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Political wisdom or hypocrisy that worked well within the last 2 years of the Government

Comments / {{hitsCtrl.values.hits}} Views / Monday, 9 January 2017 01:00

By M. Ali Hassen

At the time the Government was about to celebrate its completion of the two years in office announcing the conversion of the loss making Hambantota Port into a joint venture project that would bring an equity of $ 1.1 billion with an additional $ 600 million for it be made operational with required equipment for the Port handling and an economic zone covering over 10,000 acres of land the opposition was making hue and cry saying the Government is to sell off this asset to China or is going to privatise them.

The previous Government had obtained different loans for the Hambantota Port from China Exim Bank. It reads a preferential buyers credit loan of $ 600 million for 13 years, 147 million for 14 years and 157 million for 12 years from the Exim Bank of China. The first instalment of $ 307 million was taken at 6.0% interest rate. Altogether it was $ 1.3 billion or Rs. 183 billion. 

The following statistics show the Hambantota Port and other pet projects started for the glory of the rulers have not brought any favourable results to the economy but it has become a real burden to the tax payers


The Minister of Finance while making these figures public said that since the Government’s Right to Information Act comes in to effect from 4 February 2017 he wants the people to know before that where the deadlock is on the way to development of the country. He said the Government would not put the burden of this debt on the general public with more taxes. Instead as the Prime Minister paved the way for, this debt would be converted into equity thus reducing the debt burden.

But the opposition which had controlled or rather tamed majority of the media when it was in power appears to be able to continue to twist the things in their favour while in opposition by misleading the people into believing that the present Government is going to sell off the Government assets and or privatise all public enterprises which is not the case actually. Even some media especially majority of Sinhala media is not serious enough on their public role. They (journalists) just like parrots repeat the very words used by the opposition and publicise that the Government is to sell off or privatise the Hambantota Port and the 15,000 acres of land to China. 

The media pundits before emphasising on the need to teach the journalists the ethics and self regulations should be enlightened as to how they should perceive the things that are before them objectively. If they were bold enough to query the proponents of the allegation of privatisation and sell off what the similarities between those words and joint venture and 99 year lease at least the masses could be enlightened on the difference of these wordings. Similarly, the so called creation of a super minister and the impunity from legal proceedings are another creation by the opposition to which the media have fallen prey with or without knowing the interpretation of the Bill. A country needs a well informed society to take discerning decisions but how could we have a well informed society when we lag behind without a well informed and well read media.


When the new Government came in to office in 2015, what the country inherited was an economic legacy that was fraught with issues that were beyond the reach of a developing country. In the fiscal sector it had a falling revenue which was hardly enough even to meet the debt servicing. The Government’s revenue as a percentage of the GDP declined from 21% in 1990 to 11.4% in 2004. Accordingly the gap between the Government revenue and the expenditure had widened at an unprecedented level. The gap which was Rs. 125 billion in the year 2000 had escalated to Rs. 601 billion by 2014. As a result Sri Lanka had an economy of which income was inadequate to finance recurrent expenditure and leaving the country to lag behind without sufficient money for capital expenditure which is paramount for economic development and job creations.

The situation was further aggravated with the increase in the debt stock. The debt stock increased by over 233% between 2005-2014, and it had doubled in five years between 2005 and 2010. Sri Lanka owed its financiers Rs. 2,222 billion in 2005 later increased to Rs. 7,391 billion at the end of the previous Government.

Though certain politicians tried to interpret these debt as foreign investment, none of them were investment but long term credit, some of them are with commercial rate interest for infrastructure development. None of the major infrastructure developments brought return on its investment.

The Minister of Finance Ravi Karunanayake said as of end 2016 Sri Lanka has a debt stock of Rs. 9,423 billion plus another 1,200 million off the balance sheet obtained by the Public Enterprises of which the domestic debt was Rs. 5,697 billion. 

Under the command of the President Maithripala Sirisena and the Prime Minister Ranil Wickremesinghe the Minister of Finance Ravi Karunanayake has shouldered the burden of transforming the country into economically viable with dividend to the masses. In a country like ours the Minister of Finance has the foremost place next to President and the PM as it is the responsibility of the Finance Minister to make the economy smoothly run with dividend to all its stakeholders. But with this enormous burden on the country and the masses what can we do. 

The Minister said that before implementing the Government’s policy statement it was imperative to bring financial discipline into the system in order to ensure that the Government receives all its dues as it was noticed that there appeared to be privilege treatment to people who had affiliations with the then rulers. So in the last two years the efficiency and the financial discipline brought into Government’s revenue authorities have brought fruitful result by way of increased revenue. The major fiscal priorities identified were the augmentation of revenue with great emphasis on the expansion of tax base, strengthening tax administration, strengthening fiscal consolidation and improving management of public debt while continuing with income support programs to vulnerable and the needy people.

The total revenue which was at 11.4% of the GDP in 2014 has now increased to 13.6% by end of 2016. This in real value term is an increase by Rs. 465 billion from 1,195 billion to 1,660 billion. The total revenue increased by 21% in 2015 and the projected increase in 2017 will be 29% which will be sufficient for the first time in the recent history to cover the recurrent expenditures. According to Minister Ravi Karunanayake it is a great achievement in the first instance of the Government.

The Minister of Finance Ravi Karunanayake describing the major hurdle and the burden faced by the country said that the debt burden is the biggest challenge because the last Government was zero in bringing any revenue development to the country as it had not inaugurated a single industry that would generate income of employment. What they did was expand the already overcrowded public sector up to 14 million making the country which has one of the largest public services in the world. 

The Hambantota port in-fact did not bring any revenue to the country other than the replacement of income by sending the vessels which came to Colombo to Hambantota increasing the final economic cost to customers. The Hambantota Port is continuously making loss to the nation from 2011. The annual operational loss began with Rs. 90 million in 2011 has gradually increased up to over Rs. 9,000 million per annum since 2014 while the revenue is mere Rs. 200 million per annum. The loss to the tax payer this year will be Rs. 10,656 million. If there is no need for this debt servicing the country would have been in better position. So the Government has selected the best alternative to it in order to reduce the burden of the people.

We will not put the burden of the debt servicing of the Port on to the people. We will make it affordable that would bring us the revenue said Karunanayake. The Hambantota port, Mattala Airport and other related developments in the area have already made over 2,700 families displaced. The Minister opined it is pity that the previous Government which pawned the country with expensive debt and weakened the economy is now shedding crocodile tears saying that the Government is selling off the national assets. They are trying to bring new interpretation to the vocabulary by saying that bringing joint venture with Public Private Partnership is a sell of the assets. 

Joint ventures are not new phenomenon to the developing economies even in 1971 Sri Lankan Ceramic Corporation had a joint venture with Japanese Noritake firm. But it was the Mahinda Rajapaksa government which gave the land at Army headquarters and Hambantota as a freehold to Shangri La Hotel and the portion of the Colombo port city to China also as a free hold. This Government was able to renegotiate and convert it into a 99 year long lease. If not for the debt on the Port the Government would have surplus in its revenue over expenditure.

Now the new impetus given to the Hambantota Harbour by converting the debt in to equity will be an area of activity that would transform the Government policy of bringing in Foreign Direct Investment heralding a manufacturing economy and creation of one million jobs a reality to begging with 2017. It is the responsibility of the masses to empathise the politicians who are out to capture the power by hook or crook by giving distorted version to the economic terms by interpreting the PPP as a selloff of assets.

This Government came into office with the promise of combating corruption. Now two years have passed but still the people who brought this Government into office are waiting in patience to see the outcome of this. The Government set up FCID and Special Commission to take speedy actions and revived the Bribery Commission. People find fault with the Government saying it was powerless to implement what it promised. Many of the cases were reported on the misuse of public properties in which the main allegations were the use of vehicles. The President himself said that Rs. 4.1 billion was paid for Nilwala Ganga diversion project but no work was carried out. If the Government is genuine and so serious to combat corruption immediately bypassing the time consuming FCID, it has an opportunity to initiate action under the general criminal law by making a complaint to Police then the arrest could be made immediately. 

Economic growth without development

Countering the claim of higher growth rate said to have been achieved during the past regime the Minister said that there are several schools of thought that differentiate the economic growth from the economic development. Accordingly, it is possible to have economic growth without economic development. Sri Lanka could be perceived as such a country where we have a large military and a large public service when compared with the population and the expenditure on it will be accumulated in to the public expenditure that would increase the level of GDP. 

Further, during the past regime we had large amount of spending on infrastructure such as sea ports, air ports and express ways which hardly had any returns on such development. It is not a secret that during the period of the previous Government there existed an exaggerated GDP growth rate that was fuelled by debt creating public spending spree because almost all the infrastructure development inclusive of some of the rural roadways were made possible with foreign loan of which many of them were at commercial rates.

Welfare payments and subsidies

The value of the GDP has increased to Rs. 11,183 billion ($ 82.3 billion) in 2015 from Rs. 6,414 billion ($ 56.7 billion) in 2010. Sri Lanka has a new phenomenon in its expenditure chain where a sizeable portion goes to social welfare and subsidies. Sri Lanka spends a colossal amount on welfare and subsidies up to over Rs. 403 billion in 2017, but its value for money is questionable. Sri Lanka inherited a Government of its revenue is not enough for even the debt services. 

None of the allocations already made available for subsidies on fertiliser, Samurdhi and school uniforms has been reduced. In-fact the payment for school uniforms are now being distributed to students at schools without any haphazard. The replacement of giving fertiliser at subsidised price and school uniforms to students with cash payment has not only brought the advantage of bringing down the use of chemical fertiliser but also streamlined the process with efficiency eliminating the middlemen thereby reducing the cost incurred on fertiliser and school uniforms. The special interest rate  paid for the first Rs. 1.5 million fixed deposit by senior citizens and  Rs. 2,000 monthly payment for needy senior citizens introduced in 2015 after this Government came in to power has not been reduced or removed as certain opposition politicians try to mislead the people. 

This Government, for the first time in history, started to pay a higher interest rate for the deposits on senior citizens’ saving accounts in 2015. Rs. 1, 450 million and Rs. 4,000 million were allocated for this purpose by Budget 2015 and Budget 2016 respectively. It has been reported that expecting higher dividends, more and more retired senior citizens have deposited their pension funds in commercial banks. Therefore, in order to meet this increased demand to pay the higher interest rate to senior citizens the treasury of the Finance Ministry has allocated Rs. 8,000 million for 2017. In the meantime the Rs. 20,000 being paid for expectant mothers for a Poshana Malla over a period of 10 months is also being distributed without any curtailment.

The present government of good governance, as it pledged, increased the Samurdhi allowance in 2015. Allocation made to pay Samurdhi allowance in 2014 was Rs. 15 billion and, it has been increased up to Rs. 44 billion in 2017. The minimum Samurdhi allowance paid in 2014 was Rs. 210 and the maximum was Rs. 1,500. It has now been increased to a minimum payment of Rs. 420 and a maximum payment of Rs. 3,500.

Since the President has declared 2017 as the year of poverty eradication, the fertiliser subsidy that has been granted for paddy has been extended to cover tea, rubber and coconut from next year in order to uplift the agricultural economy. An additional Rs. 1,500 million has been allocated for this purpose in the Budget 2017. At the same time, a new subsidy scheme has been introduced from 2017, with the allocation of another Rs. 450 million to give subsidy for domestic milk powder manufacturers as part of making the country self sufficient in milk.

Due to the Sri Lankan new Government’s current policies the support from the international community and the development partners are pouring by way of various support schemes for a sustainable medium term program and some features of a new economic landscape for Sri Lanka at the end of the medium-term program would be:

  • A fiscal deficit of 3.5% of GDP by 2020 – sustained or lowered over the longer term to ensure the debt-to-GDP ratio continues to fall.
  • An increase in the tax-to-GDP ratio from 10.1% in 2014 to about 17% by 2020.
  • A reduction in public debt to about 60% of GDP by 2020.
  • An increase in foreign exchange reserves of the central bank to about 10 months of import cover by the end of the medium-term.

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