Chandra J writes to IMF to evaluate Extended Fund Facility program

Good governance activist Chandra Jayaratne has written to the visiting IMF Head of Mission Manuela Goretti, making a host of submissions and calling for an evaluation of the organisations Extended Fund Facility program with Sri Lanka. Following are excerpts of Jayaratne’s letter copied to IMF Resident Representative Eteri Kvintradze, the President, Prime Minister, Speaker, Ministers of Finance, Law and Order and Justice, State Ministers of Finance and Economic Affairs, Chairman of the Public Finance Committee, Governor of the Central Bank, the Attorney General, the Inspector General of Police and law enforcement agencies:

1. Re-evaluation of planned budgetary spends and priorities

Require the Government to immediately implement change management leadership initiatives, aimed at exercising enhanced levels of accountable and professional budgetary control over planned resource allocations, outside salaries, pensions, subsidies and safety net payments, interests and debt repayments (but including within a re-evaluation as described later, all other fixed and variable spends as budgeted), whereby only priority need based allocations required are agreed to be spent. As a part of this initiative a detailed review of already allocated budgets for revenue and capital spends, in excess of Rs. 10 million per line item and Rs. 50 million for a project, should be re-evaluated and categorised in to essential, good to have, can be deferred, can be eliminated, in the interest of other priority needs identified to replace such spends, with essential spends connected with the rebalancing of emerging new growth priorities, as well as spends deemed essential in meeting priority needs of the marginalised segments of our society not addressed in the current budgetary allocations. 

A team of senior officials led jointly by the State Ministers of Finance and Economic Affairs, be required to regularly place before the Parliamentary Public Finance Committee, details of all spends in the succeeding four week period each month, above Rs. 10 million per activity (excluding essential spends on health, education, public services; and subsidies and transfers for public sector salaries and loan interests, etc.), whether budgeted, planned as supplementary votes or planned under any contingency spend lines or as a budget item substitution, by all ministries and public institutions, along with an oversight review recommendations of the team following a value for money review of the planned spends; and highlighting all items of spends identified as not essential, wasteful, and those which can be deferred on account of them being of lesser priority in the interest of alternative re-allocation for essential rural village development purposes, to redress urgent and priority needs of marginalised communities. For example, options for deferred or non-essential based planned spends could include:

• Costs of ceremonies and tamashas, lavish spends and extravaganza opening ceremonies, etc.
• Costs of providing ego-centric and excessive security for VIPs
• Vehicles and office upgrades for politicians and high officials
• Foreign tours and travel costs of politicians, high officials and invitees
• Non-essential military spends
• Spends identified previously as wasteful by audits, PAC/COPE reviews, etc.
• Deferment of capital budgets with low priority
• Cost cutting and waste eliminating productivity options associated spends
• Energy saving options and identification of unnecessary travel costs and other low value adding fixed costs 
• Future elections linked public 

image enhancement targeting 

unnecessary spends

• All spends with low investment returns and those which fail a value for money test

An all-party endorsement by the Public Finance Committee will ensure the public interests and classification of essential spends and priorities are fair and reasonable. The priority spends of the reallocated funds can also be agreed to on a bi-partisan basis

2. Codes of Conduct and Ethics binding the President, Cabinet Ministers, Parliamentarians, Provincial Council/Local Government representatives

Insist that the Government have in place before year end 2018, duly binding Codes of Conduct and Ethics, covering the President, Cabinet Ministers, Parliamentarians, Provincial Council/Local Government representatives, supported by required standing orders, rules of governance, declaration requirements on conflicts of interest and related party disclosures, with applicable oversight processes and sanctions.

3. Refrain from reducing applicable 

income tax rates

Despite the high-level lobbying by private sector leaders, against the increased levels of corporate tax rates imposed effective 2017/18, make no reductions and explain to the private sector that they must appreciate that:

lThese taxes are paid on profits not incomes (i.e. profits after all relevant costs of business, including indirect taxes, administration and marketing) whilst all other consumers pay indirect taxes based on consumption costs.

lThe tax revenues of the State are highly skewed in favour of indirect taxes that apply to all consumers

lBusinesses are legitimately entitled to tax concessions and exemptions, some of which are openly abused. Some businesses even wilfully engage in tax avoidance and even evade tax by illegal actions which reduce taxable profits (e.g. via customs/excise offences, classification of incomes as generated via tax free sources, transfer pricing, and money laundering)

4. Double deduction for CSR spends: Rural economic development targeting marginalised segments

In order to alleviate poverty and uplift the living standards of the marginalised and war affected segments of our society, a priority national initiative is essential. The suffering, the needs and aspirations of this group of citizens (as aptly demonstrated by the Capital Maharaja initiated Gammadda and Wewn Wewata cascade systems neglect as highlighted by academic research findings), must be addressed collectively by the Government and the private sector, to avoid debilitating social unrest likely as a consequence. Regrettably this priority appears to escape the attention of the political and governance leaders. It is therefore suggested that the private sector be encouraged to support this cause via successful CSR initiatives targeting effectively implemented projects targeting rural development, addressing the education, health, water and sanitation, environment and ecology protection, rural roads and connectivity improvements, local produce value addition linked marketing and distribution support (including quality and productivity enhancements and packaging/storage facilitations) and rural household income enhancement options creating projects. Here the private sector to be motivated by granting a double deduction of spends for tax purposes (loss of revenue will be more than offset by the sustainable economic value addition), if the rural value generating success of the projects along with its sustainability and viability long-term are duly endorsed by the respective government agents and targeted community.

5. Need to amend the Prevention of 

Money Laundering Act 

The Government be directed to ensure that the Prevention of Money Laundering Act is amended as a priority, declaring as predicate offences (unlawful activities) the following:

lEvasion/avoidance of State revenues (including Income Tax, VAT, Customs duties, Excise, rents and rates due to the State)

lTransfer pricing

lIllegal transfer of State assets (including State corporations/enterprises, subsidiaries of State corporations/enterprises, State-operated provident/pension/thrift funds and State-initiated development/contingency funds, etc.)

lViolation of regulations and guidelines and illegal transfer of foreign exchange and cross border transfer of currency)

lAvailing of loans and financial facilities, by gross misrepresentation, fraud and deception or with the clear intent of dishonouring or being aware of the inability to service such loans and facilities

6. Need for priority enactment of a Proceeds of Crime Act, which permits, ex-parte, in camera judicial hearings in appropriate courts, to direct access by law enforcement officials of presently classified information 

In the light of verily believed, enhancing levels of economic crimes and money laundering offences, it is urged that the Government be directed as a measure of priority, to enact a comprehensive Proceeds of Crime Act, which permits law enforcement agencies, following ex-parte, judicial hearings in appropriate courts to be directed by judicial orders to allow such agencies to access to information, returns, documents and declarations available with banks and financial services entities, Inland Revenue Department, Assets and Liabilities Declaration Depositories, Immigration and Emigration, Customs and Excise Departments and regulatory agencies including the Securities and Exchange Commission, which are deemed as essential to progress pending investigations.