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A budget oozing overoptimism



Thursday 19th November 2020

Prime Minister Mahinda Rajapaksa, who is also the Minister of Finance, has presented Budget 2021, which looks a good story with a happy ending. It has offered something to everyone, and is bound to go down well with those who are to benefit from tax exemptions and other such relief. All 75 budgets presented in the Sri Lankan Parliament have been tales told by Finance Ministers. Most budget proposals, especially the progressive ones, have remained unimplemented, all these years, for want of funds mostly due to failure on the part of successive governments to meet their revenue targets and curtail wasteful expenditure.

As for Budget 2021, proposals to abolish PAYE and the withholding tax and increase the personal income tax threshold will benefit a large number of people. But it will be swings and roundabouts for them if indirect taxes increase, as feared in some quarters. Steps taken to develop local agriculture and industries through tax exemptions, etc., and allocate additional funds for developing public health and education sectors are welcome. The proposed expansion of the university system, however, is a task that the government has to carry out cautiously, taking into consideration the need to ensure their standards. Even the existing universities are experiencing a severe dearth of qualified teachers and facilities. There are some more progressive budget proposals, and they are welcome. One can only hope that there will be enough funds for their implementation.

The devil is in the detail, though. When one reads Budget 2021 carefully, one sees that several crucial issues have not been addressed in a satisfactory manner. The government has made numerous expenditure commitments as regards development and social welfare, but how does it propose to meet the revenue shortfall resulting mainly from tax concessions and a significant decrease in foreign earnings? Borrowings, both foreign and domestic, will not be easy.

The government has undertaken to reduce the budget deficit to 4% of GDP by 2025. This is a very ambitious target. One may recall that it was first set by a UNP-led government, in 2002. The then Prime Minister Ranil Wickremesinghe declared, in Parliament, that the budget deficit would be brought down to 4% of GDP by 2008. (His government fell in 2004!) Later on, the Mahinda Rajapaksa government undertook to achieve that target. Now, another Rajapaksa government has repeated the same promise. It seems to believe that the economy will expand at such as rate that its revenue will increase automatically. It is being overoptimistic.

The success of any programme to reduce the budget deficit to the expected level hinges on the government’s ability to increase revenue to at least 10.8% of GDP, in 2021, as economists argue. This goal will be unattainable without new tax proposals. A shortfall in revenue collection may lead to a much higher budget deficit than 8.8% of GDP. Such a situation can be averted only by curtailing public investment, inter alia, to match lower revenue. This means most ministries will not receive allocated funds for the implementation of envisaged projects in such an eventuality.

It will also be an uphill task for the government to fulfil its expenditure commitments while reducing public debt from 90% of GDP to 70% of GDP and ‘minimizing the risk in debt composition caused by sourcing of foreign loans’. How the government is planning to achieve this target is not clear.

As for the envisaged budget deficit, 8.3% of GDP is expected to be financed through domestic borrowings. Enough domestic financial resources in terms of savings will not be available for the government to borrow such a large amount domestically, and the Central Bank may have to print money as it has done this year in view of the pandemic. If money printing continues, it will result in serious problems such as higher inflation and price instability.

The government has expressed serious concern about slow progress in foreign-funded projects and low returns therefrom. Pointing out that the number of programmes implemented annually with foreign financing has increased exponentially, the PM has said in Budget 2021: “However, a significant number of projects worth more than USD 6.000 million show slow progress. The main deficiencies identified in monitoring of project planning, feasibility, implementation are deviation of the projects from national requirements, and frequent cost and time escalations resulting in low returns … Due to these expenditures, productive investments which could have been implemented at a lower cost are not adequately financed …” Has the government forgotten that most of these problems are also due to rampant corruption involving politicians and bureaucrats. How does it propose to tackle corruption, which will put paid to its efforts to keep the costs of development projects low and increase returns?

Meanwhile, Budget 2021 does not reveal how the Treasury is going to meet USD 6 billion worth of foreign currency debt obligations falling due during 2021 while having only USD 5.5 billion official reserves with the Central Bank. If the government fails to raise at least USD 6 billion external borrowings, it will be forced to default on its external debt obligations––absit omen!––and this has never happened in Sri Lanka. If it were to happen, Sri Lanka would have a hard landing currency crisis similar to ones faced by Greece, Argentina and Zimbabwe, in the past.

Overall, we view Budget 2021 as a government attempt to achieve a set of highly ambitious goals within an overoptimistic macroeconomic framework.

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Mountain in labour?



Friday 4th December, 2020

The Presidential Commission of Inquiry probing the Easter Sunday attacks is reportedly in the process of winding up, following two extensions of its term; everyone is eagerly awaiting its findings, conclusions and recommendations. There will not be enough time for some of the key witnesses whose statements have already been recorded by the police to appear before the commission, according to media reports. The commission must be having a valid reason for this, but it would have been better if all of them had been cross-examined thoroughly and more information elicited from them.

Besides the PCoI probe, several other investigations got underway into the Easter Sunday carnage. Little has been heard about them. What has become of them?

His Eminence Malcolm Cardinal Ranjith, addressing the media yesterday, urged the government to ensure that all probes into the Easter Sunday carnage would be conducted properly and nothing swept under the carpet. He said the authorities concerned should have the courage to find out who had been behind the attacks. Reminding the government of its pledge to have the terrorist bombings probed thoroughly, the Cardinal said that unless its promise was fulfilled, they would have to think of an alternative. He can rest assured that all Sri Lankans who abhor terrorism are on his side.

The Cardinal’s call for identifying those behind the bombings is of crucial import. He has made this call on previous occasions as well. He is not alone in believing that the terror strikes were part of an international conspiracy. Maithripala Sirisena, who was the President and Defence Minister at the time of the carnage, did not mince his words when he said before the PCoI, the other day, that there had been a foreign hand behind the bombings. Among those who insist that there was an external involvement in the Easter Sunday attacks are former SDIG CID Ravi Seneviratne and SLMC Leader and former Minister Rauff Hakeem, MP.

Strangely, the focus of none of the investigations into the bombings has been on the alleged foreign hand. Investigators seem to be wary of looking at the Easter Sunday attacks from this particular angle.

No probe into the Easter Sunday carnage can be considered complete unless the alleged foreign involvement therein is investigated fully. The focus of the probes into the Easter Sunday terror has been on identifying those who failed to stop the attacks. The blame for the country’s failure to prevent them should be apportioned to all yahapalana leaders, the police and intelligence agencies. They did not heed repeated foreign intelligence warnings of imminent terror attacks. They are now blaming one another, but it was their collective failure that enabled the NTJ to strike with ease. One may argue that all of them should be prosecuted. But that will not help neutralise threats to the country if the real mastermind of the attacks is not identified.

We have seen various probes under successive governments, but not much came of most of them. Worse, some Presidents ‘swallowed’ the probe reports submitted to them. The public who bore the cost of those investigations has been left in the dark. Some of those investigations which dragged on for months were like the proverbial mountain which went into labour and delivered a mouse. As for the ongoing probes into the Easter Sunday attacks, it is hoped that we will not be left with a tiny rodent again.

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Recent judgments: Some queries



Thursday 3rd December 2020

Any judicial decision is always acceptable to only one party to a legal dispute; the winner hails it, claiming justice has been served, and the loser frowns on it and grumbles. That is the way the cookie crumbles. The judiciary, however, is not infallible, in any country, and concerns that the public expresses about its decisions should be heeded. In fact, judgments can be discussed and even criticised by the public but without causing affronts to the dignity of the judiciary and/or its members.

It is only natural that judgments in high-profile cases come under public scrutiny, and various views are expressed thereon. SJB MP Hesha Withanage, in Parliament, on Wednesday, raised a question about the judicial decisions that have attracted a lot of public attention of late. Referring to the recent judgments, given in favour of certain government politicians and their associates, he asked Minister of Justice Ali Sabry why other cases could not be similarly disposed for the benefit of the public so that the remand prisons would not be overcrowded. If all cases had been heard expeditiously, the unfortunate situation in the trouble-torn Mahara Prison, where hundreds of remandees are being held, would not have arisen, MP Withanage said. He was obviously viewing the issue from a political angle, and trying to embarrass the government, but his query may have struck a responsive chord with many people. He also provided the public, albeit unwittingly, with an opportunity to know the other side of the story.

Fielding Withanage’s query, Justice Minister Sabry said the anthropause caused by the prevailing pandemic had created a situation where court cases could not be heard, and, therefore, the Justice Ministry had requested the Judicial Services Commission to expedite the process of delivering judgments in the cases in which hearing had already been concluded. More than 70 judgments had been delivered recently, and the ones the Opposition was referring to were only a few among them, the Minister said, insisting that the government did not interfere with the judicial process.

Minister Sabry then got on his hobbyhorse; he lashed out at the previous regime for having manipulated the legal process and set up of the Financial Crime Investigation Division, etc., for that purpose. The less said about the Police Department, the better in that it is a mere appendage of the government in power. The same is true of the Attorney General’s Department, but incumbent AG Dappula De Livera deserves praise for trying to make a difference and standing up to the powers that be in carrying out his duties and functions. Unfortunately, he has not received enough support from the legal fraternity, the media, civil society organisations and the Opposition.

It is doubtful whether the discerning public will buy into Minister Sabry’s claim that the present government does not interfere with the legal process. Under the current dispensation, the police have shown their selective efficiency by concluding probes against Opposition politicians double-quick. They have also reopened some old cases where the political enemies of the current adminstration are involved. But they invariably baulk at executing arrest warrants when the suspects happen to be government politicians and those in the good books of the ruling party.

The judiciary is the only branch of government which people repose their trust in, and, therefore, extreme care must be taken to prevent an erosion of public faith therein lest democracy should be further weakened. Hence the need for the Justice Minister to support his claim that more than 70 judgments have been delivered in court cases during the recent past; he ought to release a list of those judicial decisions. That is the least the Justice Ministry can do to clear doubts in the minds of some people about the court cases the Opposition has referred to and defeat attempts being made in some quarters to cast aspersions on the judiciary.

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A crime of utmost savagery



Wednesday 2nd December, 2020

The recent assassination of Iran’s top nuclear scientist, Prof. Mohsen Fakhrizadeh, has shocked the civilised world and been rightly condemned as a dastardly act of terrorism. His killers left no clues as to their identities. Iran has blamed the US (which it calls ‘Global Arrogance’) and Israel. Its indignation is understandable.

Those who had Prof. Fakhrizadeh assassinated may have sought to demoralise Iran and scuttle its nuclear programme, but they seem to have only strengthened Tehran’s resolve to achieve its goal. The proliferation of nuclear weapons, no doubt, is an unnervingly frightening proposition, but the question is whether those who are all out to prevent Iran from achieving its nuclear ambitions have cared to set an example by suspending the production of their nukes.

Most of the nuclear capable countries are run by bloodthirsty hawks who have engineered many wars and caused hundreds of thousands of civilians to be killed elsewhere. The world cannot be any more dangerous even if other states acquire nuclear capability. Nukes in the hands of any nation are dangerous. Those who already have huge stockpiles of nuclear weapons, which are capable of blowing the planet several times over, will be without any moral right to try to prevent others from producing nukes so long as they do not decommission theirs and act responsibly without abusing their military might to dominate and exploit the world.

The non-proliferation of nuclear weapons is the goal the world must strive to achieve, but assassinating nuclear scientists is certainly not the way to set about it. Given the present global order, where might is right, for all practical purposes, it is only natural that the countries whose sovereignty and independence are threatened by meddlesome nuclear powers are trying to arm themselves with nukes. Iran is not alone in doing so. One may recall what Charles de Gaulle famously said: “No country without an atomic bomb could properly consider itself independent.”

Gone are the days when the US had the run of the world, so to speak. Now, it has formidable opponents. Try as it may, it cannot frighten China into submission either economically or militarily or otherwise, and Russia is also emerging powerful. The US and China are evenly matched in most respects so much so that the former has had to look for new allies or lackey states to retain its dominance of the international order. Worse, it has had to talk to the Taliban in a bid to wriggle out of the Afghan imbroglio. About a decade or so ago, who would have thought the US would ever negotiate with terrorists?

The world is changing fast, and so are geo-political dynamics and realities. The world history is replete with instances of mighty empires crumbling. The sun finally set on the British empire. Uncle Sam will show a clean pair of heels, given half a chance in Afghanistan, and has failed to humble the ‘Little Rocket Man’, who cocks a snook at Washington, at every turn, from his hermit kingdom. Those who are riding piggyback on the US or other powerful countries and resorting to aggression against their enemies had better be mindful of this reality, and act responsibly.

Iran should be dealt with diplomatically and must not be driven into a corner. Washington should not have withdrawn from the so-called Iran nuclear deal and opted for hostile action. President Donald Trump, who made that mistake, is on his way out, and how his successor, Joe Biden, widely considered a sensible leader, will handle the Iran issue is not clear.

One can only hope that Iran, which has not chosen its enemies wisely, will remain unprovoked in spite of its unbearable loss, desist from retaliation, which may be exactly what its enemies are waiting for, and deny the perpetrators of the dastardly crime of assassinating its much-revered scientist the pleasure of having a casus belli.



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