Cascading global crises have left 54 countries, including Sri Lanka, in dire need of debt relief, the UN said Tuesday (11).

In a new report, the United Nations Development Program warned that dozens of developing nations were facing a rapidly deepening debt crisis and that “the risks of inaction are dire”, AFP said.

UNDP said without immediate relief, at least 54 countries would see rising poverty levels, and “desperately needed investments in climate adaptation and mitigation will not happen”.

That was worrisome since the affected countries were “among the most climate-vulnerable in the world”.

The agency’s report, published ahead of meetings of the International Monetary Fund, the World Bank, and also of G20 finance ministers in Washington, highlighted the need for swift action.

But despite repeated warnings, “little has happened so far, and the risks have been growing,” UNDP chief Achim Steiner told reporters in Geneva.

“That crisis is intensifying and threatening to spill over into an entrenched development crisis across dozens of countries across the world.”

The poor, indebted countries are facing converging economic pressures and many find it impossible to pay back their debt or access new financing.

“Market conditions are shifting rapidly as a synchronized fiscal and monetary contraction and low growth are fueling volatility around the globe,” UNDP said.

The UN agency said debt troubles had been brewing in many of the affected countries long before the COVID-19 pandemic hit.

“The rapid build-up in debt over the past decade has been consistently underestimated,” it said.

The freeze on debt repayment during the COVID crisis to lighten their burden has expired and negotiations under the G20 Common Framework created during the pandemic to help heavily-indebted countries find a path to restructure their obligations have been moving at a snail’s pace.

According to available data, 46 of the 54 countries had amassed public debt totalling $ 782 billion in 2020, the report said. Argentina, Ukraine, and Venezuela alone account for more than a third of that amount.

The situation is deteriorating rapidly, with 19 of the developing countries now effectively shut out of the lending market — 10 more than at the start of the year.

A third of all the developing economies have meanwhile seen their debt labelled as being “substantial risk, extremely speculative or default,” UNDP’s chief economist George Gray Molina told reporters.

The countries at the most immediate risk are Sri Lanka, Pakistan, Tunisia, Chad, and Zambia, he said. Gray Molina said private creditors have so far been the biggest obstacle to moving forward with needed restructuring.

But he suggested that the current market conditions could pave the way for a debt deal, as private creditors see the value of their holdings plunge by as much as 60%.

“When emerging market bonds trade at 40 cents on the dollar, private creditors suddenly become more open to negotiation,” he said.

“The incentives are to now join a negotiation where you might accept the haircut of 20 cents on the dollar, 15 cents on the dollar, and 30 cents on the dollar.”

But willing creditors are not enough to actually nail down a much-needed debt-relief agreement, Gray Molina acknowledged.

“The missing ingredients at this moment are financial assurances from major creditor governments to clinch a deal.”

Steiner, who has repeatedly raised the alarm about the crisis, voiced hope the international community might finally recognize that action is in everyone’s shared interest.

“Prevention is better than treatment and certainly… much, much cheaper than having to deal with a global recession,” he said.

President Ranil Wickremesinghe, in an interview with Pasini Withanage on The Leader YouTube channel on Thursday (13), emphasized the importance of King Charles III attending the United Nations Climate Change Conference (COP27) scheduled to be held in Egypt from 6 – 18 November 2022.

The President made this observation in response to a statement made by Buckingham Palace on October 02 which stated that a decision had been made for King Charles III not to attend COP27.

The President of last year’s summit and member of Liz Truss’s Cabinet Alok Sharma however had stated that King Charles III should attend the upcoming climate change conference. Sharma was responding to a report which claimed British Prime Minister Liz Truss had ordered the king not to attend the conference.

According to British news reports, the King- then the Prince of Wales had indicated he would attend the annual conference.

King Charles III has been a staunch climate action advocate with a long history of campaigning to reduce the effects of climate change and made a speech during the opening of last year’s summit.

President Wickremesinghe, who recently appointed former Norwegian Minister of Environment Erik Solheim as his international advisor on climate, is expected to attend COP27 in Egypt next month.

The full text of the interview is as follows;

Q. Why is Sri Lanka placing so much importance and emphasis on climate change, especially during the economic crisis?

A. Well, if you are looking at the economic crisis, we have to emphasize climate change because today the economy and climate change are interlinked. We have to recover from this position. There must be economic development in the country. We have to go ahead. Then, our economy now must be on the lines of a green economy. That’s what everyone else is doing in the world. We can’t be outside that. Secondly, tremendous potential Sri Lanka has as a green economy. We’re getting into renewable energy. There are many other fields in which Sri Lanka can really benefit and we should go ahead.

Q. What are some of the initiatives that Sri Lanka has put in place, or is planning to put in place to address climate change?

A. Actually, we haven’t done much after COP26 due to the political instability in Sri Lanka, but we do have a plan. Our framework will take into account the 2015 Paris Climate Agreement we signed, the decisions taken at COP26, and the Commonwealth Heads of Government resolution on climate change. We are also looking at the blue economy. So within this framework, we’ll be working out our initiatives, and the potential we have. The steps we had to take. We even had to look at the water at some stage, degraded soils and reforestation. But in addition to that, I feel there has to be capacity building not only for Sri Lanka but for our whole region. We are also proposing 1s a climate change university which will be devoted to capacity building among the officials and the activists involved in climate change.

Q. You mentioned the COP summit. It has been announced that you will be attending the COP27 in Egypt next month. What is the government hoping to achieve by attending the summit?

A. No, we want to play our role there because we are very concerned as an Indian Ocean island nation, about the impact it can have on us. And we should also work together with India, especially in places like Tamil Nadu. A lot is being done on climate change. I also want to get support for the climate change university which we have been advocating. So we are going ahead and I’ve asked the former President of Maldives, Mr. Mohamed Nasheed, to act as my special envoy on climate change. He has been visiting several countries and Mr Eric Solheim came as an advisor, on both our legislation as well as the climate change university.

Q. The climate summit has been running for 27 editions now this year. Do you think the summit had been successful or do you think there’s space for improvement?

A. Well, 2015 was a really important one, when it came to the climate change agreement, and certainly 26 is very important. We have to follow up on COP26. Some of these countries have fallen behind or they’ve sort of retreated from the position they have taken. This is why COP27 is important. The President of Egypt had invited King Charles III to come and address COP 27. I also think it’s very important. Unfortunately, there seem to be some issues in the UK about him attending COP27. I can’t talk of the UK, but talking as a member of the Commonwealth, King Charles is the head of the Commonwealth and last February at the CHOGM, we passed a resolution on climate change. Therefore, he should be here. I think the UK government should reconsider it and enable him to be in Egypt for COP27 because he has an important role to play.

THE LEADER

Damien Fernando, MBA (Sri.J), FCMA (UK) 

The highest rate for employee income is now increased from 18% to 36%. It appears that the revenue planners of this country do not like to learn from developed countries how to recover the cost of government services to the people. They would instead stick to the traditional methods of taxing income earners. There are other ways of recovering the costs of the government and services. The only success story in this in Sri Lanka is the passport office. Changing from when people had to wait for several weeks to obtain a passport for a small fee, they successfully introduced one day service for payment of a higher fee. If I am not mistaken, this system recovers the cost of the passport operation and possibly makes a surplus for the department. Apart from this, the treasury or the revenue planners have been incapable of thinking outside the box, increasing the taxes on the private sector employees and exporters.

While none of the government sector employees pay any tax on their employment income, private sector employees (who do not qualify for any pension on retirement) have to pay taxes on their employment income. The unfair part of this is that private sector employees are made to subsidize the services the government provides for everyone.

As the current tax-free threshold is Rs. 100,000/= a month, why cannot the income taxes apply to government sector employees as well? A salary of Rs. 100,000/= is way more than an average govt sector employee gets. There would not be resistance from anyone as only the people with higher incomes get taxed as their counterparts in the private sector. A private sector employee making over Rs. 100,000/- a month must pay the same prices for goods and services as a government sector employee would. 

Most governments have three ways of recovering the expenditure. One is direct taxes such as VAT and income taxes. The second is indirect taxes, such as taxes on food and other imported items. The third, user–pay, is rarely used in Sri Lanka except for passports and motorway use. Unlike other taxes, the user-pay collection is not hated by the payers as they get a direct benefit for what they pay. Also, the user-pay method is a fair system of recovery of costs, unlike making few people subsidize the services mainly provided to others. 

Following are a few examples where the system can be changed to shift to a user-pay method and reduce dependency on the higher income tax from the exporters and the private sector employees.

1. One of the most significant expenditures of the government is education and higher education. There are approximately 4.2 million schoolchildren between grades 1-12. It is fair to assume that at least 15% of these students come from families with a monthly income of over Rs. 100,000 or assets over Rs. 25 million. If such children are made to pay Rs. 5,000 a month for education, the total revenue of the education department would be Rs. 37.8 billion a year.  Parallel to this, the govt could also impose a fee of Rs. 5,000 a seat in every private school.

2. Except for the few motorways, all other roads do not recover any cost from the users for the usage. A per kilometer fee (say 1/3 of the per/km fee for motorways) for the use of the other major roads, the government could at least recover a part of the maintenance and renovation of roads. Rather than having staffed booths like on our highways, there are electronic user fee-collecting systems. An exemption could be given to passenger buses, motorcycles, three-wheelers, and Lorries. 

3. The govt. also spends a considerable amount of money on the work done by the local government institutions. However, the rates charged by the local government institutions are negligible compared to the costs—an apartment or a house worth Rs. Fifty million has to pay only Rs. 2,500 a year as rates. The government could easily charge 0.5% of the property’s value, which would be Rs. 250,000/= a year or around Rs. 20,000/= a month. That is 100 times the current rates. The government could allow the local bodies to retain 30% of the amount they collect as rates and take the balance to cover the infrastructure cost they must maintain. Also, this will eliminate the costs the central government is paying to local governments.  With the government’s infrastructure costs, the property value goes up substantially. Hence it is fair to recover 0.5% a year on the property value as the owners could enjoy 99.5% of the gain.  

4. The present revenue license fee charged for motor vehicles is also way too small. For example, a Rs. 20 million worth of Land Cruiser Prado has to pay a license fee of Rs. 4,000/=. This is compared to the famous SRI tax introduced by Dr. N.M Perera in the ’70s, where a car with a registration number starting from 6 SRI had to pay Rs. 600/= a year. While the owner of a Prado would pay only Rs. 4000/= for the revenue license, he would pay Rs. 300,000/= to insure the same car for one year. The RMV should charge at least 0.2% for the revenue license, which will be Rs. 40,000/- a year. The Automobile Association could easily provide the average valuation of each YOM and model of a vehicle to RMV. Such a fee will increase the revenue of RMV by ten times.  

5. The govt. can implement a student loan scheme for higher education by the govt. Universities. The loan is to be paid monthly for ten years after completion of the degree without interest. This will recover a substantial portion of the costs govt. incurs on universities. Subsequently, the student loan scheme could be extended to include private universities.  To estimate the recovery, if one assumes 50,000 students enter state universities a year, and the fee for higher education degrees is Rs. 10,000/- a month, then the income for a year will be in the range of Rs. 24 billion. There are several advantages of this method.  One is that the students will attempt to complete their degree on time rather than staying in the university without completing the degree. This is as every month his cost will increase by Rs. 10,000/=. Other is as the university gets paid Rs. 10,000/= a month for every student, they admit they will try to increase the capacities and the intake to increase their revenue. 

6. Even for healthcare, a fee of Rs. 100/= for a consultation and, say, Rs. 500/- a day for hospitalization and Rs. 5000/= for surgery is not unfair for members of a family that has an income over Rs. 100,000/= a month or Rs. 25 million in assets.

7. Although not an example of a possible user-pay service, the cost of a poverty alleviation scheme (samurdhi) could also be modified to be less costly to the government and more effective for recipients. The poverty alleviation systems have failed to pull a significant portion of the poor out of their situation. If the government coordinates a scheme in that people and companies volunteer to look after a needy family by providing Rs. 10,000 a month, it will be way better than Rs. 3,000 or so the samurdhi pay. The most significant advantage is that the sponsor could provide children with used or new clothes, books, and education and career guidance. Some would help their recipient families with assistance to home renovation, household goods, food, etc. While many well-to-do individuals and families will volunteer to sponsor another (poor) family, large state-sector and private-sector banks and other organizations will volunteer to support hundreds of families. The most crucial part of such a scheme is the guidance and further help the low-income families would get so that many families would come out of poverty after a few years.

There could be many government services that are now provided free of charge or for a small fee. Subsidizing for low-income earning families is always justified in any society. However, providing free or subsidized services to those who can afford to pay and making the private sector employees pay higher taxes on their income is grossly unfair.

The government should introduce a free services card for families with income of less than Rs. 100,000 a month or Rs. 25 million in assets so they can be provided with free education and healthcare. This should be done based on an affidavit signed by the head of the household. If an applicant gives a false affidavit on their income and assets, they could be prosecuted, and a fine of several folds of the cost of free services provided could be recovered. Similar systems are implemented in developed countries with reasonable success.  

The Court of Appeal has issued a warrant to arrest the Minister of State Sanath Nishantha and bring him to court.

This is due to the fact that a notice was issued to appear before the Court of Appeal today (13) in relation to the complaint filed against him regarding contempt of court, but he did not appear before the court when the case was called this morning.

Accordingly, this warrant was issued to the IGP by the Court of Appeal Judges Nishanka Bandula Karunaratne and R Gurusinghe.

However, it was reported that after some delay, Sanath Nishantha had arrived at court.

The subjects and functions of the two Ministers of State under the Ministry of Industry have been published through a special gazette.

Industry Minister Ramesh Pathirana has issued this gazette announcement.

Accordingly, the functions and government institutions allocated to Chamara Sampath Dasanayake, Minister of State for Primary Industries and Prasanna Ranaweera, Minister of State for Small and Medium Enterprise Development are as follows.