{"id":105922,"date":"2020-08-26T16:32:56","date_gmt":"2020-08-26T23:32:56","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=105922"},"modified":"2020-08-26T16:33:35","modified_gmt":"2020-08-26T23:33:35","slug":"the-black-economy-in-sri-lanka-how-it-impacts-on-the-macroeconomy","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/08\/26\/the-black-economy-in-sri-lanka-how-it-impacts-on-the-macroeconomy\/","title":{"rendered":"THE BLACK ECONOMY IN SRI LANKA: HOW IT IMPACTS ON THE MACROECONOMY."},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/strong><\/em><\/span><\/h2>\n\n\n

A\nblack economy could be described as economic activities in a country that the\nrevenue flow from economic activities doesn\u2019t officially add to the gross\ndomestic product. The revenue generates from the black economy may connect with\nthe official economy indirect way in some areas, for example, suppose a person\nbuys a motor vehicle earned money from the narcotic business, and the\ntransactions related to the motor vehicle are related to the official economy\nand they cannot easily separate the part that is related to the official\neconomy. The traditional economy was considered static (the economy was equal\nto consumption plus little bit savings) that did not involve in the black\neconomy which comprised of a massive volume of illegal activities generating\nrevenue to the economy. Two reasons to consider the static status, one there\nwas no official calculation of the value of the domestic products and services\nin the economy to add the total volume of the economy, and the second was no\nofficial tax base that was effective in the country, neither citizens nor\nnon-citizens paid taxes using valid money to the government. <\/p>\n\n\n\n

It\nseemed that the economy was independent of government intervention. The history\nof Sri Lanka gives evidence that people paid taxes to the government by\nproviding services and materials that they produced and it was government\nintervention to a certain extent. The size of the traditional economy had not\nbeen officially accounted for, or calculated to express the value of the\neconomy, and the results of the performance were not published to know people\nin the country or overseas. There was clear evidence that economic rules on\naccount of activities did not effective such as registration of businesses and\npaying tax for business operations and many others.<\/p>\n\n\n\n

After\nthe economy becoming a dynamic, which means the government activities, savings,\nand investments, imports, and exports (C+S(I)+G+ Ex-Im=Y) added the official\ncalculation of the gross national product commenced, and the monetary value of\nthe economic activities doesn\u2019t add to the gross national products, are brooded\nas the black economy. To accurately calculate the value of the economy the\nequation should be changed as Y= C+S(I)+G+ Ex-Im+BE(black economy).  In any country, there is a black economy in\nthe modern era despite many regulations exist, however the official value of\nthe black economy is less than 2% of the GDP. It is believed that if a Robinson\nCruso economy does exist in a country in the modern world the black economy\nmight not exist as there are no indirect economic activities, and Cruso may use\na fishing rod to catch fish and consume. <\/p>\n\n\n\n

When\ncritically evaluates Sri Lanka\u2019s economy since the 1930s there had been\nevidence for a circumspect black economy and after the independence in 1948,\nthe black economy operations have been contemplated a large volume and after\n1970 the value of the black economy could have risen to estimated millions and\nnow it has a value of rupees billions or more than a trillion. Not an economist\nestimated the volume to quote in this article. <\/p>\n\n\n\n

What\nare the activities and services included in the black economy in Sri\nLanka?  Since 1970 the black economy has\nbeen commenced dramatically expanding and the market economy began in 1978\nsupported the black economy from the deregulation process, the deregulation\nprocess implemented without disciplines, and the following activities could be\ntreated as visible contributors to the major roles of the black economy.<\/p>\n\n\n\n

  • Narcotic business (Heroine,\nIce, and other chemical substances).<\/li>
  • Illicit liquor production\nand sale.<\/li>
  • Businesses are related to\nillegal substances such as opium, marijuana, Cannabis, Coken, and others.<\/li>
  • Prostitutions, underaged\nsex operations, child molestation, teledrama business-related young women\nabuses, and much other business using young women and male. It is believed that\nthe tourism business is involved in this area. <\/li>
  • Immoral dealings of night\nclubs, terrorist work, killing people for money, ransom taking from business\nand personnel, and bribery offering and taking for official activities (for\nexample, to admit a kid to school takes money from parents although the\neducation is free in Sri Lanka).<\/li>
  • Under invoicing for\nimports and domestic sales to reduce indirect taxes, commission payments, and\nhampers for bank employees and many others.<\/li>
  • Demanding or charging a\nsecret fee or commission from foreign or domestic investors, the best example\nwas a secretary of the president (Mr.M.Sirisena demanded to sell an industrial\nfirm for scrap metal).  <\/li><\/ul>\n\n\n\n

    The\nsize of the black economy is massive and if it assumes that Sri Lanka has no\nblack economy and adds the outcomes of all economic activities to the official\nstatistics and the population is about 12.0 million Sri Lanka is economically\nbetter than Singapore. However, the above-mentioned economic activities could\nnot convert to officially authorized economic functions because many of them\nare internationally illegal economic activities and people who engage in such\neconomic activities are punishable offenders in any country. Although a\nmonumental volume of money generates from the black economic activities the\nimpact of such activities is considered harmful and highly strung on people are\npoor and disadvantaged communities in Sri Lanka.  <\/p>\n\n\n\n

    What\nis the economic and social impact of the black economy? The main economic sock\nis the increasing inflation which cannot be controlled by the monetary policy\nof the central bank.  The government\npolicy-makers in a wrong estimation that the effects of inflation are equally\ndistributed among all communities in the country. It is a wrong assumption and\nthe worse affected people are disadvantaged communities. The price of bread,\nrice, and consumer items has sky risen and poor people cannot afford the\nprices.  The black economic activities\nadd more monies or supply more money to the economy increasing the demand\n(demand-pull theory and cost-push). As these activities are working as a result\nof the black economy policy-makers are innocent to implement an inflation tax\nas stated by Professor Milton Freidman. In this situation, the best policy\naction is crackdown the black economy. The entire macroeconomy has been\nimpacted by the black economy.<\/p>\n\n\n\n

    The\nother negative impact is declining in the domestic and foreign value of Sri\nLanka rupee and if the black economy effectively crackdowns the exchange value\nof Sri Lanka rupee could be improved to a US $ to Rupees 100. When it\ncritically evaluates foreign transactions have been increased after 1978, many\npeople used money earned from black economic activities to demand foreign\nexchange while there was slower growth in foreign exchange supply in the\ncountry. The demand for foreign exchange was for legally valid reasons in terms\nof exchange control regulation of the central bank such as education, business\ninvestment, imports, and many others. \nThe demand for foreign exchange was for services that supply in the\ncountry and to purchase goods that could have been produced in the country. A\nconsiderable volume of foreign exchange earning used for black economic\nactivities such as purchasing houses overseas and other transactions. Trading\nbanks and finance companies in Sri Lanka provided credit facilities against\nexpected foreign exchange flows that could have assumed to generate from\nillegal economic activities.<\/p>\n\n\n\n

    The\nblack economy has created intractable trade issues in the trade balance,\nbalance of payment adjustment, terms of trade, and many problems. The impact of\nthese factors should be analyzed by a multi-regression analysis and determine\nthe pace of impact.  The task many not\neasier and economists in the central bank should do such research and analysis.<\/p>\n\n\n\n

    The\ntruth is, Sri Lanka has a massive black economy, which has been gradually\nexpanded since 1978 as there were not effective disciplines in the implementing\nprocess of the market economic system. \nNow there is a challenge Mr.Gotabaya Rajapaksa to crackdown the black\neconomy.  It is not easy work because the\nblack economy has been involved with international black economic activities\nand the underworld. Many developed countries could not crackdown the black\neconomy, however, the pace of black economic activities in developed countries\nis less than two percent of the official economy, in Sri Lanka\u2019s situation is\ndifferent because the black economy might equal to the official economy.  Many governments new about the black economy\nbut, but they were silent when the country\u2019s moral values have been degrading\nbecause the black economy helped politicians to the front of voters say that\nthe country is developing under their administration.   <\/p>\n","protected":false},"excerpt":{"rendered":"

    BY EDWARD THEOPHILUS A black economy could be described as economic activities in a country that the revenue flow from economic activities doesn\u2019t officially add to the gross domestic product. The revenue generates from the black economy may connect with the official economy indirect way in some areas, for example, suppose a person buys a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-105922","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/105922","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=105922"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/105922\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=105922"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=105922"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=105922"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}