 10-20 times, central banks even in developed market economies still continue to raise interest rates as inflation is not tamed sustainably.6. Setting policy interest rates is highly arbitrary and not economically justifiable.
The CB like all other central banks moves policy interest rates here and there without any justification for the specific level or change. However, they talk about various sectoral economic statistics to pretend that policy rates have been determined macroeconomically on both domestic and global fronts.
The CB raised policy interest rates by 7% to 13.5% – 14.5% in April when the annual inflation rose to 18.7% in March by predicting of an inflation of around 30% in the near future. Further, policy rates were raised by another 1% in July 2022 (14.5% – 15.5%) when inflation was rising towards 70%. However, it raised interest rates by 1% in March 2023 (to 15.5% – 16.5%) when inflation was falling to 50% after peaking at 69.8% in September 2022.
In contrast, the economic rationale for policy rate cuts of 2.5% in May 2023 when the inflation was 25.2% and of 2% in July 2023 (to present 11% – 12% level) when inflation was drastically fallen to 12% with a forecast of mid-single digit at the end of the year cannot be established (see Chart 2 below). Inflation forecasts have been consistently false and the CB itself does not accept its forecasts.
Therefore, the policy rates are merely arbitrary exercises that cannot be established in statistics or in macroeconomics.
Concluding Remarks
Some political leaders and economists think that policy interest rates-based monetary policy is a God-given formula to control inflation at levels they wish. Central banks think that changes in policy rates work like a rocket science to affect prices as they wish to keep inflation at targets. However, above points shows that all these are tribal misconceptions.
If those beliefs are correct, the world from the beginning of 2022 would not have confronted the present four-decades-high inflationary pressures in front of inflation controlling central banks. Further, they have been trying to control inflationary pressures by raising policy interest rates in a range of 10 to 20 times, but even annual statistical inflation does not seem to be turning back towards the targets in a sustainable manner.
Raising policy rates in countries like Sri Lanka caught by a foreign currency and debt crisis consequent to flawed monetary policies pursued in the past two decades in old fashion demand management concept is unjustifiable. It will push these countries to decades of economic crises and a new round of poverty and social unrest.
In fact, what the CB has been engaged in is the implementation of the same modern monetary theory although the CB Governor blames the past regime. This is revealed from the excessive money printing for monetary financing through the direct purchase of Treasury bills by the CB. At present, CB’s Treasury bill holding is Rs. 2,539 bn at face value which is an increase of Rs. 689 bn or 37.2% since his appointment on 7 April 2022. Accordingly, nearly 70.4% of the CB’s assets now are lending to the government. Therefore, CB’s new monetary operations are nothing but modern monetary theory. If so, the present monetary policy also will not be able to resolve inflationary pressures underlying the economy although the CB celebrates the unexpected fall of annual or year-on-year inflation towards the mid-single digit.
As such what the CB is actually and actively engaged in by talking of inflation control and stabilization of the economy is a day-to-day printing of money to fund the government and dealers to help their liquidity management which is good during normal times but not in crisis times.
Therefore, I feel sorry for the general public whose tax money was spent for providing education to those monetary and fiscal policy bureaucrats who have no new ideas except going after the tribal concepts and IMF model like parrots to rescue the country from the present crisis created by themselves. That is because they have secured academic qualifications by memorizing theories and have got no common sense in business activities.
At least, political leaders must force the CB to bring the price stability back to the pre-crisis level in terms of the CPI so that the general public regains the living standards and real incomes. Talking about economic numbers, models and concepts is useless without it.
Otherwise, political leaders will cause another economic catastrophe if they wait till the CB like the God stabilizes the economy by moving its flawed policy interest rates here and there arbitrarily as highlighted above.
Therefore, it is the public duty of political leaders representative of the public to distant them from tribal economic concepts such as monetary theory and demand management and to implement a fiscal and monetary package capable of driving the supply and demand sides of the economy on sectoral basis towards higher livings standards of the general public if they are interested in the economic welfare of the general public.
(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)
P Samarasiri
Former Deputy Governor, Central Bank of Sri Lanka
(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 10 Economics and Banking Books and a large number of articles published.
The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)
Colombo (LNW): Sri Lanka’s Inland Revenue Department is considering action against those who do not pay their tax dues despite being eligible after the latest tax reforms, a top official said.
Ranjith Hapuarachchi, the Commissioner General of IRD said the number of tax files have not increased in line with the latest tax reforms.
Sri Lanka has met all interim targets agreed with the International Monetary Fund (IMF) in return for the Extended Fund Facility (EFF) secured in March this year except for the revenue targets which are still falling behind, according to Central Bank officials.
Sri Lanka had to accede to a slew of steep targets which covered fiscal and monetary sides, external sector, state-owned enterprises (SOEs), independence of the Central Bank and take measures to reduce corruption vulnerabilities to get the IMF officials to unlock the much-needed US$ 3 billion facility.
But the government is lagging behind in terms of revenue targets despite the massive hike in taxes and the market pricing of electricity and fuel to strip the state-run utilities from relying on the Treasury for funds.
This in fact sparked a debate during last week surrounding additional revenue measures which could well become one of the main discussion points with the IMF when they come down for the programme’s first review scheduled for September.
More taxes in whatever the form will further suffocate the economy, which is still struggling to find some footing.
What is required instead is a targeted stimulus to revive the new and old enterprises which will generate new jobs and restore lost ones from which the government will be able to rake in more taxes from increased business and consumer spending.
Failure by the government to take appropriate action would result in the consolidation of power among large corporations, leading to the formation of oligopolies.
Simultaneously, this would push small businesses out of the market, causing an imbalance in the economy. Such a scenario is detrimental to both consumers and the spirit of entrepreneurship.
If officials continue to push through the IMF prescription premised predominantly on the revenue based fiscal consolidation, the economy will continue to remain undermined and will never realise its full potential.
The still disappointing tax revenue compared to the target is why the Central Bank has recommended the Treasury to relax the remaining controls on imports which have long been a strong source of tax revenues.
The Central Bank a fortnight ago said that the country now has the capacity to stretch its import bill to around US$ 1.6 -1.7 billion a month from the current US$ 1.4 billion.
In addition, tax authorities have intensified their efforts to crack down on tax evaders, especially in light of recent tax increases, including income tax.
However, these tax hikes have not resulted in the expected influx of new taxpayers into the system. Last week, tax authorities expressed surprise over the fact that the number of tax files remained largely unchanged despite the implementation of these measures.
Colombo (LNW): Sri Lanka hopes to double tourist arrivals to 1.5 million next year and bring in US $ 5 billion in vital foreign exchange the tourism minister said as the country seeks ways and means to tackle its worst economic crisis in seven decades.
Sri Lanka would likely end this calendar year with 750,000 tourist arrivals and about $2 billion in earnings, Fernando said, adding his ministry would be targetting high end tourists and introducing new products in 2023.
Sri Lanka’s tourism industry is experiencing a notable surge in tourist arrivals, with the first 13 days of July welcoming a total of 55,566 tourists, whilst pushing the cumulative number of visitors to 680,440.
Leading the influx of tourists for the month so far is India, with 8,169 arrivals accounting for 18% of the total, followed by the United Kingdom with 4,474 visitors (10%), while China has made significant progress by securing the third spot with 2,893 tourists (6%). Germany and Russia also contribute to the tourist traffic, with 2,824 (6%) and 2,599 (5%) arrivals, respectively.
China’s rapid ascent to the top three source markets is noteworthy, attributed to the resumption of operations by its national carrier, Air China, with three weekly flights. In 2018, before the Easter Sunday terror attacks,
China had been the second-largest source of tourists for Sri Lanka, with 265,965 arrivals. However, this figure dropped to 167,863 in 2019 due to the aftermath of the attacks.
Post-COVID pandemic, China included Sri Lanka in a pilot program to resume outbound tourism, and on 1 March, the first batch of Chinese tourists arrived after a hiatus of three years.
Encouraged by the positive trend in arrivals, Sri Lanka Tourism has set an ambitious target of welcoming 137,594 tourists for the entire month of July.
According to the provincial data released by the Sri Lanka Tourism Development Authority (SLTDA), tourists from other countries like the Maldives, France, Australia, Canada and the United States have also contributed to the recent influx.
Analysing the year-to-date figures, India remains the dominant source market, accounting for 126,187 arrivals (19%). Russia closely follows with 112,993 arrivals (17%), while the United Kingdom, Germany, and France contribute 56,439, 48,541, and 30,318 arrivals, respectively.
In a recent statement, Sri Lanka Tourism Promotion Bureau Chairman, Chalaka Gajabahu, identified India and China as primary source markets for the foreseeable future, citing Europe’s ongoing economic recession as a contributing factor to this strategic decision.
Building on the positive momentum, Sri Lanka Tourism has expressed confidence in the industry’s potential to welcome two million arrivals and generate $ 3.7 billion in income this year. Looking ahead, the country has set ambitious goals of increasing arrivals to 5 million and generating an impressive $ 21.6 billion in revenue by 2030.
The rise in tourist arrivals is not only a positive sign for Sri Lanka’s tourism industry but also signifies the country’s growing appeal as a travel destination.
With its rich cultural heritage, scenic landscapes, and warm hospitality, Sri Lanka aims to solidify its position as a top choice for global travellers in the coming years.
