The Government has spoken of both Rupee and Dollar shortages. The severity of these problems is reflected in the following startling data points:
On the lack of Rupees (or fiscal space) for the government, interest payments alone account for over 70% of revenue. This is possibly the highest in the world. In addition, salaries and pensions account for over 90% of revenue. So, interest and salaries/pensions together amount to over 160% of revenue. It is hardly surprising, therefore that the Central Bank’s net credit to government (money printing) amounts to Rs. 1.1 trillion as at November 2021. This vast amount of money printing inevitably fuels inflation; exerts pressure on the balance of payments by boosting imports; and undermines exchange rate stability.
As for the Dollar illiquidity, net foreign assets of the Central Bank recorded a deficit of $1.6 billion as at the end of November 2021. The net foreign assets of the total banking system amounted to a deficit of US$ 4.1 billion. This explains vividly the cause of the large-scale scarring of the economy that is arising from the massive shortage of dollars. Turning this around will require radical action, including a debt restructuring and decisive measures to attract foreign inflows.
The consequences of these twin problems have already been severe. Inflation, particularly food inflation, has been rising sharply. There have been shortages in food items, including milk food; fuel; gas; and medicines. There is also a rampant black market in foreign exchange. Businesses have collapsed and livelihoods have been lost.
The Pathfinder Foundation in its previous articles has urged that immediate priority be given to: (1) restructuring external debt; (2) negotiating an arrangement with the IMF; and (3) mobilising bridging finance to meet the external financing gap in the next six months.
A debt re-structuring will provide breathing space to stabilise the economy. An IMF arrangement can catalyze much needed foreign exchange both directly from multilateral institutions and some bilateral donors; and indirectly by increasing confidence among investors and creditors. The bridging finance is necessary to fund essential imports and meet immediate obligations until the negotiations on the debt re-structuring and the IMF programme are completed.
The package of relief from India that is now expected is an encouraging beginning in terms of a bridging arrangement. However, it will only buy a couple of months’ time. This positive initiative needs to be supplemented by negotiating support from other friendly countries, including Japan, to obtain bridging finance that would be required during the time it takes to negotiate a debt restructuring and an IMF programme (about six months).
Action on all three fronts identified above needs to be initiated immediately to stem the ever-deepening crisis and support sustainable recovery.
This is A Pathfinder Perspective issued by the Pathfinder Foundation and can be viewed on https://pathfinderfoundation.org/ Readers’ comments via email to email@example.com are welcome.
Priority need to focus on Controlling Serious Economic Crimes
Open letter to President Gotabaya Rajapaksa
The Ministry of Defence has advertised five vacancies for the “Recruitment as Reserve Assistant Superintendents of Police to the Ministry of Defence, affiliated to the Sri Lanka Police, skilled professionals to become proud members of the Ministry of Defence, dedicated to the sovereignty, unity and territorial integrity of Sri Lanka as well as to public safety and to play a superior role for the nation. These recruits will function as Cyber and Forensic Analyst, Geo-Political and Strategic Analyst, Counter Terrorism and Violent Extremism Analyst, Economic Analyst and Statistical Analyst (the last two covering security perspectives regarding national security)”. Any justified decision to strengthen the knowledge and skills based professional capability of existing human resource of the state is a welcome move, so long as the recruits have in addition to the specified qualifications, requisite commitments to best practice professional standards, ethics, correct attitudes and values.
The caring civil society fervently hopes, in accord with your stated commitments in the manifesto and the several public pronouncements that followed your election as the President, that you, with the support of your Cabinet colleagues and the top officials of the executive, will similarly focus on the essential priority need to focus on controlling serious economic crimes, which can easily debilitate the financial integrity, fiscal and monetary stability and solvency of Sri Lanka; and if allowed unabated will destabilise the economy and prevent the realisation of the goals of splendour and prosperity.
The optimum operational environment to assure financial integrity minimizing serious economic crimes is by having effective laws, regulations, policies, systems, procedures, practices and controls, with efficient and effective independent oversight mechanisms, enforcements, investigations and prosecutions, followed by independent justice systems with penal sanctions and recovery of proceeds of crime. The critical drivers of such a system are independence, capability and professionalism of supporting human resources in the entire chain. It is however quite evident from many case studies that the systems controlling financial integrity of Sri Lanka fails to meet required standards of effectiveness, due mainly to the lack of competent and committed professionals in the chain engaged in independent oversight mechanisms, enforcements, investigations and prosecutions. Due to this incapacity the independent oversight control, enforcement, investigation, prosecution and punishment of offenders of money laundering, transfer pricing, securities offenses, bribery, corruption, financial fraud, organised crimes, drug trafficking, smuggling, and avoidance of taxes/ excise and customs duties are ineffective; and more importantly the recovery of proceeds of these crimes eventually fail and are thus unable to restore the state revenues leaked and state assets stolen or defrauded.
Civil society looks to you as the President, to take early action to strengthen the structures, systems, laws and regulations along with the capacity of the resource persons engaged in the independent oversight control and enforcement of mechanisms; and thereby minimise serious economic crimes system wide and facilitate successful recovery of proceeds of crime. In the above context it is suggested that you pursue the undernoted strategic action steps under your direct leadership supervision:
* Seek Cabinet approval to set up an Enforcement Directorate similar to that of India under the supervision of the Inspector General of Police, reporting to an Independent Public Commission made up of three members, comprising of a high integrity competent retired Appellate Court Judge, a retired Senior Officer of the Auditor General’s Department and a retired Senior Officer of the Central Bank.
* Enforcement Directorate to be entrusted with the mission of minimizing the identified serious economic crimes systems wide; enhancing oversight mechanism and controls system wide and where suspected that any such crimes having taken place professionally investigating and prosecuting, optimizing recovery of proceeds of crime
* Seek technical support in setting up the Enforcement Directorate from the Financial Integrity Unit of the World Bank and its affiliates Financial Action Task Force, UN Office on Drugs and Crime and the Stolen Asset Recovery Initiative with extended human resource training and development support from bi lateral supporting countries and other specialized agencies
* Recruit competent and highly professional staff for the Directorate, similar to the staff recruited to the Defence Ministry; and support them with requisite resources, knowledge, skills, systems, data bases, best practices and technical and investigation assistance linkages
* Enact essential legal and regulatory reforms, commencing with the early enactment of the Proceeds of Crime Act draft sent to the previous regime for cabinet endorsement
* Enhance the capability of the prosecutors of the Directorate to successfully prosecute serious economic crimes and judges to effectively support the judicial processes connected therewith
* Make it a compulsory requirement of all state remunerated persons to adopt the ethical standard to report to the Directorate any known or suspected non compliances with laws and regulations
Trust you and your advisory team will give due consideration to this submission
S.Thomas’ Class of 62 and O/L 70 Group celebrates 60 years Nexus
By Rohan Mathes
Once again the old boys of the Class of 62 and O/L 70 Group fraternity of S. Thomas’ College Mount Lavinia gathered last Saturday (22nd), under one banner to celebrate their 60 th anniversary of their association and loyalties with their prestigious Alma Mater, long way down from 1962, whence they were admitted to the school by the sea.
This rendezvous was of paramount importance to the membership near and far, inclusive of those domiciled overseas, who had turned up in their numbers to enjoy the long-awaited fellowship, with their comrades, despite the prevailing Covid pandemic restrictions. Nevertheless, those who could not make it, had been amply served by the provision of a Zoom link. Kudos to the organisers who had painstakingly and meticulously planned all the nitty-gritties of this epoch-making celebrations, however with less pomp and pageantry, compared to their fiftieth anniversary celebrations in 2012.
Following the service at the Chapel of the Transfiguration, the Thomians spend the day within the precincts of this hallowed institution which had undoubtedly imparted a unique, state-of the-art and wholesome education to them. They took this rather rare opportunity to joyfully tour around their old school, of course reminiscing their nostalgic memories of their childhood. They were simply overjoyed by viewing the latest developments and modifications done by the school authorities, utilising the charitable donations and contributions made by the old boys, parents and well-wishers of the school, in numerous ways, throughout the years gone by.
At this event, the Group also assisted the college in their project to install “Smart Boards to every class room”, by handing over a cheque to the Sub Warden Asanka Perera, to the value of Rs.400,000, collected from its membership. Esto Perpetua!
Why cry for Djokovic – a reply
I strongly object to the remark Dr Upul Wijayawardhana (Dr U W) made in the first paragraph of his Opinion, in The Island of Saturday 22 January, titled ’Why Cry for Djokovic?’ critiquing Cassandra in her Friday 21 Cassandra Cry.
Dr U W writes: “Cassandra uses her column liberally to criticise our politicians for giving special treatment to their kith and kin.” I, Cassandra, have two reasons to object to this damning statement. I have never criticised politicians for “giving special treatment to their kith and kin”. I have criticised politicians on various other issues such as what they have done, but not on this particular accusation. Hence Dr UW deliberately, or carried away by his writing eloquence, placed me in danger of reprisal. Such is not done.
Please read me in Cassandra Cry on Friday January 28, where this matter, and some others the doctor has written regards Cassandra will be refuted,
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