Sajith reveals in Parliament ‘economy is in deep recession’; shows in numbers

SJB and Opposition Leader Sajith Premadasa

• Lists multiple questions to Monetary Board and Finance Minister 
• Insists they must be answerable and held accountable 
• Flags off sharp rise in money supply and food prices
• Claims actual foreign exchange reserves at present is approximately $ 700-800 m only

Samagi Jana Balawegaya and Opposition Leader Sajith Premadasa on Tuesday in Parliament exposed what he described as “deep recession” of the economy with numbers. He alleged that the catastrophe was a direct result of the failure of the Monetary Board and the Central Bank and the Finance Ministry. 

Premadasa also listed a plethora of questions to these institutions insisting they must be answerable and held accountable. Following are excerpts. 

It is an inescapable fact that the Sri Lankan economy is in a deep recession and it is the ordinary people of our country who have to bear the brunt of this economic collapse. The Government has always blamed the COVID-19 pandemic as the primary driver of this recession. Institutions responsible for macroeconomic management are long-established and have the necessary authority to intervene in the event of externalities that may risk our nation’s financial stability. However, the Sri Lankan economy and its people have been disproportionately affected by the pandemic, especially when compared to peer group nations and I submit to you that this is a direct result of the failure of those in charge of key institutions, specifically, consecutive Ministers of Finance, the Monetary Board and the Central Bank as well as its Governor.

Accordingly, considering that this is an issue of urgent national importance, I expect specific answers and explanations from the Government to the following questions. Headline inflation, as measured by Colombo Consumer Price Index increased to 14.2% in January 2022 from 3% in January 2021. Food inflation increased to 25% from 6.8%.

Under Section 64 (2) of the Monetary Law Act No. 58 of 1949 if the amount of the money supply has changed by more than fifteen per centum (15%), or the cost of living index has changed by more than ten per centum (10%), of its level at the end of the corresponding month in the preceding year the Monetary Board should submit to the Minister in charge of the subject of Finance and, if not prejudicial to the public interest, make public, a detailed report which includes an analysis of:

•  The causes of the anticipated economic disturbances, or of the actual abnormal movements of the money supply or the price level;
•  The probable effects of such disturbances or movements on the level of production, employment, and real income in Sri Lanka; and
•  The measures which have been already taken, and the further monetary, fiscal, or administrative measures recommended to be adopted by the Government. 

If so, 

1. Has the Monetary Board submitted this report to the Finance Minister? If not, has the Finance Minister asked for this report under Section 64(2)? If he has asked for such a report, will steps be taken to table it in Parliament?

2. If the Monetary Board has submitted a report, what measures has the Monetary Board taken to address the increase in money supply and prices? 

3. What measures have they recommended to the government to address this situation? 

4. What were the main reasons for the rapid increase in inflation? And particularly the increase in food inflation?

5. How has the increase in reserve money by 37.5% and the quantitative increase in the Central Bank of Sri Lanka’s holdings of Treasury Bills contributed to the rise in prices?

Gross official reserves had fallen to $ 1.6 billion at the end of November 2021 from $ 5.7 billion at the end of 2020 and $ 7.7 billion at the end of 2019. The decline signifies a reduction from 4.2 months of import cover to one month within a year. Under Section 68 (1) of the Monetary Law Act No. 58 of 1949, whenever the Monetary Board anticipates that there may develop a deficit in the international balance of payments of such magnitude as to cause a serious decline in the International Reserve, or whenever there is an imminent threat of a serious decline in the International Reserve, or a potential threat to such stability or are prejudicial to the national welfare, it is the duty of the Board to prepare policies to keep such conditions under control and submit to the Minister in charge of the subject of Finance a detailed report to adopt appropriate remedial measures.

That report should contain:

•  The nature, causes, and magnitude of the actual or potential threat to the international stability of the Sri Lanka rupee; and
•  The measures which the board has already taken, and the further monetary, fiscal or administrative measures which it recommends for adoption by the Government.

If so, 

1. Has the Monetary Board submitted this report to the Finance Minister? If not, has the Finance Minister asked for this report under Section 68(1)? If such a report has been asked for, will steps be taken to table it in Parliament?

2. If the Monetary Board has submitted a report, what measures has the Monetary Board taken to address this decline in foreign reserves? 

3. What measures have they recommended to the government to address this situation? 

I would like to offer a brief explanation. At this juncture, the Central Bank is officially stating that our reserves stand at $ 2.3 billion at the end of January, down from 3.1 in late December. While this certainly signals a critical situation, it is made infinitely worse by the fact that this figure of 2.3 billion is misleading, since it also includes an amount of 10 billion Yuan, approx. $ 1.6 billion, that was received. Therefore, the reality is that the foreign exchange reserves of our country at present is approximately $ 700-800 million. The IMF has stated unequivocally that only assets usable as dollars should be included as reserves. Thus, the actual level of usable reserves – usable capital – within this 2.3 billion they speak of, is only $ 700-800 million. In fact, as of today, our reserves are limited to three weeks’ worth of imports. Never in our history have our reserves collapsed to such an extent.

Therefore, I would especially like to ask the Minister why such lies are being presented to the country. 

The Rs/$exchange rate depreciated sharply from Rs. 185 in September, 2020 to Rs. 200 by May, 2021. Since May 2021, the rate remained relatively stable until it hit Rs. 210 in September 2021. From September 2021, the Central Bank has “fixed” the rate at Rs. 203. However, the black market price remains somewhere around Rs. 240.

Under Section 65 of the Monetary Law Act No. 58 of 1949, the Monetary Board should endeavour to maintain the par value of the Sri Lanka rupee, or where no determination of such par value has been made, maintain the exchange arrangements and so relate its exchange with other currencies as to assure its free use for current international transactions. At present, migrants no longer transmit their earnings through the country’s official banks.

Accordingly, official migration remittances began to decline from June 2021. This is a drop of more than $ 1 billion compared to the previous year. Therefore, I would like to ask the following:

1. Is the Finance Minister satisfied that the Monetary Board is not in violation of Section 65 of the Monetary Law Act? 

2. If so, can the Finance Minister justify the decline in migrant remittances thus far in 2021? Will the Minister of Finance submit a report on the amount of remittances received by this country over the last several months?

3. If not, has the Finance Minister asked for justification of the exchange arrangements?

The bill presented yesterday by this Government, which introduces a surcharge tax which will target the working people of Sri Lanka, the back-bone of our nation. You are aware that the largest fund in our country is the Provident Fund, it has approx. Rs. 3 trillion. The profit of this provident fund for the year 2020 will be approximately Rs. 250 billion which, according to the provisions of this bill will levy a Rs. 65 billion tax on this profit, thereby siphoning-off the working people’s hard earned savings, only to redistribute said funds to their political patrons and minions.

I request the Minister of Finance, please do not implement this unscrupulous process. Do not steal the money of the hardworking people of Sri Lanka. Please withdraw this Bill/Gazette – with immediate effect. Please do not deprive the people of their hard-earned funds in the provident fund. We know that today, the country is ruled by those who have tapped into provident funds in various ways throughout history. This is the true story. Therefore, I request the Minister of Finance to please answer my question at this juncture – we demand an answer today, the people of this country deserve an answer today! Make that answer clear and unambiguous. I would like to take this opportunity to ask you to remove the provident funds as well as the pension funds from this 25% tax which is a tax on the working people of our nation. 

With reference to the comments made by the Minister stating that the rising rate of inflation in the country is merely gossip! This is not gossip, these are facts, these are official figures. How can the Minister refer to these as gossip? Are the increases in the cost of living and the increases in the price of goods simply rumours? Is the fact that we only possess 3 weeks’ worth of foreign exchange reserves a rumour as well? 

When we ask such important questions related to the remittances of our working people who go abroad and shed blood, sweat and tears, is it acceptable that there is no Minister of Finance, and no State Minister of Finance in the House to respond? Let me try to explain to you in English. At least you can listen. I am trying to explain to you in English. There is a convention when the Opposition Leader is on his feet – on his or her feet – there is a convention, there is a custom that you are allowed to speak and your mic is not abruptly switched off. Why are you all engaging in such un-parliamentary practices? What is this nonsense? Are you unable, from that so-called august chair, to control the mic? Why are you all abruptly switching the mic off? As a tradition – there is a convention, there is a custom – that is practiced. Are you aware of Parliamentary practice?

There is no problem if the Minister of Finance is too busy to answer an important question of this nature. Neither a State Minister nor a Deputy Minister is present to answer such a question and that in my view is not only a travesty in regard to Parliamentary tradition but it is also a grave injustice to the people of the country. Please take necessary steps to include this in the Hansard.