1 June, 2020

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The Coronavirus Cash Crunch: Convene The Parliament!

By Mangala Samaraweera

Mangala Samaraweera – Former Finance Minister

Following statements by Members of Parliament and civil society activists, the Secretary to the Treasury published the Pre-Election Budgetary Position Report last Monday. Publication of this report prior to elections is a requirement under the Fiscal Management (Responsibility) Act of 2003. 

While welcoming the Report’s publication, it is our duty to draw the Government and public’s attention to the worrying contents of this report, relating to the health of both our economy and democracy. 

Unconstitutional ‘Vote-on-Account’

“Parliament shall have the full control over public finance.” This is the opening line of our Constitution’s chapter on finance. Until April 30, a Vote-on-Account passed by Parliament – setting-out Government revenue, expenditure and the borrowing limit – is the legal framework within which public finance must operate. 

However, the Pre-Election Budgetary Position Report refers to a so-called ‘Vote-on-Account’ authorized by the President for the period March, April and May. This raises the paradox of a Vote-on-Account without a vote. Presidents cannot authorize Votes-on-Accounts. Only Parliament can approve a Vote-on-Account. This Presidential action is prima facie inconsistent with the Constitution and usurps the Parliament sanctioned Vote-on-Account. 

Even more worryingly, this does not appear to be an oversight. The Pre-Election Budgetary Position Report explicitly refers to Section 150(3) of the Constitution as authority for this irregular move. This is disingenuous. Section 150(3) reads as follows.

“Where the President dissolves Parliament before the Appropriation Bill for the financial year has passed into law, he may, unless Parliament shall have already made provision, authorize the issue from the Consolidated Fund and the expenditure of such sums as he may consider necessary for the public services until the expiry of a period of three months from the date on which the new Parliament is summoned to meet.” 

As is evident above, the provision places two important limitations on the president’s ability to draw from the Consolidated Fund after an election is announced. First, it states that the President can draw from the Consolidated Fund, “unless Parliament shall have already made provision.” Through the Vote-on-Account ending 30 April, Parliament has made such provision. Therefore, the President cannot authorize any funds from the Consolidated Fund till then. Second, after April 30, any funds authorized from the Consolidated Fund can only be those “necessary for the public services.” In laymen’s terms, this means government salaries and continuance of essential government services. This becomes evident when 150(3) is read in conjunction with 150(4), which provides specific authorization for the President to draw funds for a purpose other than paying government salaries viz the conduct of an election. 

In January and February this year, the Government only spent Rs. 36 billion in capital expenditure. However, for March to May, it now intends to spend Rs. 150 billion in capital expenditure. This could hardly be funds “necessary for the public services.”

This measures constitute a usurping of Parliament’s constitutional role by the executive. Such a weighty violation of the separation of powers is a grave threat to democracy, the rule-of-law and the check-and-balances essential for accountable use of public funds. This unfortunate situation could be easily have been avoided by passing a Budget prior to the announcement of polls or by summoning Parliament to pass another Vote-on-Account. 

Cash Crunch 

As noted above, Parliament approved a Vote-on-Account until 30 April. The Vote-on-Account specifies a borrowing limit for the Government. As a result of the Government’s tax-cuts and the decline in economic activity, revenue will fall drastically. In this situation, Government borrowing must increase or a cash crunch will occur. In fact, the borrowing limit must be raised even to print money through the purchase of Treasury securities. Already, the Government has purchased Rs. 100 billion in Treasury securities over the last fortnight – a major cause for the depreciation of the rupee. The borrowing limit cannot be raised without convening Parliament. It is impossible to manage the economic fall-out of the tax-cuts and pandemic by executive action alone. 

Inaccurate Estimates & Irresponsible Stewardship 

The Report estimates a budget deficit equal to 7.5 percent of GDP. This is a very substantial increase compared to budget deficits of 5.5 percent, 5.3 percent and 6.5 percent for 2017, 2018 and 2019 respectively. Notably, the Report does not project a primary surplus (where government revenue exceeds government expenditure, allowing for interest payments). The primary balance registered a surplus in 2017 and 2018. Sri Lanka was also on track to achieve a primary surplus in 2019, until the November Presidential Elections led to a change in policy.  

A core challenge facing Sri Lanka has been a very low tax-to-GDP ratio. This is a very serious problem as it results in lower disaster relief, public investment, ability to service debt, macroeconomic stability and redistribution. Even though there has been widespread awareness and very serious measures to rectify this problem in the past years the Pre-Election Budgetary Position report envisions a reversal of the progress that has been made. It states that “government revenue is expected to be around 10.6 per cent of GDP in 2020 in comparison to 12.2 per cent in 2019.” 

Even these estimates reflect a considerable degree of over-confidence. They are explicitly based on the assumption of a 4 percent growth rate for 2020. The IMF projected a growth rate of 3.7 percent on 7 February, well before the Coronavirus pandemic. In January, the World Bank projected a 3.3 percent growth rate and while the Asian Development Bank’s estimate is 3.5 percent. 

Over-confidence is also evident in the estimate of a 7.5 percent of GDP budget deficit. Although the report discusses the impact of the Coronavirus epidemic, the 7.5 percent budget deficit estimate does not appear to factor in its impact. As the pandemic will undoubtedly have sizable impacts on revenue and expenditure, the budget deficit will certainly be larger. In Sri Lanka’s current context – a very high debt level, a global recession and market uncertainty – this is irresponsible. It places Sri Lanka at a very precarious position at a highly uncertain time of crisis. 

Moreover, the Report’s revenue estimates assume “the revival of both domestic and external demand and improvements in the investor confidence”. This stands at odds with earlier sections of the Pre-Election Budgetary Position Report. It also contradicts the Central Bank’s last Monetary Policy Review which forecasts a downturn as a result of the Coronavirus pandemic. 

“The likely slowdown of the global economy and disruptions to the supply chain could affect Sri Lanka’s merchandise and service exports as well as related logistics. The slowdown in global tourist movements will affect Sri Lanka’s tourism sector, in addition to the direct impact of lower arrivals from China.” 

 The Fiscal Management (Responsibility) Act also specifies that the Statement of Risks include quantification. However, no quantification of risks has been offered. This leaves the Government and public without the tools necessary to plan in this highly uncertain time. 

Debt

Sri Lanka had its highest ever debt payment in 2019. Despite the constitutional crisis and Easter Sunday bombings, Sri Lanka was able to settle this payment and maintain market confidence. In June 2019, just after the bombings, Sri Lanka was able to borrow at 7.5 percent from international markets. As a result of this Government’s irresponsible tax-cuts – leading to begging bowl requests for debt forgiveness which forever undermine Sri Lanka’s hitherto unblemished track record of meeting debt repayments – interest rates on government debt now exceeded 18 percent in March. Even though this year’s repayments are 20 percent lower than 2019. 

Lack of Transparency

The Report also failed to incorporate critical information necessary for assessing the state of Government borrowing. For example, the Report says, “the Foreign Currency Term Financing Facility 2018 with China Development Bank (CDB) has been upsized at more favourable terms to USD 1,000 million.” However, it does not disclose the interest rate for these loans.  Another example is the failure to disclose the breakdown of revenue estimates for January and February 2020. 

Way Forward

The Government has still not provided the Committee on Public Finance with detailed estimates of its tax-cuts revenue effects. It has presented a report on the economy that sets us on a path to crisis and is replete with inaccurate estimates. Parliament must have the opportunity to scrutinize and debate this Report. Parliament must also be able to convene to legislate in order to provide the country with the relief it needs at this precarious time.

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Latest comments

  • 4
    0

    Vote-on-Account of virus
    Parliament shall have the full control over public finance. how long will it take for pannel to approve during urgent need time instant approval is required these days Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible. provide the country with the relief it needs at this precarious time.

  • 7
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    it is time parliament was abolished
    spending on 225 jokers is a waste of money

    • 5
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      Spot on Nalmen.
      Get all of the (‘Corolla Infected’ 225) in a single coffin and into the incinerator without a ceremony.

      • 2
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        anonymous,
        Agree with you incinerating in a single coffin. But all 225 are not equally corrupt. Mangala S. may have faults, but he is not a thief of public funds. Karu, Welgama, JVP bunch and a few more are not thieves. If incineration is required for all in the parliament, at least the ones who didn’t loot public money, not involved in drug dealings (those are the worst crimes) should be respected by putting them in a different coffin. All the Rajapaksa clan, Ranil, Sira, Boorowansa, Gomma and their families and slaves who are responsible for public funds looting should be put in another coffin, with CB bond scammers from 2005-2015, sealed with iron locks never to get out, directly go the bottom of the hell.

        • 2
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          “at least the ones who didn’t loot public money, not involved in drug dealings (those are the worst crimes) should be respected by putting them in a different coffin. “

          What action did they take to stop them when they had the power and time?. So, why waist more of the taxpayers money on three different coffins?. Let all of them enjoy the heat together just like the poor ‘Sorry Lankans’ are feeling right now.

          • 2
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            US puppet Mangy seems to be a parliament addict?!
            Winging about not being able to go to that corrupt “Cesspit” to use the charming Nikki Haley’s description of UNHRC?!
            where the debates reflect the per capita IQ of a half-literate teenager?
            What is needed is critical thinking and challenging the dictatorial curfew of the US citizen brothers that is destroying the economy on the Corvid Panicdemic and fake news narrative so that the USAID surveillance systems may be installed to stifle democracy, since the MCC project is on hold?!
            This latest scheme by the biggest rogue state in the world is to combat CHina’s 5G, AI and Huawei in Lanka! Wake up Mangy!!!

  • 3
    1

    Nothing surprising, this report is a work of Cabraaal, he is a magician hailing from a unique country called Silly Lanka. If Cabraaaal is master mind then MR is the person with sales pitch. When MR says our GDP is X, Y or Z then the stupid Lankans will grasp it with no questions. Mangala the current Govt was about to stage a 7 Billion SLR Election circus, when Covid intervened. If you add up the money spend by political parties especially SLPP in buying votes, recent SLPP minister saying tens of Billions are held to settle bills unpaid by previous Govt, recently Lacks of youth to receive salaries when they have not even had a job yet, the GDP numbers quoted in the report (even India will be envious), all this indicate Lanka has surplus of money to survive yet another pandemic. Then there is big brother China who is supposedly writing blank checks for us ( catch is it comes with Virus). Why Cry ???? For me this whole thing sounds like a well coordinated PONZI scheme . People who are involved in stock marjkets will know about made up numbers, positive sales pitch, attracting innocent people to dump money only to see the investors loosing all and the people sold

  • 6
    3

    Mangala Samaraweera,
    In 2015, you told that Mahinda Rajapakshe took US$18 Billion from Sri Lanka and deposited that money in a Dubai Bank. Rajitha Senaratne said he saw the details of that account. Why didn’t you take action while you were in power to bring that money and help the economy? I understand that few guys went to Dubai to look for that money and had a great time there using tax payers’ money.

  • 3
    4

    The ex minister is getting desperate now . People are fast realizing that parliament is a big farce and full of good for nothing humbugs.

    • 4
      2

      Nosey,
      People are fast realising that President and cabinet are big big farce.

  • 6
    0

    Mr Mangala Samaraweera
    What did you do for 4 years in power. Why did you fail to send these war criminals and thieves behind bars.
    Why did you not manage the countries economy better.
    Your arsehole friend Ranil put all his Royslist in all state Institutions and messed it up.
    Some of them you removed but you put equally incompetent arseholes to those institutions. You were given a chance and you screwed it up. Not.point talking now

  • 3
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    Parliamentarians are working only 110 days per year. In addition to so many perks and benefits, they are paid Rs 90 per hour. Even then the constant complaints by party leaders is MPs are not attending the parliament sessions. They mark the name and go, I suppose. So, Mangala wants to convene that dysfunctional parliament.
    He thinks, when there is a constant call for SOCIAL AND PHYSICAL DISTANCING THEY WILL ATTEND THE PARLIAMENT and involve in discussions.
    Most are elderly. I am pretty sure, there will be mass funeral with state respects. What an ingenious ideqa. Usual Mangala.

  • 1
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  • 2
    0

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    0

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  • 4
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    At the latest count ,Nearly 800,000 are infected and 32,000 dead.. New York alone has 1300 deaths in just under one Week.
    And the Peak is still way off..
    American estimates are 2 Million infections and one hundred thousand deaths before that .

    Thanks to Shavendra , Kamal, and the GMOA under the leadership of Prez Nandasean ,our inhabitants can breath a bit of relief literally, about the safety of their beloved Elders dear lives. from the threat of Corona..

    How much can that be worth in GDP ?..

    These are the same people who squandered the Treasury and stuffed up the GDP big time .

    Mr Managala Samare’s dear Leader from Keselwatta who wanted to be the President, now demands that Prez Nandasena must use the American measures to protect our Inhabitants..

    That is the sort of talent , which Mr Mangala Samare wants to bring to fight the Corona by his demands to Prez Nandasena to recall the Parliament along with their lot controlling the Purse to fight the Corona and protect the inhabitants from Infection..

    Perhaps Mr Mangala Samare also has plans to lift the Curfew and allow our Inhabitants to celebrate Sinhala Tamil New Year and Easter , the latter which our Catholic are going to miss again this year..

    Wonder whether our Navy has a Mercy Ship with at least 500 Beds, just like the one the Americans just parked at the East River…

  • 4
    1

    224 recyclable lot represent only the electorate. Some – national list MPs – does not represent people. Those came with MANApa represents only the electoral district and not people.
    On the other hand, president who is not crooked career politician, represents the whole Island. Why should people trust Parliament over the president. Parliamentary has overwhelmingly proved that they crooks. Why should people listen listen to crooks ?

    • 4
      0

      JD . You have been harsh.. Mate.
      They may not be Elected by our Inhabitants.
      But they are well adored by Foreign Citizens..

      Look at the Buckets of Talent they have brought to Kotte.
      And the keenness which they now exhibit to help the Inhabitants in this hour of need, although they were made redundant well over a month ago..

      Besides Mangala Samare’s ambition to take control of the Finances to beat the Corona, his new Boss from Keselwatta came with the Cure to save our over 70s.

      And now he is demanding that we import Testing Kits from America to control the Corona..

      And that other Gun Young UNP Mp Kavinda says Curfew is making our inhabitants suffer from starvation .
      And He is even worried that they may die before the Corona bites them.

      How can any sensible Human ignore those priceless advice from these patriotic UNP Politicians…

      BTW, I just read in the Colombo Media that our CID sleuths came across the Handler of the Zion Suicide Bomber , who acted as the Drop Off Driver on that fateful Easter Sunday, last Year .
      This arrest happened during the Corona Curfew watch …

      Wonder how the UNP Parliamentary Committee which grilled Ministers Bathudeen , PM Dr Rani and even Prez Eagle Sira could not find any clues to this Zion Suicide Bomb Handler?..

      Could those on that Committee be the ones who came to Kotte on that MANAPA list which you are on about?..

  • 0
    0

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  • 3
    1

    “This unfortunate situation could be easily have been avoided by passing a Budget prior to the announcement of polls or by summoning Parliament to pass another Vote-on-Account. “

    What that statement suggests is Mangala missing his flies in the parliament lunch room. International governments gave a secret info to Mangala to catch Old King and collect back his swindling. Mangala convened a press meeting and gave it out that secret to public without doing any investigation. Mangala saved the Old King Crook’s $18B by bringing the Foreign Exchange Fraud Amnesty Act-2017. That is the reason Lankawe was listed by FIFA as the worst money laundering country and the exchange rate is slipping dangerously. Mangala flew restlessly from Geneva to Washington to London to Sydney to Bonn… to save the Old Royals from the relevant governments. He faked all the governments as all Tamils lands all false arrested Tamils prisoners were released, all Tamil area Rapist Army Camps were closed, secret Solution was in parliament so the Resolution 30/1 should be withdrawn. Mangala has promoted him from world’s greatest liar to World’s greatest con-artist too.
    Not just Mangala none of the UNP heads are good. The president is on the Chair without any citizenship. Can anyone say if any UNP crook is bothered about by that open secret? During the coup UNP party blocked even the minority parties filed legal actions. For 4 ½ years they had sucked the country not even warming parliament’s chairs. They all are waiting to hear “Party Time Again.” They are running out of their perks they get by parliament meeting, regularly. None of the rascals have even an iota of interest to manage public’s affairs sincerely.
    Read again the above statement of Mangala. He is publicly calling the Royal government to let them in to help Royals. Then they can help Royals to maneuver the games without any more law breaking. Royal government is convulsing to cash on Coronavirus. UNP crooks are crying for their share; that is all.

    • 2
      0

      Mally…. Brilliant .

      I knew the UNP Opp Leader wanted to re call Parliament so that those 60 novices who back him can get the full Kotte Pension, if they can sit even three more months there..

      But never in a Million that I thought Mangala Samare wants to help Rajapaksa Boys.

      I know Mangala Samare is the one who split the UNP by his master stroke of knifing the Dr Rani and nominating and backing Keselwatta Kid for the President Gig.

      Then Mangala got pissed, when Keselwatta Kid booted out Managala Samare’s all hard work to please Samapathar, TNA and the Diaspora.

      And even took the side of the Ranaviru Boys literally telling the UN and the West to nick off. to Mangala Samarae’s utter dismay.

      When I thought about it , may be your have a valid point.

      Besides Managala Samare’s whole Political Life is about knifing the leaders of every party be joined and jumping to the other side .

      But this time it didn’t work Did it Mally?..

      Unless Mahinda gives him a Gig after the next Election on the Slapp Party National List..
      And Mahinda being that all nice , gentleman Dude . it could be quite possible if Mangala Samare can get his mates to pass a Special Budget before the Corona peaks.

      But the problem is our Prez nandasena.
      I don’t think he will take Shit even it it comes from his dear old brother..

  • 3
    0

    Attempts to sabotage the battle against by the lovers of rear entry should be condemned.
    /
    The allocation of money for the war should be allowed no matter what the parliament, constitution or any thing says.
    /
    The president of course has the power to suspend the constitution of there is any issue with securing money.

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