by. C. A. Chandraprema  Courtesy The Island

The manner in which Justice Priyantha Jayawardena’s dissenting judgement on the two fundamental rights cases numbered 195/2022 and 212/2022 was reported on by sections of the media would convey the impression that it was based entirely on the technical point that the petitioners had not come before the SC within the time frame specified by the Constitution. Justice Jayawardena’s dissenting judgement does state that: I hold that the parties have not invoked the jurisdiction of this court within one month of the alleged infringements as required by Article 126(2) of the Constitution”. However, that is not the only reason for him to dissent. His dissenting judgement also states, I am of the view that the petitioners have not established on a balance of probability that the respondents have infringed the Fundamental Rights of the petitioners.”

One of the ways in which the dissenting judgement shows that the petitioners had not approached the SC within the time frame stipulated in the Constitution can be summarised as follows:

*       The SC/FR Application No. 195/2022 was filed in the Supreme Court on the 3rd of June, 2022 and SC/FR Application No. 212/2022 was filed on the 17th of June, 2022.

*       The reduction in taxes was based on a Cabinet Paper dated 26 November, 2019.

*        According to the petitioners, the rating agencies downgraded Sri Lanka immediately after the tax cuts were announced. Hence, according to the petitioner’s own showing, the alleged infringement took place on the day that the Commissioner General of the Inland Revenue published the public notices informing the tax cuts in the years 2019 and 2020.

*        Furthermore, the tax reductions referred to in the two petitions were enacted into law in terms of the Inland Revenue Act of 2021, the Value Added Tax Act of 2021, the Economic Service Charge Act of 2021 and the Nation Building Tax Act of 2021, etc.

*        Some of these Bills relating to fiscal legislation were challenged in the Supreme Court.  However, the petitioners did not challenge any of the said legislation during the legislative process. Hence, they are now estopped from challenging the legislative process. In any event, anyone who sleeps over their rights is not entitled to challenge any decisions after the stipulated time period imposed by law.

*        The dates and events referred to above in this judgment show that the said events took place long before the two Fundamental Rights Applications were filed in court.

Quoting the Auditor General’s Report which had drawn attention to a presentation made by Prof. W D Lakshman on 06 January 2020, the judgement observed that the …tax relief measures are expected to stimulate the economy while actively contributing to improve business confidence …” A segment in the judgement titled Fiscal Policy elaborated as follows:

Tax cuts are expected to free up disposable income and the circulation of money in the economy and push positive growth values in the medium and long term. Furthermore, reducing taxes improves the economy by boosting spending. Moreover, a corporate income tax cut leads to a sustained increase in Gross Domestic Product (GDP) and productivity. Tax cuts also increase funding available for businesses and may increase production and investment.  Moreover, high taxes discourage work and investment. Taxes create a wedge” between what the employer pays and what the employee receives, so some jobs are not created. High marginal tax rates also discourage people from working overtime or from making new investments. However, tax cuts reduce government revenue and lead to budget deficits or growth in government debt … In his first address to the Congress on the 28th of February, 2001, George W. Bush said, To create economic growth and opportunity, we must put money back into the hands of the people who buy goods and create jobs.”

Going to the IMF

With regard to the question of going to the IMF to seek a bailout package, the dissenting judgement observed that the decision not to go to the IMF had been communicated to the Parliament on the 10th of December, 2021 by the then finance minister and that the Cabinet of Ministers had decided on 3 January, 2022, not to get the assistance of the IMF and to have a homegrown solution to the fiscal and economic issues that were faced by the country at the time. A Cabinet Memorandum dated 2 January, 2022 had observed that It would not be incorrect to state that an IMF programme will require the country to accept conditions that will further disrupt the social fabric of the country. While it is acknowledged that an IMF programme will enable the country to access the capital markets with better ease, it is our experience that none of the IMF programmes since the late 60s, have resulted in any lasting reforms being implemented in the country.”

The dissenting judgement observed that The IMF assists member nations in different capacities. Its most important function is the ability to provide loans to member nations in need of bailouts. Further, if a country has a deficit in its balance of payments, the IMF can step in to fill the gap. However, borrowing governments must adhere to the conditions attached to these loans by the IMF, including prescribing economic and fiscal policies … Moreover, such conditions may cause severe hardships to the general public of the country that seeks assistance from the IMF. Hence, some countries are reluctant to seek the assistance of the IMF. Furthermore, there are instances where countries seek the assistance of the IMF as a last resort and may give up the IMF programmes without completing them due to their inability to comply with the stringent conditions imposed by the IMF. In fact, on several occasions, Sri Lanka has discontinued IMF programmes due to its inability to comply with the conditions laid down by the IMF….”

In the circumstances, I am of the view that the petitioners have not established that the policy decision of the government not to go to the IMF was grossly arbitrary or irrational. On the contrary, the Auditor General’s Report tendered to court, and the material filed by the respondents, particularly the aforementioned Cabinet Memoranda and the decisions of the Cabinet of Ministers, show that the government has considered the pros and cons of going to the IMF, the past experiences with the IMF, the effects of obtaining assistance from the IMF will have on the economy and the people, and thereafter taken the policy decision not to go to the IMF.”

Matters of govt. policy

The dissenting judgement has taken into account the report of the Auditor General, where the latter is quoted in Sinhala as having stated that the three issues on which the SC had ordered the Auditor General to report back on, pertained to policy decisions of the government and that different parties may give varying interpretations as to the favourable or unfavourable consequences of a policy decision. The Auditor General has also observed that any assessment of the consequences of those decisions will have to take into account the situation created by the Covid pandemic which affected not only Sri Lanka but the entire world. He has further stated that he is not in a position to determine the best way in which limited foreign reserves should be used in a given set of circumstances. The dissenting judgement further observed:

… the Auditor General … has evaluated the three issues on which he was directed to report to this court. In his report, he has stated that it is not possible to determine whether a loss had been caused to the Central Bank. Further, he has not specified any violations with regard to any of the matters that were referred to him by the court …. However, though the said report stated there are delays in taking decisions by the Monetary Board and the government, it does not set out any specific violations of the law by the respondents. Hence, I am of the view that there is no expert evidence before this court to decide on the economic and fiscal issues raised in the said two applications.”

The dissenting judgement observed that when it comes to policy matters, the court would leave policy matters for those who are qualified to address the issues, unless the policy or action is inconsistent with the Constitution and laws, grossly arbitrary or irrational … Furthermore, the courts cannot express their opinion as to whether, at a particular point in time or in a particular situation, any such policy should have been introduced or not, or repealed, particularly when a policy is accepted by Parliament either at reading of the budget or in any other instances. Hence, it should be left to the discretion of the government …”

Moreover, complex executive decisions in economic matters may be empirical or based on experimentation. Its validity cannot be tested on rigid principles or the application of any straitjacket formula. In such matters, even experts may seriously or doubtlessly differ. Courts cannot be expected to decide them, even with the aid of experts. Thus, the courts do not interfere with policy matters or economic decisions, as such matters are highly technical and even experts in that field hold different opinions on the same point.”

The debt trap

The dissenting judgement quotes a Cabinet Memorandum dated 2 January, 2022 under the heading Economy 2022 and the way forward” which stated the following:

In fact, it would be pertinent to note that the economic challenges of today are due to two key decisions of the Yahapalana government, which are;

The aggressive borrowing in the International Bond markets resulted in the country borrowing USD 12 billion dollars during 2015-2019 with USD 6.9 billion being borrowed during a 14 months period of April 2018 to May 2019. As a result, the country’s foreign currency debt stock reached almost 50% of the total debt stock at the end of 2019 with the stock of ISB’s at wound USD 15 billion. This has now reduced to USD 13 billion”.

Reduction in the price of Petrol and Diesel in 2015, without any thought to recouping the losses of Ceylon Petroleum Corporation (CPC) or the Ceylon Electricity Board (CEB) or to the possibility of an increase in global oil prices”.

It is noted that of the USD 12 billion so raised only around USD 2 billion had been utilized to settle ISBs, while the bulk seems to have been utilized to finance the imports, especially cars and other passenger vehicles. In fact, consumption of fuel which had decreased by the end 2014 has increased surpassing the previous consumption volumes although economic growth saw a steady decline”.

Impact of the pandemic

The dissenting judgement also draws attention to the Auditor General’s Report furnished to court which had stated: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sri Lanka on 25 February 2022. The press release No. 22/54 in this regard had been issued on 02 March 2022. Highlights of the press release are as follows.  Sri Lanka has been hit hard by COVID-19. On the eve of the pandemic, the country was highly vulnerable to external shocks owing to inadequate external buffers and high risks to public debt sustainability, exacerbated by the Easter Sunday terrorist attacks in 2019 and major policy changes including large tax cuts at late 2019. Real GDP contracted by 3.6 percent in 2020, due to a loss of tourism receipts and necessary lockdown measures. Sri Lanka lost access to international sovereign bond market at the onset of the pandemic”.

The dissenting judgement further observed that: Moreover, it is pertinent to note that the effects of COVID-19 were similar or more adverse to the effects that were caused during the ‘Great Depression’ economic crisis in 1929. It adversely affected our export income, which brought forex to the country. Similarly, the said pandemic reduced foreign employment opportunities and thereby adversely affected one of Sri Lanka’s main foreign earnings”.

In fact, the effects of the Easter Sunday bombings and the adverse effects of COVID-19, particularly, the unexpectedly large expenditure incurred for island-wide vaccination programmes and quarantine centres, long periods of lockdowns, island-wide curfews, political uncertainty and rivalry, public protests against implementing the economic policies of the government, specifically with regard to privatisation, litigation challenging the privatisation of State entities and geopolitical issues, disturbed the implementation of the policies of the government. Further, such matters adversely affected the income from tourism and witnessed the withdrawal of overseas and local investors from Sri Lanka. Hence, all such unexpected intervening factors immensely contributed to the economic and financial collapse in Sri Lanka”.

The IMF country reports and the Cabinet Memorandums filed in court show that the fiscal and economic issues that arose in the year 2022 were partly as a result of accumulated debts that have taken place for several decades. Thus, it is not ‘just and equitable’ to hold the respondents responsible for violations of Fundamental Rights only by considering limited materials filed in court for the period commencing from 2019”.