YAHAPALANA AND THE ECONOMY Part 15
Posted on August 30th, 2019

KAMALIKA PIERIS

Revised 9.9.19

BUDGET 2019

The Parliamentary Committee on Public Finance in its report on the fiscal, financial and economic assumptions of the Budget for 2019 has issued a damning indictment of the Ministry of Finance stating that the MoF had deliberately misled Parliament. The Committee has asked the Central Bank to formally assess the adequacy and validity of the assumptions framework of the current budget and to report to Parliament, because there were doubts about the validity of the figures provided by the Ministry of Finance.

One example given by the CoPF is the manner in which the revenues from the Betting & Gaming Levy are reported in the budget which led Parliament to be misled on the fiscal consequences of the policy change. The ambiguous term ‘revised’ is consistently used while failing to specify that some revisions are tax increases, and others tax decreases.

The Budget Speech announced the revision of the license fee of casinos to Rs. 400 million per annum in a situation where the present rate was Rs. 200 million. This was a tax increase. A revision of the Betting and Gaming Levy on Rudjino games to Rs. 1,000,000 per annum was announced in a situation where the present levy was Rs. 200 million per annum – which represents a drastic tax reduction. The casino entrance fee was revised to USD 50 per person, in a situation where the present entrance fee was USD 100 per person the revision thus representing a halving of the existing tax. But due to the use of the ambiguous word ‘revision’ Parliament had no way of knowing whether the tax was going up or down. Measures that reduce collectable revenue are presented to Parliament as measures that will achieve precisely the opposite.

The reduction in the Betting and Gaming Levy charged from Rujino centres from 200 million to Rs. one million has been presented as an increase of Rs. 10 million in tax revenue. There are four casinos and ten Rudjino centres and the Rs. one million tax has been presented as an estimated increase of Rs. 10 million in the year 2019 instead of presenting it as a revenue loss of Rs. 1,990 million) in 2019.

The Parliamentary Committee on Public Finance said that the way the Budget is presented is so vague that reductions in the Levy are presented as an increase and then Parliament is then misled even more by the Budget Estimates that present the consequence of these reductions as revenue enhancing rather than revenue decreasing measures!

There is a mismatch between the Budget Speech and the Budget estimates with regard to the expected increase in revenue due to revisions in the NBT tax. The budget speech mentions a positive impact of Rs. 5 billion in revenue gain from NBT changes. However, the budget estimates envisages a further Rs. 13.9 billion increase in revenue from NBT during 2019. This increase does not match with the information and assumptions provided with regard to changes in policy and resulting gain and loss in revenue.

EXCHANGE CONTROL ACT OF 2017

Yahapalana replaced the old Exchange Control Act with a new one, the Foreign Exchange Act, No. 12 of 2017.  The Act was drafted without consulting the Central Bank and their opinions were sought only after the Gazette was published. Central Bank said that the Act was not drafted by   the Central Bank. We were not included. It was done outside .We were actually very upset about it, said Central Bank Governor, Coomaraswamy.’  We were asked to comment on it.

Analysts said that the new Act was weaker than the previous one. Under the new Act, any person can deal in foreign exchange for their transactions without any Exchange Control restrictions. Further, the new law removed criminalization of violations of the Exchange Control Act and prison sentences.  There were loopholes.  The Act does not interpret what it means by ’wrong’. Those who had aided and abetted the transactions listed in Panama Papers exposé were able to evade legal action due to this. 

The Act   weakened the CBSL’s regulatory role with regard to illegal transactions.  Unauthorized money transactions were taking place all over the country. Foreign currencies are kept illegally. Transactions do not come into official banking system, the Central Bank complained. . Central Bank cannot initiate investigations on transactions prior to November 2017, either since the old Exchange Control Act was rescinded and replaced.

Central Bank was speaking about the Batticaloa Campus. Under the present Exchange Control Act, there were no provisions to institute legal action on individuals for transactions that were made for the Batticaloa Campus. We cannot enforce the law against transactions over the Batticaloa campus since the Penal Code demands that there ought to be an offence, however under the new Exchange Control Act, offences are loosely defined,” he said. .

PEOPLE’S BANK (AMENDMENT) BILL

The People’s Bank (Amendment) Bill was presented by the Minister of Finance on 24th May 2019 to Parliament. This Amendment is about raising capital for the Peoples Bank, by issue of debentures. The bank will be given the freedom to issue debentures up to Rs.50 billion to increase its capital. 

 This amendment seeks to replace section 20 of the Act which says that debentures can be issued only with the approval of the Ministry of Finance given after consultation with the Monetary Board of the CBSL. The Bank authorities will have the full power to decide on debentures without any the intervention of MOF and Monetary Board.Why is it necessary for the bank to have complete freedom for this. Why grant  a license to the Bank Authorities to freely decide the supplementing of any sum of funds through debentures asked critics.

The need to provide a compulsory guarantee by the Minister of Finance  on account of the repayment of any sum due on debentures issued by the Bank is to be repealed. Future issue of debentures by the bank would not be guaranteed by the government either.  Critics fear that this will lead to privatization of the Bank. The definition of shareholders as per the section 13 of People’s Bank Act is to be changed. The private sector  may through this get a stake in the bank through debenture issues. This could lead to the privatization of the bank.

MONEY  SUPPLY

In January 2017, the media reported that Government has printed tens of billions of rupees in one of the largest volumes of Central Bank credit in a single day. On Jan 2,  the net excess liquidity in the banking system shot up by 68 billion to 89 billion indicate that a massive volume of money had been printed and let loose,  said critics. It is said that this was done at the order of the ‘fiscal authorities’ , which means this is the first time that we see fiscal dominance of monetary policy. (‘Fiscal ‘ refers to taxation, public spending, debt, and finance while ‘monetary’ relates to money and how it is supplied to, and circulates in, an economy.)  There is rising concern about the recent fiscal dominance of monetary policy and attempts to undermine the independence of the Central Bank.. This will adversely affect the economy.

NEW EMPLOYMENT LAW

In July 2019 it was reported  that   Yahapalana  was planning a new unified employment law that would replace 54 labour legislations currently in force. The Wages Board Ordinance No.27 of 1941, the Factories Ordinance No.45 of 1942, Shop and Office Employees Act No.19 of 1954, Maternity Benefit Ordinance, and Factories Ordinance will be revised and combined into a single employment law.

Wages Boards are to be scrapped giving the employer the right to decide on minimum wage irrespective of the trade or industry, This proposed law is intended to give the employer the legal right to decide all terms and conditions of employment in the private sector. .A working day to be not more than 12 hours in a 45 hour work-week that allows employer to limit work to four working days with no wages for the other three days including Sunday. Gratuity for workers have also been severely restricted and the Termination Act No. 45 of 1971 is to be repealed allowing the employer to dismiss workers as the employer wish, perhaps even without any disciplinary inquiry.

The draft  law which is yet to be made public, was presented to the National Labour Advisory Council (NLAC) without permitting discussions. The draft was prepared under USAID supervision by private legal consultants..All member trade unions in the NLAC have opposed this effort in devising a new single labour law” with direct USAID assistance.

GAS AND OIL EXPLORATION

Natural gas and oil excavations will begin next year and hopefully, the country would start producing them by 2022 said Yahapalana   Explorations at the Dorado and Barracuda (M1 and M2) blocks in the Mannar basin have progressed steadily. Proposals were now being evaluated to select a suitable party to award the tender to develop them.

The government  has amended its agreement signed in 2016 with the French oil and gas super-major ‘Total E&P’ to include the Norwegian oil and gas company ‘Equinor ASA’ as a joint study partner to explore the hydrocarbon potential in the JS-5 and JS-6 blocks of the Lanka Basin in the eastern offshore region. In 2018, two joint study blocks, covering over 50,000 square-kilometres, saw the largest ever 2D seismic survey carried out in Sri Lanka, where 5,000 line kms were acquired. It was the first-ever detailed 2D seismic survey to be carried out in the Lanka Basin. The data from this seismic survey revealed the two blocks to have a significant hydrocarbon potential, and as a result, Total E&P decided to move forward to the next phase of exploration with Equinor ASA as a joint study partner,”

WASTE IMPORTS

There are  over 1,000 unclaimed  containers at the Colombo Port and most of them are believed to contain hazardous waste from other countries, according to environmentalists. This shows that Sri Lanka is already in waist deep trash trouble with no system to track the waste trade, they said.

Banned waste categories are  freely being imported to Sri Lanka  under the final FT agreement with Singapore.” Said critics.  Sri Lanka- Singapore Free Trade Agreement was  paving the way for more hazardous foreign waste being imported here.

There are various types of waste in both Sri Lanka and Singapore lists. This includes Waste straw, Ash and residues from the incineration of municipal waste, Waste and scrap of rare-earth metals, Waste pharmaceuticals, Municipal waste, Sewage sludge, Clinical waste, Scrap and waste of Micro cellular, paper/paper board, including unsorted waste and scrap, Building blocks and bricks-concrete cement blocks encasing industrial waste sludge, Concrete cement blocks encasing industrial waste sludge, Waste and scrap containing lithium-tantalum and lithium niobium, Nickel waste and scrap, Lead waste and scrap, Waste and scrap, Waste and scrap of cobalt etc.

 There are many other types of waste included in Sri Lanka list  which are free of custom duties. Some are harmful to the environment and some are not. Since China stopped receiving foreign waste for recycling, western waste traders have sent their waste to ASEAN countries.  Since ASEAN countries are closing the loopholes, Sri Lanka, Pakistan, India and Bangladesh seems the new targets.

**&

COWS FROM AUSTRALIA.

The Presidential Commission of Inquiry investigating Corruption in the current Administration was informed,  that   the government had in 2017, distributed 3,030 substandard ,  sick,  highly infectious  imported Australian cows among 46 investors and dairy farmers who took part in a subsidized scheme to introduce high-yielding imported pregnant cows. The Ministry of Rural Economy has informed the investors that those pregnant cows would produce 20 litres of milk a day on average and advised them to get rid of the local cows on their farms..

Presidential Commission of Inquiry investigating corruption in the current administration was told  of this matter. Minister of Rural Economic Affairs, had informed the Cabinet through a memo on March 24, 2017, that they had paid a 20% advance to Wellard Rural Exports Pvt., to import milch cows. The Commission was informed however, that there was no such clause in the agreement signed between the two parties,. Commission was also  told that the payment had been made a day before the Cabinet paper was presented.  USD 924 000 was paid to Wellard.

The issue of the milch cow import scheme had been discussed when the 2018 Budget was prepared. However, the Treasury didn’t allocate any budget because there had already been complaints against the quality of the imported cows.” Despite this,  Sri Lanka had paid Rs. 1.3 billion (USD 8.3 million) to Wellard Rural Exports Pvt. Ltd, on May 08, 2018, as an advance payment to import 15,000 milch cows. ” The money had been loaned from Rabo Bank, in the Netherlands. The money was channeled through the External Resources Department of the Treasury. .” While we are saddled with a loan, Wellard has got USD 8.3 million for free. .” Almost 16 months have passed since the payment, Wellard hasn’t sent us a single cow, the Department said..”

The internal auditor  assigned to the project informed the Commission that information about the agreement, the implementation and the MoU signed with Rabo Bank of the Netherlands was extremely difficult to obtain.

.Only a few people were privy to the information and whenever I asked for it the people who handled it said they had to ask Wellard. Until I wrote to the internal auditor and the Auditor General no one outside knew about what’s going on,  he said.” Project manager didn’t provide the information the internal audit asked for, to commence the audit. They didn’t even provide information to the external auditors.”

However, a senior Finance Ministry spokesman strongly defended the transaction. He said the legality of the transaction couldn’t be challenged. According to him, a milch cow worth about Rs 450,000 was made available to local farmers at Rs 150,000 with the price difference being absorbed by a government subsidy.

As the inquiry progressed, further information emerged. Chief Auditor of the Rural Economic Development Ministry said that the Ministry carried out an audit inquiry after the first shipment of cows. As a part of the audit they had inspected some of the farms. They found many irregularities.

 The director of the project (name withheld) told us that 20 cows were given to Devinda Farm at 28 Gannoruwa Road, Peradeniya. But there was no such farm at that address, only a building that belonged to the Livestock Development Board. The Director had then said that the owner of the farm Professor Basil Alexander had given the cows to Hingurana Dairy farm in Matale on July 2017 after villagers protested against the farm, having obtained permission from the Ministry to do so. However auditors found no document to prove that Alexander had obtained the approval of the Ministry.

The Commission probed further. When the auditors went to the farm did they see any cow sheds there? Answer, no. The Presidential Commission decided that there was something fishy about this project. The information provided by Director of the project was false and instructed the CID unit attached to the Commission to investigate the matter. (Island 29.8.19 p 4)

The Presidential Commission of Inquiry found  that number of large scale farms had benefited from a subsidised scheme to import milch cows aimed at helping small dairy farmers.,a number of big names in the dairy industry had obtained over 1,000 cows under the scheme. 

The auditors said there were also a number of mismatches in the agreement with the farmers. “For example a cow was priced at Rs. 467,950. The beneficiary had to pay Rs. 200 000. The government pays Rs. 200 000. But it was not mentioned who would pay the balance amounting to Rs. 67,950. very little help had been extended to the audit by the project team. “They went out of their way to make things difficult for internal auditors.

SAMURDHI

  • Chief Opposition Whip told Parliament that the government had spent Rs. 400 million on advertising a project to grant Samurdhi benefits to 600,000 more persons.
  • Samurdhi recipients  have complained about Samurdhi. They demonstrated at  Ampara in June 2019, waving documents showing that those who needed Samurdhi were not getting it, but those who had three wheelers and lorries were
  • In June 2019, there was a demonstration in Battaramulla, against  the government’s move to take Samurdhi funds for its programmes. Those who demonstrated belonged to the all Ceylon Samurdhi development and Agrarians assistant officers Association.
  • In a media release in 2019, Mahinda  Rajapaksa said: spending money for the New Year and Christmas is being released from the compulsory savings of Samurdhi recipients in 2019 when such a thing never happened in previous years. After releasing Rs. 30,000 in a single year, it is obvious that there will no money to be released in that manner in the coming years. The purpose of having compulsory savings for Samurdhi recipients is to encourage the savings habit and to enable them to utilize that money for self-employment and other livelihood related activities. We have not heard of the compulsory savings of Samurdhi recipients being released as spending money for festivals.

THE CCEM”

Economic policy   under  Yahapalana was decided by a specially created committee, Cabinet Committee on Economic Management (CCEM) CCEM  was established following a Cabinet decision on September 23, 2015.  Projects were first presented to the CCEM and then to Cabinet. The Asian Development Bank made a presentation to the CCEM on a National Ports Master Plan. It was only thereafter, the ADB was advised to meet the Minister of Ports and Shipping for detailed discussions. A vehicle importer had imported 24 used commercial vehicles in December after the budget proposals in November last year. The Customs refused to accept the duty payments. The company suffered heavy demurrage costs. The CCEM decided to recommend to the Cabinet to waive the demurrage. The CCEM was scrapped and its functions absorbed by the cabinet in 2018. Other subjects ranged from discussing grievances and offering redress. A vehicle importer had imported 24 used commercial vehicles in December after the budget proposals in November last year. The Customs refused to accept the duty payments. The company suffered heavy demurrage costs. The CCEM decided to recommend to the Cabinet to waive the demurrage. Yet another was how the Ministry of Housing and Construction was asked to submit to the CCEM a draft policy on High Rise Buildings.

GSP PLUS

IN 2016 it was observed that In its haste to regain the GSP Plus facility, the Ministry of Foreign Affairs has agreed with the European Union (EU) to implement a sprawling list of 58 conditions linking human rights, national security and other domestic concerns with trade, a document obtained by the Sunday Times shows.

Among the 58 conditions imposed are to revoke the Prevention of Terrorism Act, to expedite cases of remaining detainees, to introduce a new Human Rights Action Plan, review the status of the Tamil Diaspora organizations and individuals on the terrorist list, to devolve power under the new Constitution, return all private lands to owners in the North, adopt a policy of National Reconciliation and on National Resettlement, finalize the re-settlement of all displaced persons, and to ratify the Convention on Enforced Disappearances with accompanying legislation as well as issue certificates of absence.

The Government has committed to rehabilitate all ex-combatants by 2017 and to amend the Code of Criminal Procedure to include the rights of detainees by 2016. It has been agreed to adopt new regulations for public disorder management by the police by the end of March 2016; review the Public Security Ordinance; expedite the processing of remaining cases referred to by the UN Working Group on Enforced or Involuntary Disappearances; and to establish an office on Missing Persons.

The Government has agreed to security sector reform”; to put an end to all surveillance, harassment and reprisals against civil society, human rights defenders and journalists”; propose legislation allowing individuals to submit complaints to the UN Human Rights Committee under the First Optional Protocol to the ICCPR and to the UN Committee against Torture; and to reconsider the decision to establish the Press Council”.

The list also includes an undertaking to propose legislative changes to ensure non-discrimination on the basis of sexual orientation; to expedite prosecution of reported cases of torture; to launch wide public consultation and to disseminate information during the various stages of setting up a transitional justice mechanism; and to design a transitional justice architecture consistent with the Human Rights Council resolution and the results of the public consultation.

The EU insisted that the conditions be met before Sri Lanka can even consider applying for the GSP Plus. The stringent stipulations came with short deadlines and were accepted by the Foreign Ministry without any form of negotiations” at the EU-Sri Lanka Working Group on Governance, Rule of Law and Human Rights in January 2016

Critics observed that given our middle income status, Sri Lanka is eligible for the GSP Plus only for a few more years. There are doubts about the EU now, reported TIME in April 2019. Greece, Ireland, Portugal and Spain were virtually bankrupt and entirely dependent on bailouts from the IMF, and Germany after the recession. The loans given by the EU imposed severe austerity measure that squeezed ordinary citizen and cut public services.  There should be a limit to the EU’s mammoth scope and regulatory oversight.   ( CONCLUDED)

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