Can presidential candidates solve country’s financial mess?

Saturday, 19 October 2019 00:10 -     - {{hitsCtrl.values.hits}}

 

The Presidential Election is around the corner and the presidency will essentially swing between Sajith Premadasa and Gotabaya Rajapaksa. But weeks after nominations, both have failed to present their policy statements to prospective voters. Meaning, they were both busy getting nominated or handling issues in Court and had little time to study the country’s problems and the people’s aspirations to present their proposals.

During the past few years, Rajapaksa was in and out of the country and was not directly involved with its running or even present to observe the blunders of the current Government. But Premadasa as the Deputy Leader of the UNP cannot excuse himself of the policies and actions of the Yahapalanaya Government.

Bankrupt Sri Lanka Incorporated

Former Central Bank Governor W.A. Wijewardena’s FT article titled ‘Bankrupt Sri Lanka’ offers a brief statement on the country’s economy. 

According to him: “The total public debt incurred by the Central Government is about 83% of the country’s total output, known as the Gross Domestic Product or GDP. When borrowings from the State banks are also added, total debt increases to 85% of GDP. That number includes only the foreign borrowings of the Central Government, with private sector foreign borrowings amounting to some $ 21 billion, when added total country borrowings rise to 100% of GDP in 2018. The growth projections for 2019 have been even below 3% with no hope of economic recovery during the next three-year period.”

But are the two major candidates aware of the situation?

 Country’s financial situation

Prime Minister Ranil Wickremesinghe, speaking at the Budget Debate on 19 January 2019, informed Parliament that total debt repayment for 2019, including interest, is $ 5,900 million (or Rs. 1,062 billon). He continued that on 14 January they had to service a debt of $ 2,600 million, the highest payment in the country’s history. For the payment, Sri Lanka was helped by $ 400 million from India, $ 500 million through China’s Panda bonds and Japan’s Samurai bonds and an additional $ 1 billion from the International Monetary Fund (IMF), all additional loans.

The allocation for State salaries and pensions for 2019 amounted to Rs. 897 billion. 

During the year, the Government awarded salary increases of Rs. 120 billion, pushing the total bill over Rs. trillion. With Presidential Elections in sight, the proposed Rs. 5,000 salary increase for Government employees from January 2020 would increase the monthly salary bill by another Rs. 10 billion.

Finance Minister’s statement

Explaining the debt crisis, Mangala Samaraweera stated that total Government debt had increased 71% since 2015. All monies the current Government has borrowed since 2016 were to repay the loans of the previous Government. The construction of the Lotus Tower in Colombo, Mattala Airport, Hambantota Port and cricket stadium, IT park, cinema park and conference hall in Hambantota were constructed mostly with loans from China.

Until 2007, virtually all of Sri Lanka's foreign debt was on concessional terms. But from 2007 onwards, the country started foreign currency loans and expensive commercial terms. In 2013, National Savings Bank obtained $ 750 million from international markets at 8.9% interest, while the benchmark was only 1.3%.

Is FM’s statement true?

It is true that Mahinda Rajapaksa’s Government borrowed funds for projects, but were they put to good use? A substantial portion of the Lotus Tower was completed two years ago and mobile telephone operators were eagerly awaiting the facilities. Finally, President Sirisena ceremonially opened the tower when he wished favours from MR, but the usage for mobile operators would take a further six months.

The Hambantota Port costs included MR’s blunders. It was opened on his birthday but prior to its completion the country had to pay an additional $ 40 million for the removal of rocks at the port entrance. Finally, Stages 1 and 2 were brought under a joint venture company with the Chinese owning 80%. The port agreement included 15,000 acres reserved for an industrial complex. But PM Wickremesinghe refused to release the land and the industrial complex was halted. With American President Trump placing restrictions on Chinese imports, a large number of Chinese industries shifted over to other countries. If Hambantota industrial land had been released, large numbers of Chinese industries would have moved in, giving jobs to thousands of locals and increasing local exports. 

The export of production and raw material imports would have made the Hambantota Port operational. Staff movement and the import of urgent materials would have made the Mattala Airport active.

The Port City was suspended for one year by Wickremesinghe, who was forced to give in after being faced with hundreds of millions of dollars in penalty payments. 

Upon completion of the sand filling, Wickremesinghe took over one and half years to gazette the land as part of Sri Lanka. Even today, legislation for the Financial City has not been approved and gazetted by the Parliament. If prompt decisions were taken, the construction of the Financial City would have commenced two years ago, bringing foreign exchange and jobs to the country.

 

The construction of the Lotus Tower in Colombo, Mattala Airport, Hambantota Port and cricket stadium, IT park, cinema park and conference hall in Hambantota were constructed mostly with loans from China. Until 2007, virtually all of Sri Lanka's foreign debt was on concessional terms. But from 2007 onwards, the country started foreign currency loans and expensive commercial terms. In 2013, National Savings Bank obtained $ 750 million from international markets at 8.9% interest, while the benchmark was only 1.3%



Chinese response

The Chinese responded to Wickremesinghe - the Matara-Hambantota highway was completed but opening it prior to the elections was not possible due to the Matara-Beliatta section not being handed over. The same thing happened with the joining of the Outer Circular Road to the Katunayake Highway.

Currently, the country owes nearly $ 5 billion to China and the figure is growing. In May 2019, when the country experienced difficulties settling incoming debt payments, Sri Lanka received a new loan of $ 1 billion from the China Development Bank.

China has become the most important strategic partner of the country. Wickremesinghe’s ill-advised decision to delay Chinese development projects backfired, a clear demonstration of the perils of being too political with international business. 

Both Gotabaya Rajapaksa and Mahinda Rajapaksa are well-known to have better relations with China, and we would see increased Chinese investments if Gotabaya claims the presidency. However, many people both domestically and internationally are concerned about the increased Chinese presence in Sri Lanka. Whether or not these fears have merit, it would be better not to rely entirely on one country for development. Our partnerships with many other countries still hold much potential.

Discipline the Budget

Currently, Government expenditure in loan and interest repayment and current expenses are higher than the income and the deficit continues to increase, filled by still more loans getting into more and more trouble. Thus, only programs that increase production and help exports need to be promoted. Public finances need to be disciplined by taming expenditure, especially recurrent or consumption expenditure, and revenues improved.

Sajith’s and Gotabaya’s proposals

Unfortunately, both contenders for presidency failed to present their plans to develop the country. Both claim their proposals would be presented soon; meaning the proposals are being prepared along party loyalties and without their personal involvement. Can such proposals be expected to be implemented?

Premadasa has promised to improve his housing for the poor program, also improving temples. In addition, he promised preschool education at the State’s expense. His promises are increasing on a daily basis. Such programs would be extremely expensive and would drag the economy towards ruin. He is silent on economic policies or reducing Government expenditure. He promises to eradicate corruption. 

A few weeks ago, Wickremesinghe attempted to withdraw nearly Rs. 275 million from LECO funds, supposedly to develop Mihintale, which failed. Now the Cabinet accepted an unsolicited proposal to develop Galle Face Green at a cost of around Rs. 400 million. But are they not aware that with the extension of Marine Drive to the Port City running under Galle Face Green, Galle Face Green will be expanded seawards and redeveloped with materials from the tunnel excavation? Surely, Minister Patali Champika Ranawaka should be aware of this. Does Premadasa’s anticorruption program commence after his election?

If Gotabaya Rajapaksa becomes President, Mahinda Rajapaksa will be the Prime Minister. Can there be any guarantee that the previous corruption seen through activities such as wasteful foreign trips and the appointment of kith and kin to the Foreign Service and Government positions would stop. Also the glamorous projects. Can Gotabaya Rajapaksa control the extravagance of Mahinda Rajapaksa and his other family members?

Paying Rs. 5,000 from January

The Immediate problem after the elections would be the Rs. 5,000 increase promised to Government staff from January, which is clearly a political decision. The current Government boasts that the salaries of Government staff have more than doubled during their period. But the problem is how to find money; the Treasury has already sent a circular instructing departments to cut down expenses by 15% during the next three months to accommodate the salary increase in January. Will there be a 45% cut afterwards? Gotabaya could tell the staff to get the increase from Wickremesinghe. But can Premadasa escape this demand? Surely, having increased Rs. 10,000 at the beginning of the term, they should be aware of the consequences.

Solving country’s problems

Solving financial problems would require extreme discipline, commencing with the reduction of Government expenditure, especially at the top. Mahinda Rajapaksa was known for his worldwide trips with over 200 staff using SriLankan Airlines, which led to the termination of the agreement with Emirates when he demanded the unloading of paid Business Class passengers to accommodate his entourage. President Sirisena made only around 50 trips, but he travelled almost every week.

The current Government has appointed more ministers than allowed under the Constitution. Ministers and MPs are paid high salaries and various allowances, in addition to duty-free vehicle permits which they sell. The current Government attempted to issue duty-free vehicle permits to past Provincial Councillors, which was fortunately disallowed by the FM. Few weeks ago, Cabinet approved Rs. 102 million for the payment of duties for two bulletproof vehicles for the President. The Cabinet might decide to donate the two vehicles to the retiring President.

If the new Government curtails salaries, allowances, perks to MPs, pensions for past Presidents and MPs, foreign trips for the President and others and their political staff, then Government staff would not make further demands. Appointments to foreign embassies could be limited to proper qualified personnel, discontinuing political appointees. In addition, embassies in countries not heavily economically and socially connected could be closed down, reducing costs.

Conflicting regulations

A large number of regulations within the Government, are in conflict with each other, restricting forward movement and revenue and creating an impasse. There are over 600 applications from solar producers having registered by paying over Rs. 1,000 million for three years, capable of supplying 1,500 MW of solar power. However, the Ceylon Electricity Board refuses to accept a conflict in regulations. The Government is aware of the situation, but has taken no action.

Just before presidential nominations, the country faced a large number of strikes by Government staff citing petty reasoning. They could continue as striking officers were on full-pay, again due to a regulation conflict. When CEB engineers went on regular strikes, if the Government corrected the anomaly, recent strikes would have been averted.

Conflicts in import and tax regulations allow importers with conniving Customs officials to pay low import duties, resulting in the Government losing billions. Senior Government officers are aware of hundreds of such conflicts and if they were corrected immediately, revenue would increase substantially.

The reduction of politicians’ expenses and the correction of conflicting regulations would result in substantial savings and increased revenue, which could be used to reduce taxes on consumer goods and cut down the cost of living and as a result workers would not demand high salaries encouraging foreign and local investors.

Education

The main candidates of the election in their speeches were vague when addressing the country’s education problems, except encouraging IT-based governance. Schoolchildren undergo extreme stress and hardship in school and with tuition, but after leaving school they find themselves unsuitable for any employment due to a lack of English. Meanwhile, children of well-to-do-parents attend international schools and obtain degrees abroad, but are lost to the country forever. Although Chandrika Bandaranaike introduced English education in 1995, not a single teacher training institution has been established to train English medium teachers. Thus, the assistance of the private sector needs to be obtained. 

Bangladesh is supposed to have 600,000 IT freelancers, but does our country have even 1,000? This is another result of our poor English. The contestants need to accept English-based education as an urgent requirement. Rajapaksa, having been employed in the IT field in the US, would be knowledgeable on the subject.

Agriculture and industry

Both contenders have indicated that they would improve the status of farmers and also the industry, but have presented no details as yet. In Kerala in India, 90% of coconut plantations are under drip irrigation, with 50% through a government subsidy, but Sri Lanka has not even achieved 5%, leading to high coconut prices when rains fail. 

Globally, agriculture has made vast advances. Local companies export banana, mango and exotic vegetables. Our agricultural officials have not promoted outgrowers. Our farmers with small lands fail to earn a reasonable income. Thus, a large number of existing farmers need to be moved out, mostly to industrial jobs.

The United States proposed the ‘Millennium Challenge Corporation (MCC) Compact Program’ for improving industry by setting up industries within the Colombo-Trincomalee Economic Corridor. The proposal was connected with SOFA and met serious objections. However, the basic concept could be implemented.

The country could establish industrial estates within a few kilometres of expressway exits, allowing industries convenient port access. Industrial estates could be established with a few hundred acres of land with infrastructure such as roads, water and electricity. In addition, there could be high-rise apartments to accommodate employed senior and supervisory staff, with schools and shopping areas at the boundary. 

Junior employees would be recruited locally. This would allow the immediate establishment of a number of industrial estates along the Southern Expressway and Kurunegala Highway, encouraging investments by foreign and local entrepreneurs, improving production and jobs for locals. The same process could continue with new highways.

President’s occupation

Premadasa insists he would continue to be available to look after the poor. As a member of the current Cabinet, his contribution towards Government policies and projects has been very poor, concentrating only on housing. As the Deputy Leader of the UNP, he failed in his collective responsibility.

For a President, time management is extremely important. The President is expected to read and approve every Cabinet paper, also understand every project proposal. Some proposals are too long and others beyond his technical capability. But he could get officials to meet him in private and explain. Furthermore, if he is in doubt when projects are delayed and have exceeded expenses, he could speak to different people.

Moragahakanda Project

The Moragahakanda Project was proposed to supply water to the region receiving the least rainfall in the country, i.e. north of Vavuniya. But under the current modified project, only 10% of Moragahakanda’s water will reach the Iranamadu tank near Kilinochchi. If the arid North is provided with at least 50% of Moragahakanda’s water, northerners would make the country self-sufficient with onions, potatoes and others to be sold in the South. With improved lifestyles with ample water from the South, northerners will no longer demand separatism. None of the presidential candidates offered to supply increased water quantities to the North, which could have earned them votes from the region. This demonstrated the poor knowledge of politicians.

Problems needing attention

Today, among the serious problems confronting the country are insufficient electrical power generation, as not a single new major power plant has been construction or even awarded during the past five years. The use of LNG in power generation would be much cheaper and environmentally friendly but no action has been taken, with the situation messed up by CEB engineers. Meanwhile, Mannar gas discovered nearly 10 years ago, needs exploration.

In garbage disposal, three contracts have been awarded for electrical power generation using garbage, but the projects are suspended and garbage is being transported to Aruwakkalu, north of Puttalam at a high cost. One power project investor has already spent over Rs. 1,300 million and will need to be solved by the new President.

To stay abreast of press revelations, the President could appoint press officers to read newspapers and bring important articles to his attention with a summary. To devote time to resolve the country’s problems, the President will need to restrict public appearances and foreign travel, limiting himself only to occasions of national importance. Additionally, ministers and MPs need be directed to limit their public functions, thereby reducing Government expenditure.

The presidential aspirants need to understand the country’s delicate financial situation and amend their ways to achieve a prosperous country. If he succeeds, he will surely be re-elected.

 

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