Sri Lanka Association for Political Economy (SLAPE) has urged the government to reconsider certain provisions in the proposed Bill to repeal the Monetary Law Act to pave the way for Central Bank of Sri Lanka Act. SLAPE called for the introduction of clauses to provide for CBSL’s policy interventions could be implemented only subject to approval by the Cabinet of Ministers, and in case of any divergent opinion, subject to scrutiny and final approval by the Parliament

The following is the text of statement issued by Study Committee, SLAPE: “The Sri Lanka Association for Political Economy (SLAPE), having perused the Gazette Notification dated 17th February 2023, publishing the Bill to repeal the existing Monetary Law Act (Chapter 422) and to introduce a new enactment titled Central Bank of Sri Lanka Act, wishes to bring the following observations and comments on its content and also its intents apparently explicit and implicit through such contents, to the notice of the general public, including the professionals.

It should be mentioned, at the outset, that the economic sovereignty of Sri Lanka, which is an essential ingredient of the country’s national sovereignty, cannot be compromised or alienated. SLAPE cannot agree with any attempt by the Government, or any other party, to bring in any legislative or policy provisions which could directly or indirectly harm this supreme objective of the nation.

The very premise of introducing the bill to enact a new Central Bank of Sri Lanka ACT appears to be make the Central Bank of Sri Lanka (CBSL) “autonomous” [Refer Clause 5]. Though it is not explicitly mentioned, the way the Clauses 5 and 6 have been composed, it is evident that the CBSL is intended to be “autonomous”, and thus “independent” even from the Executive and Legislature of Sri Lanka, through which the people exercise their sovereignty. While the SLAPE has no objection of making any Statutory authority, and particularly a regulator, “administratively screened off” from undue influence in conducting day-to-day affairs, it cannot understand or accept as to how CBSL could be made “autonomous” in “policy making” as “policy changing and/or continuation” is an inalienable “right” of the people, exercised through elections of Executive and Legislature, from time-to-time. Removing such authority, and vesting it to a “Board”, will undoubtedly lead to very seriously compromising the sovereignty of the people of this country.

The proponents of the Bill appear to have considered that “price stability” should be the exclusive objective of monetary policy, even though there is no strategic rationale to consider “price stability” being more important than many other macroeconomic policy goals such as, inter-alia, growth and employment. In fact, there are different economic thoughts which offer different diagnostics and policy prescriptions which consider growth, welfare and employment as more important parameters to be concerned than “inflation”; the possibility of which objectives being deleteriously impacted by a monetary policy thrust, exclusively targeting “inflation control”, could not be excluded either, the SLAPE observes. Besides, economic policy perspectives cannot be considered “in isolation”, but essentially “together with other national objectives”, such as, inter-alia, national security, defence, international relations, geo-political considerations, national self-reliance, fairer income distribution, reduction of regional development disparities, development financing. The policies pertaining to these cannot be considered, diagnosed, analysed, formulated or implemented in isolation, by any individual agency, but with an overall national strategic perspective. Therefore, expecting that CBSL would formulate monetary policy devoid of any inputs or directives from such overall policy formulating authorities, will be futile, if not disastrous.

The SLAPE well understands the concern that sub-optimal influence could damage professional functioning of a Governmental organ. Yet, addressing that concern should be without compromising the overall policy making authority of the Parliament and the Cabinet of Ministers. Instead of aiming that, the proposed Bill appears to have removed one of the vital organs of the national body, which is synonymous to expecting the heart of a person to function without any regard to lungs or kidneys, or even away from the overall systemic control, including that of the brain…!

The contents of the Bill also have no explicit provisions to make the CBSL “independent from influence by international bodies”, which is yet another concern the SLAPE has, as such absence of explicit provisions could eventually result in CBSL being made “independent” from the control of Sri Lankans, but under the influence of international authorities. This lacuna is very significant in the context where one could not exclude for certainty, the possibility of officials or groups of bodies of organisations being influenced to make sub-optimal decisions vis-à-vis national development, cannot be excluded, and particularly when explicit provisions appear being proposed to provide “legal immunity” to individual officials or decision-making bodies based on the outcomes of any official decisions made.

Under the above explained context, the SLAPE cannot consider the proposed new Central Bank of Sri Lanka Bill as nationally beneficial towards the country’s economic sovereignty objective. It therefore urges the Government to re-consider the provisions in the said bill, to specifically introduce clauses to provide for CBSL’s policy interventions could be implemented only subject to approval by the Cabinet of Ministers, and in case of any divergent opinion, subject to scrutiny and final approval by the Parliament. The SLAPE also wishes to request all those Parliamentarians, who have sworn in to defend the national sovereignty as an uncompromisable objective, not to pass this Bill without bringing in the necessary clauses to ensure that the CBSL’s professional diagnostics and policy interventions are sanctioned by the Executive and/or Legislature prior to their implementation.”