Harsha says CB has moral responsibility to be more transparent
- Clarifies 2011 per capita GDP computation technically correct but given fall in Rupee’s value in 2012 Central Bank should have been honest with greater disclosure and putting data in context
- As per IMF staff report Net International Reserves in 2011 alarming low at $ 4 b; Net Open Position below $ 3 b; Short Term debt and amortisation $ 5.7 b
- Alleges lack of disclosure and transparency is an economic crime
- Urges public to demand for Right to Information Act after two attempts by Opposition thwarted by Govt.
UNP MP and Consultant Economist Dr. Harsha De Silva yesterday clarified that whilst GDP per capita calculation in 2011 was technically correct, the Central Bank has a moral and ethical responsibility to be more transparent.
“The per capita GDP computation based on average exchange rate is technically correct but it is morally and ethically inappropriate,” said Dr. De Silva exposing the fact that exchange rate had completely changed between end 2011 (the year for Central Bank’s Annual Report) and the presentation date (which was late March 2012).
Justifying his claims, the UNP MP said as per best practices of financial reporting, good governance and transparency, institutions are required to make a disclosure of non-adjusting events.
“Central Bank Governor who preaches good governance and best practices in accounting has a moral responsibility,” Dr. De Silva opined recalling that Cabraal was once the President of the Institute of Chartered Accountants of Sri Lanka as well.
The contentious issue which has sparked much discussion is that to compute the 2011 per capita GDP, the Census and Statistics Department had used the annual average exchange rate which was Rs. 110.57. However before the Central Bank 2011 Annual Report was presented the exchange rate peaked to Rs. 130 whilst it was hovering around Rs. 127.
Dr. De Silva argued that since the 2011 report has referred to events as late as 12 March 2012 the Central Bank should have explained and put the per capita GDP data in proper context. What the UNP was expecting the Central Bank was to make a post-balance sheet disclosure.
He even suggested that since there was a likely decline in per capita GDP in 2012, the Central Bank should have been more transparent and made a proper disclosure. Dr. De Silva noted that the 2011 Annual Report refers only to the doubling of per capita income by 2015.
“It is the Central Bank which artificially propped up the Rupee’s value in 2011and following the efforts to find its correct value since February, the onus is on the Central Bank itself to be more transparent with disclosure,” Dr. De Silva added.
Noting that the jury was out there that as per good practices central banks have to be more transparent UNP MP charged that unfortunately the Central Bank in Sri Lanka hasn’t been so and this had been exposed by the Opposition several times. Dr. De Silva referred to previous warnings about crisis faced by Sri Lanka’s reserves whereas Central Bank hadn’t told the truth to the people.
For example based on IMF’s recent release of staff report following discussions with the Government, Dr. De Silva said that Sri Lanka’s Net International Reserves (NIR) in end 2011 was $ 4 billion whilst Short Term debt and amortisation was $ 5.7 billion, which was 70% of total gross reserves. The Net Open Position was under $ 3 billion. “This exposes a serious crisis but the public at large were kept in the dark,” Dr. De Silva added.
These dangerous situation only makes it paramount that people should demand for the Right to Information Act, the UNP MP said adding that two previous attempts by the Opposition to bring this up in Parliament was thwarted by the President Mahinda Rajapaksa Government due to ulterior motives.
“Lack of disclosure and transparency is an economic crime,” charged the UNP MP.
Referring to Daily FT’s front page lead story of 19 April titled ‘CB statistics under fire,’ Central Bank Governor Nivard Cabraal stressed that the Department of Census and Statistics calculated the per capita GDP (per capita income) according to the UN System of National Accounts, which is the commonly used and widely accepted methodology by international organisations.
According to this methodology, per capita GDP is derived by dividing the annual GDP at market prices by the mid-year population. Per capita GDP in Sri Lanka Rupees is then converted to US Dollars by using the annual average exchange rate for the particular year. This is the methodology that has been used even in the past, he said.
The annual average exchange rate used in the computation of per capita GDP for 2011 was Rs. 110.57, which includes the depreciation in November 2011. The Central Bank wishes to emphasise that it is the international norm to use the annual average exchange rate in arriving at the per capita income and not the end-of-year exchange rate, Cabraal emphasised.
The Medium Term Macroeconomic Framework presented in Table 1.5 of the CBSL Annual Report 2011 is based on Central Bank’s forecasts of macroeconomic variables. The per capita GDP forecasts have been estimated based on the projected annual GDP, mid-year population and annual average exchange rate of the Sri Lanka Rupee against the US Dollar for the years 2012 to 2015, Cabraal added.