Vichara.

During the Budget debate, in his address to the Parliament the President said that the Govt.’s way is the only way. President’s way is the IMF way. But there is another way for the country. It demands a change of direction, a focus on the critical issues, resolution and courage.

The crucial cause of the economic crisis was the perpetual problem of balance of trade and the wanton borrowings to close the balance of payments gap. The ISB loans at exorbitant rates of interest during the Yahapalana government exacerbated the crisis. It was the inadequacy of foreign exchange to meet import costs and loan repayments which in the end bankrupted the country and made the populace suffer untold misery. Sri Lanka conducts its international trade in US dollars and therefore the crisis could be called a dollar crisis.

While the country is undergoing this grave economic crisis it is reported that there is an enormous amount of dollars of export proceeds not repatriated to the country. In an interview with the Aruna News Paper in December 2022, Dr. Wijeyadasa Rajapakshe, Minister of Justice has said inter alia that අපනයන ව්‍යාපාරිකයෝ බොහෝ ගණනක් මේ රටේ සල්ලි ඉතාමත් භයානක ලෙස පිටරට රඳවාගෙන එහෙ ව්‍යාපාර කරනවා කියලා. අපේ මිනිස්සු දුක්විඳලා ලේ දහඩිය හෙළලා හම්බකරගත්ත දේපළ පිටරට යවලා පවුල් කීපයක් දෙතුන්දෙනෙක්ගේ සුඛ විහරණය වෙනුවෙන් ඒ සල්ලි එහෙ පාර්ක් කරගෙන ඉන්නවා.සංඛ්‍යා ලේඛන ඇතුව ඉදිරිපත් කළේ ඩොලර් මිලියන පනස්තුනකට වැඩි ප්‍රමාණයක් වංචනිකව රඳවා තබා ගැනීම නිසා තමයි අපේ රටේ විදේශ විනිමය අර්බුදය ආවේ. මුළු විදේශ ණය ගත්තත් ඩොලර් බිලියන පනස්දෙකයිනෙ තියෙන්නෙ. ඊට වැඩි මුදලක් මේ අවුරුදු දොළහෙ රඳවා ගෙන තියෙනවා ඒ අය. මේ අපිට සොයාගත හැකි මුදල පමණයි. නමුත් මගේ තක්සේරුව ඊට වැඩිය දෙගුණයක්. අපේ රටේ අපනයන නීති ඉතාමත් ලිහිල් කර තිබුණා. ඒ වගේම කියන්න ඕන මහ බැංකුව කියන එක අර පිටකොටුවෙ දුම්කොළ කඩයක් තරමටවත් පාලනයක් තිබුණ තැනක් නෙමෙයි.

This scam was the focus of the debate in Parliament on 23.8.23 where Dr. Wijeyadasa Rajapakshe repeated that according to a Global Integrity Report during the last 22 years export proceeds that should have been repatriated back to the country but not sent back was USD 53.5 billion.

External debt (public and private) in 2021 was U.S. dollars 54.3 billion.

(IMF Country Report No. 22/91Table 1. Sri Lanka: Selected Economic Indicators, 2019–26

A think tank of the Peradeniya University pointed out that with an expected annualised export income of USD 16.3 billion in 2022 (USD 13.3 billion in merchandise exports and USD 3 billion in services exports) the country was deprived of a staggering USD 6.8 billion in 2022 alone.

Some time back the Governor of the Central Bank appealed to exporters to repatriate export proceeds in full within the stipulated period. He did not want to bring in regulations to force them to do this on the argument that it will deter foreign investment. The Government and the Central Bank have been evasive on why no action is being taken to ensure that this money is not repatriated. They threaten to bring new legislation with heavy penalties to make exporters adhere to the regulations on repatriation of export proceeds.

The real reason why there is no action taken by the government is because of the covenant the government has signed with the IMF. The relevant conditions are in the Attachment I. to the Letter of Intent dated March 6,2023 signed by both President Wickremesinghe and the Governor of the Central Bank Nandalal Weerasinghe. in the Memorandum of Economic and Financial Policies, produced at Page 98 of the IMF Staff Report 23/116, it is stipulated at Article 21: 21.

” We will phase out the administrative measures imposed to support the balance of payments, including those introduced on an emergency basis, once conditions allow. These measures include import restrictions, exchange restrictions, multiple currency practices (MCPs), and capital flow management (CFM) measures. While the mentioned import restrictions, exchange restrictions, MCPs and CFMs could help mitigate FX shortages in the near term, we believe they should not be a substitute for the comprehensive policy package and ongoing macroeconomic adjustment. We are committed to phasing these measures out as the balance of payments stabilizes.

To this end, by June 2023, we will prepare a plan for the phased removal of these measures during the program period as we make progress with achieving macroeconomic stability, particularly with respect to the exchange rate, debt sustainability, and financial stability, improved market access.”

Reference foot note 36 of the main CFM measures introduced or tightened in 2020-2022 and currently in force include: (i) a repatriation requirement for exports of goods and services; (ii) a surrender requirement for exporters on proceeds from exports of goods; (iii) a surrender requirement for banks on purchases of export proceeds; (iv) a surrender requirement for banks on purchases of inward worker remittances; (v) suspension of outward remittances on capital transactions; (vi) restrictions on purchases of Sri Lankan ISBs by local banks”.

is incomprehensible why the IMF forced these conditions on the Sri Lanka Government and why the government agreed to them. One can understand the embarrassment in accepting these iniquitous and pro racketeer conditions and the reluctance to reveal them. Was it because if even a part of these funds were repatriated there was no role for the IMF in Sri Lanka? And was the government wanted the IMF in the country to drive it back to neo liberal policies?

Foreign Exchange is a national asset and does not belong as a matter of right to exporters. If one takes the major export of textiles and garments, which earned an export revenue of USD 5.435 billion, in 2021 it consumed roughly USD 3 billion worth on import of raw material. If one adds the consumption by the sector of the value of investment goods to this figure the total consumption of foreign exchange by the Textile and Garments sector would be around 4 billion USD which is 74 % of its export value. The major component of the balance is the contribution by the local workers.

In this context, foreign exchange should be considered public property released on trust to exporters and offenses of foreign exchange of misuse, abuse, fraud and mischief of foreign exchange should be dealt under the Law on Public Property. 

An honest government free of class deals and has the national interest at heart should be prepared to adopt strong measures to confront this problem. These delinquents have had enough time to conform to the regulations which they have flouted with impunity. It is therefore justifiable that they be taken into custody immediately and commence proceedings to confiscate their property and impose the maximum penalties prescribed in the Public Property Act including confiscation of their industries.

The same procedure should be followed with regard to illicit deposits in safe havens abroad. Unlike export proceeds stashed away in foreign countries details of the depositors and amounts are not clearly identified. Therefore, as an incentive an amnesty could be given to them to bring back the funds within a given time and place them in a special deposit in the Central Bank.

Once at least the 50 billion plus US dollars are recovered it could be used to pay off present and future commitments of foreign debts with high rates of interest. The annual saving of around 6 billion USD would provide a much-needed balance in the international trading account.

The 51.3 billion USD loot is only on export proceeds not repatriated. The Global Financial Integrity’s 2021 report had found that Sri Lanka’s importers and exporters are using bogus customs declarations to illegally move billions of US dollars out of the country. The report mentioned that the extent of this swindle amounted to USUSD 36.833 from 2009 to 2017. The plunder had increased from USD 2.650 in 2009 to 5.026 in 2017. If an average of USD 5 billion was spirited away during the next 4 years amounting to another USD20 billion, the total loss from 2009 to 2021 would be USD 50.833 billion. This is the fraud which takes place day by day at the Customs by misinvoicing with the collusion of the banks and Customs officials. MP Champika Ranawaka who had done a study on the issue revealed in the Parliament on 23.8.2023 that the loss on misinvoicing is around 20 percent. On this basis, on the total value of trade from 2018 to 2022 (5Years) of 156 billion USD -the estimated loss for the 5 years at 20% is 31 billion USD or an average loss of 6 billion dollars each year.  

Here again the application of the Public Property Act is appropriate and would bring in quick results. It is also necessary to break up the trade cartels operated by the commodity import mafia in Pettah. The CWE and STC should be reinforced and made to play a more active role in the commodity import trade.

On Trade Misinvoicing it will take some time to trace the culprits and recover the difference. It might new legislation to enable the recovery. However, if the annual leakage of around 5 billion USD is prevented the saving would improve the gap in the trade balance and more dollars could be invested on development.

That is the possible solution to the all-important dollar earnings. There is still the problem of domestic revenue. The troubles with tax collection are well known. The need for digitalization and expansion of the tax base have been repeated interminably. So much of money has been invested in the RAMIS project without much result. Tax revenue should also be considered as Public Property and tax fraud, and tax evasion should be treated under the provisions of the Public Property Act.

It would also be essential to establish special Revenue Courts to expedite decisions on prosecutions.

It is hardly necessary to mention that the menace of drugs, organized crimes and bribery and corruption be wiped out.

Now the unequivocal question is whether there is a pollical leadership in the country sincere and bold enough to follow this alternate path. It will be anathema to the government which is committed to the IMF path. SJB is both for and against the IMF solution.

But this could be the single issue to be adopted by any other political party at the next election.  

Vichara