19 October, 2019

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A Few Thoughts For The Opposition

By Kath Noble

Kath Noble

This is hardly news, but the Opposition continued to be uninspiring last week. If a country is going to change its constitution, it really ought to be worth the bother. But the most encouraging thing about the draft published by the UNP on Wednesday is its support for provincial level devolution within a unitary state, which is exactly what is already in place thanks to the 13th Amendment to the existing constitution.

It is also one of the few commitments to which voters would trust it to stick in the unlikely event of Ranil Wickremasinghe being elected.

The Government should grasp this opportunity to confirm its own position and forge a consensus of what should be the vast majority of the country, rather than using it as an excuse to change direction and side with a few extremists in the form of the JHU and the NFF. There is a lot of space in the centre of the political spectrum in Sri Lanka, and Mahinda Rajapaksa should see the importance for the long term future of the SLFP of occupying it.

Sadly, by comparison with its attempts to challenge the Government on the economy, this rather underwhelming move by the UNP is absolutely brilliant.

The strike against the electricity tariff hike was pathetic. It was either too little too late or too much too soon. Even though this was an issue that had caused a major stir in the country, particularly with the urban middle class who should be the least attached to the Government, participation was extremely limited. And of course this is not so surprising since the action was really very badly timed, coming well after the President had stepped in to give the impression that he was rolling back some of the increase. It made the Opposition look ineffective – or I guess I should say even more ineffective – when it should have been gaining strength from its successful protest the previous week.

Having made a mess of that, it is now back to the business of trying to make less important problems look both vital and urgent. Thus Harsha de Silva has been deployed to ‘expose’ the possibility of an impending debt crisis.

To do this, he has been employing the recently published report of the IMF on its annual consultations with the Government. He says that the IMF has ‘revealed’ figures that the Government wanted to hide, in the form of the consolidated budget deficit. This stands at 8.6% of GDP, compared to a budget deficit of 6.4%. The claim is that the Government is trying to hoodwink the public into believing that the economy is in better shape than is the reality.

This being something people tend to be quite willing to accept, no doubt he thinks that he’s onto a winner.

The trouble is that the more often you predict disaster and it doesn’t happen, the less you look as though you know what you’re talking about.

The fact is that there are several different versions of the budget deficit, and they are used for different purposes. Harsha de Silva would know this, being an economist. And Ranil Wickremasinghe would know it, because the UNP too talked of the budget deficit and not the consolidated budget deficit in the brief period when he was Prime Minister. In any case, even if we all agreed that the consolidated budget deficit is ‘best’, the data to calculate it from the budget deficit is in the public domain.

This doesn’t mean that the Government isn’t trying to deceive people. It means that the Opposition has no idea whether the Government is trying to deceive people.

It means that the Opposition has no idea whether the country is overburdened by debt.

And that’s a pity, since a debt crisis wouldn’t be much fun.

Interestingly, the IMF seems to think that the Government is moving in the right direction, and that the prospect of such an unfortunate eventuality is diminishing. The major problem, according to the IMF, and as I have said on numerous occasions, is the very low level of tax revenue in Sri Lanka. The Government having decided that the IMF is correct to insist on cuts in the budget deficit, shortfalls in tax revenue mean that expenditure has to be curtailed, which even the IMF now accepts is detrimental to economic growth.

The UNP has been making some noise about taxation in recent weeks, which is long overdue. But if it is to make a serious contribution, it must say how it would raise more tax.

Who should pay?

Taxation obviously isn’t the only issue, since a significant amount of the debt that administrations in Sri Lanka have incurred over the years is due in foreign currency, which means that even more foreign currency has to be earned by the country to make the repayments of the capital plus interest. As demonstrated as recently as the beginning of last year, when reserves of foreign currency fell to the equivalent of 3.2 months of imports – three months being the usual point at which panic sets in – this is not so easy. Towards the end of the war, they reached 1.2 months of imports and the Government had to agree to an emergency loan from the IMF, with all its associated conditions.

The IMF being particularly obsessed with the ‘losses’ of the CEB and the CPC, this is clearly a situation that the Government would like to avoid if at all possible.

I wrote a few weeks ago about Sri Lanka’s increasing dependence on workers’ remittances, which now bring in $6.0 billion, compared to $4.0 billion from exports of textiles and garments, $1.4 billion from exports of tea and $1.0 billion in tourism receipts. In the context of a downturn in the country’s key export markets in the US and EU, it is easy to understand why the Government is happy to see remittances take on such an important role in the economy. Not only do they flow primarily from other parts of the globe, but so long as those countries remain willing to accept migrants, they also tend to be more stable than export earnings, since they are generally sent by individuals to their families.

However, as I said, this is clearly not a happy situation, since most people don’t want to have to travel thousands of miles to earn a decent living. I asked what the Government’s plan was for generating proper jobs at home.

Connected to that should be the question of what it is doing to boost exports.

Both the share of exports in GDP and Sri Lanka’s share of world exports are falling. If that were only the result of lower demand in the US and EU, it would be reasonable to do what the Government appears to be doing and borrow abroad to cover the shortfall. The debt could be repaid when exports recovered.

However, one of the infinitely more important facts highlighted by the IMF report is that these figures have been falling since 2000. In other words, it is not a temporary glitch.

A very useful recent article by Verite Research on the electricity tariff issue has shown exactly what can happen when the Government acts on what it hopes the future will bring and it is wrong. They say that the extraordinary ‘losses’ of the CEB in 2012, which surely contributed to the recent hike, were to a large extent the result of a gamble. They show how over the last decade the CEB has been relying much more heavily on hydro power, which is cheapest, assuming that low rainfall in one year will be compensated in the next, and how this strategy was employed to an even greater – by implication reckless – extent in 2010 and 2011, because the authorities thought that they had the Norochcholai coal power station as a back-up. What actually happened was that Norochcholai broke down, as it does regularly, and because reservoirs were already so close to empty, the CEB had to resort to expensive oil generation by the private sector.

This is also why the country was subject to major blackouts, which would have cost the economy a lot more than the CEB had to spend.

In a sense, this is not much different to the oil hedging fiasco that got the CPC into trouble in 2008. The Government thought that it would be a good idea to enter into contracts that would save it money if oil prices continued to go up, but failed to consider the impact of a collapse in the market.

As these examples demonstrate, the Government isn’t very good at managing risk.

In fact, as various commentators said after oil prices plummeted from nearly $150 per barrel to well under $50, that doesn’t seem to be its objective. Rather, it would appear to be speculating, which is all very well when it is right, but otherwise potentially disastrous.

No wonder people worry about a debt crisis.

The Opposition plays on their fears in the hope of generating a reaction. With every new loan the Government takes, it gives the impression that the world is about to end. No doubt that is simpler than trying to understand whether that particular deal makes sense, working out what it would do instead and explaining the whole thing to the electorate. But that is what the UNP would have to do if it were running the country.

It’s about time it started to look like it could.

*Kath Noble’s column may be accessed online at http://kathnoble.wordpress.com/. She may be contacted at kathnoble99@gmail.com

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Latest comments

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    Ms. Noble,

    What is your stake in writing about Sri Lanka. Is it just an academic exercise, with a couple of outcomes
    a) Name and fame as a goto person on Sri Lanka.
    b) Based on above a) a possible lucrative country/area representative for the region.

    I think your writing and criticism is reasonable. What I find unusual is that you dont make any comparisons to your home the UK or the EU regions. As you are well aware, the EU/UK are facing large economic and integration of immigrants issues. In comparison Padraig Colman makes comparisons to his home country.

    The lack of comparison politics or economics of Sri Lanka to EU Region/UK can be either
    i) Academic Laziness
    ii) Not wishing to burn boats to home and employment.

    I suspect the ii) because your pre 2009 writing does make comparisons of Sri Lanka to the EU/UK. e.g. the 2007 article on Simon Huges where you say

    I’m always slightly suspicious of British people, particularly white middle class British people, saying they are fans of the Commonwealth. Isn’t it somewhat strange to have a soft spot for the leftovers of our oppression of half the world by military might?

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      Kath, Brilliant piece, you deserve honorary Lankan citizenship as the only person capable of political economic analysis of and in Lanka..! Harsha and IPS economists are useless..

      The Rajapassa brothers are gamblers, speculators and rent seekers.. They have no academic qualifications or training and do not know the meaning of intellectual honesty or risk analysis. Their development model one massive speculation with the Casino King, Damika Perera – being the brains!
      Basil Rajapassa who has not got a degree but is so-called minister of economic Development is a SPECULATOR. Check out the white elephant airport and port in Hambantota for which Sri Lanka is in a CHINESE DEBT TRAP which is to be paid for by tax payers and utility including electric price hikes.. and this is all too evident.. As you say speculation and rent seeking is the name of the DEVELOPMENT RACKET in Lanka – with IMF support!

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    You say “few thoughts for the Opposition”. Do you really believe, the Opposition in Sri Lanka is amenable and capable of listening and correcting the course to portray it as an “alternative” to the present Government? I doubt it very much. The track record of the Opposition, since the UPFA came into power has been very dismal in every sphere of political, social and economic activities of the country. They have failed miserably to prove to the general public as a “set of responsible politicians” who could be TRUSTED and ENTRUSTED with the running of a “Government” for the people.

    Already the present President Mr. Mahinda Rajapaksa has fired a “salvo”, when he said: “judge the leaders purely on what they have done and said in the past, but not with what they are going to do in the future”. Will the UNP Leader and his “selected” colleagues get the message? I doubt that too.

    The moment UNP Leader’s and his present colleagues “doings” and “sayings” such as “CFA”,”Medawachchiya”, “Pamankade” “Toppigala” are “berated” out, the people are not going to execuse them for that behaviour and that will further erode the little trust and confidence they have even managed to develop during the times of economic burdens. The people will completely forget the “Pathola”, “Pots & Pans” and “Electricity” protests the UNP has staged for the sake of “preserving the “Peace and Freedom” they are enjoying at the present moment. Also the latest additions such as Messers Vickramabahu, Samaraweera, Smbandan & Co. as thier colleagues will be a “sward” hanging on the Leadership. How do you prepare for this?

    So it is a case of “haunting” their own “crimes” at a time of an “election” whether it is in 2014 or thereafter. I do not think that a “Draft Constitution” is going to be a strong “sacrificial” deal to dispel the “evil” the UNP is already burdned with.

    So Ms.Noble, I suggest you study and address the “home grown situation” for them and suggest a way out of it.

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    Kath Noble,

    Yes, there is no point in talking about the proposed UNP Constitution. The high budget deficit must be reduced to keep inflation at single digit levels in a sustainable manner. Reducing the losses of CEB and CPC caused by political interference in these institutions are painful but necessary unpopular tasks.

    We will continue to pay high prices until we reduce the percentage of power supplied by oil based power producers by increasing the production of coal power. This is a problem inherited from previous governments because of their lack of determination to commence the construction of Norocholai power plant because of the misguided protests by the Bishop of Chilaw.

    We have become increasingly dependent on worker’s remittances because of the over valuation of our currency. For further information refer the book ‘Devaluing to growth and prosperity – Misaligned Currencies and Their Growth Consequences by Surjit S Bhalla Ref. http://bookstore.piie.com/book-store/6239.html

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