Ceylon Today Editorial

IMF budget

06 October 2016

'Economy next' in an article filed on Monday, quoting Finance Minister Ravi Karunanayake said that Budget 2017 will target a deficit equivalent to 5.4% of GDP, down from the Budget deficit of 7.4% recorded in 2015 (Central Bank of Sri Lanka's (CBSL's) 2015 Annual Report).

Budget 2017 is due to be tabled in Parliament on 10 November.

Meanwhile, CBSL Governor Dr. Indrajit Coomaraswamy told reporters recently that he expected the budget deficit this year to be equivalent to 5.4% of GDP (Ceylon Today of 29 September 2016).

In related developments, the IMF, on its website said, "The significant reduction in the 2016 deficit to 5.4% of GDP will need to be followed by further revenue-based fiscal consolidation over the medium-term, guided by the 2020 deficit target of 3.5% of GDP...

With reference to its recent, three year extended fund facility (EFF) of US$ 1.5 billion of which one of seven tranches have thus far been disbursed, i.e. US$ 168.1 million, IMF said, "The EFF sets a deficit reduction path from 5.4% of GDP in 2016 to 4% of GDP in 2018.

The corresponding improvement in the primary balance by 0.7-0.8 percentage points each year in 2017-18 would be accomplished by base-broadening tax policy measures, which are envisaged to generate additional revenues of about 1.2 per cent of GDP annually in 2017-18. The revenue-based fiscal consolidation is expected to preserve fiscal space for increasing infrastructure and key social spending, while ensuring a reduction in the public debt ratio from 76% in 2015 to 68% in 2020.At the same time, fiscal consolidation will reduce gross financing needs by 6% of GDP over the programme period – allowing room for an expansion of private sector credit."

IMF said that it has worked in consultation with the World Bank, Asian Development Bank, and bilateral donors with respect to programme design and timing. There are commitments from donors to fill the entire financing gap for the first 12 months of the arrangement, and prospects that there will be adequate multilateral and bilateral financing for the remainder of the programme. Financial support from these partners is expected to reach $650 million (0.79% of GDP as per 2015 figures) during 2016−18, with technical assistance also provided.

Among other expected fiscal milestones from the IMF are an increase in the tax-to-GDP ratio from 10.1% in 2014 to about 15% by 2020 and an increase in foreign exchange (FX) reserves of the Central Bank to about five months of import cover by the end of the medium-term.

According to latest statistics, Sri Lanka's gross official reserves as at 31 August 2016 stood at $ 6.6 billion and its import bill for the first six months was $ 9.55 billion. If this number is prorated to five months, then a figure of $ 7.96 billion is thrown up, yet short by $ 1.36 billion to meet the IMF's target of having reserves equivalent to five months of imports.

To conform to IMF requirements may be the reason why the exchange rate (ER) in a short period of three weeks has had deteriorated sharply by Rs 1.35 (0.93%), whereas in the calendar date to Tuesday (4 October 2016), it had depreciated at a relatively slower rate, i.e. by between Rs 2.43 to Rs 2.53 (1.68%-1.75%) to Rs 146/65/75 in two way quotes in interbank spot trading to the US dollar.

Last year, the spot closed at Rs 144.22 to the dollar, while as at 13 September 2016, it had closed at Rs 145/30/40 to the dollar in two way quotes in interbank trading, a Rs 1.08-Rs 1.18 (0.75% to 0.82%) depreciation in a little over 36½ weeks, whereas in a mere three weeks to 4 October the ER had depreciated rapidly by Rs 1.35 (0.93%).

This is because, as confirmed by Coomaraswamy to reporters, almost from the time that he took office in July 2016, CBSL has stopped protecting the rupee, i.e. by not making available dollars from its foreign reserves at discount prices to the market in order to prevent depreciating pressure on the ER.

Official reserves in the two months to end August 2016, have increased stupendously by 24.69% ($ 1.31 billion) to $ 6.6 billion. But as Sri Lanka is an import dependent economy, exemplified by the fact that it has been running budget deficits continuously since 1978, a weak rupee makes the cost of essentials to increase in price, whilst also making GoSL's foreign debt servicing costs to rise, as more often than not, the required dollars are bought from CBSL's foreign reserves at the expense of excess rupee liquidity, thereby also causing upward pressure on rates. This exercise is done to prevent further depreciating pressure on the rupee, if in the event the required dollars for such a purpose is bought from the FX market.

There are several other examples to show that Budget 2017 is seemingly traversing the IMF road, which space however, prevents from elucidating. Therefore, it may not be wrong to say that Budget 2017 is an IMF Budget.

Daily News Editorial

MR to the defence of Wiggy

06 October 20016

Cracks seems to be appearing in the Joint Opposition, with former President Mahinda Rajapaksa, who is spearheading UPFA breakaway faction, at variance with stalwarts of the JO on the true intentions of Northern Province Chief Minister C. V. Wigneswaran to stage his protest agitation in the North, under the banner Eluga Tamil (Rise ye Tamils).

It is not clear if the change in stance of Rajapaksa had anything to do with his close friendship with JO firebrand Vasudeva Nanayakkara who, in any event, is related to Wigneswaran. Also, the Mahinda-Vasu association goes back a long way, not only because they first entered parliament together in 1970, but also because they were the proverbial Siamese twins, making regular pilgrimages to Geneva, calling on the UN to impose economic sanctions against Sri Lanka due to the government's human rights violations. For the Rajapaksa-Vasu duo this was hardly a traitorous act since what they were espousing was the rights of the Sinhala majority youth in the South who were targeted by the government of the day.

Be that as it may, speaking to a group of journalists from the North, on Monday, Rajapaksa said he did not believe that Wigneswaran was a racist and what the Northern Province Chief Minister was highlighting was the problems confronted by the youth, due to the government's inability to meet their pressing demands. Wigneswaran after all is a politician and has to play a political role, the former President said.

It is gratifying indeed to note that Rajapaksa, for once, has not been ready to stick a communal label to a protest staged in the North. This is at variance with the earlier positions taken by the former President. One recalls MR's attempt to refer to the violent agitations in the aftermath of the rape and murder of a 18-year-old schoolgirl in the North as a revival of the LTTE .The same reasons were attributed by Rajapaksa when some old arms caches were recovered by the military in the North. The release of military held land in the North to their original owners was also portrayed as a caving into separatist demands, which was not without its communal tinge.

Even in the case of the Wigneswararn demonstration, Rajapaksa initially gave it a communal twist by saying that they of the Sinhala race cannot be driven to the wall, when challenged thus, but would hit back with a vengeance. This sudden turnaround therefore is to be appreciated, for whatever reason, for it will now throw cold water on the JO's Wigneswaran bashing campaign. It no doubt is going to take the bottom off the anti-Wigneswaran platform, built by the likes of Weerawansa and Gammanpila, who, from the day of the protest have been shouting from the roof tops of a birth of another Prabhakaran in the North. This is despite the repeated insistence by the Chief Minister that he had been misquoted by the media in the South, a fact alluded to even by the Leader of the House Lakshman Kiriella when the conduct of Wigneswarwan was raised in parliament by JO stalwart Dinesh Gunawardena.

Why pray, is the Joint Opposition so concerned about a demonstration in the North raising the spectre of the LTTE once more when the proud boast of their leader has been that the LTTE is done and dusted? Now, with MR himself saying that this was a protest to highlight the day-to-day problems faced by the people of the North it is hoped that all fears of a resurgence of the LTTE entertained by the JO would be laid to rest. In any event, the public in the South now have a guarantee that the bogeys raised by the rank and file of the Joint Opposition is only in their imagination. Now that MR has cleared the air in this regard why should the JO, or anyone for that matter, object to political leaders in the North staging protests to highlight the grievances of their people.

Today, television is full of protests in the estates, led by political leaders representing the government no less, demanding a Rs. 1,000 daily wage. Hardly a day passes without some Colombo street is obstructed by one demonstration or another making similar demands. Why not then bring the North too into the mainstream, to hear what THEIR people have to say? By treating the demonstrations taking place in the North as something different to the commonplace ones seen in the South isn't the JO tacitly conceding that part of the country is a separate entity.

This column had said this before. Politicians, both in the North and South will use popular slogans to keep their flock within their fold. If such slogans are tinged with communalism, both sides are guilty of it. Mahinda Rajapaksa is guilty of this more than any other political leader in the South. He has not been averse to playing the Sinhala nationalist card, to cater to his Southern constituency. If Wigneswaran's comments appear to sound racist, one cannot hold it against him. He is catering to a different constituency. Sauce for the goose is sauce for the gander.

The Island Editorial

A royal battle over a commode

06 October 2016

President Maithripala Sirisena may pardon the terrorists who once made abortive attempts on his life while he was a minister, but he does not seem willing to forgive his former bosses, the Rajapaksas, who, while in power, shortchanged him, deprived him of the post of Prime Minister and are currently posting a formidable political challenge to him. Rarely does he miss an opportunity to vent his spleen on the former ruling clan. Power politics is a gladiatorial combat where no quarter is asked or given.

President Sirisena, while making a public speech the other day, sought to dispute claims being made in some quarters that no development had taken place on his watch and his government was busy opening the projects completed by the Rajapaksa administration. The President must be really hurt.

At a time his propagandists are all out to rebrand President Sirisena as the modern-day Vijayabahu the Great of Polonnaruwa–– Rajapaksa was once described as the reincarnation of great warrior king Dutugemunu from Ruhuna––an attempt is being made to liken him to King Nissanka Malla, another king who ruled from Polonnaruwa, believed to have claimed the credit for the works of his predecessors and even put up stone inscriptions with his name carved thereon for that purpose. Who can bring himself to stomach such indignities?

President Sirisena, in a bid to drive a point home, claimed it was his predecessor who had sought to get the credit for others’ work. Citing the Nelum Pokuna Theatre as an example, the President said Rajapaksa had got a plaque erected by President Chandrika Kumaratunga, who laid the foundation stone for the project, demolished and a new one put up bearing his name. Denying this allegation, Rajapaksa has said through his media secretary that the plaque containing Kumaratunga’s name remains intact.

Now, the question is who is telling the public the truth. Those who visit the Nelum Pokuna Theatre can see whether both plaques are there or the one with CBK’s name has been obliterated.

One can understand why President Sirisena is so bitterly antipathetic to the Rajapaksas; it must be really irritating for him to see his bête noire, Rajapaksa in the rearview mirror all the time. If the latter forms a new party to contest the local government polls, the government will be forced to conduct sooner or later, the support base of the SLFP, which the former leads, is bound to suffer a severe erosion. This is a worrisome proposition for the anti-Rajapaksa camp controlling the SLFP.

There is a way President Sirisena can remove the Rajapaksas from his path once and for all; he and his allies should prove the very serious charges they levelled against the Rajapaksas before the last presidential and parliamentary elections. They said the Rajapaksas had stashed away as much as USD 18 bn in offshore accounts. President Sirisena himself said the Rajapaksa family lived off the fat of the land at the expense of the hapless public and even possessed a ‘golden horse’ besides a fleet of super luxury vehicles. The political enemies of the Rajapaksas are now ensconced in power with Gestapo style police units at their disposal to conduct probes, and they should go the whole hog and have the Rajapaksas and their backers arraigned on charges of the plunder of public assets. Mere diatribe won’t do.

Meanwhile, one may recall that President Kumaratunga some moons ago said that her gorge rose at the sight of the Nelum Pokuna Theatre, which, she said, had the same look as a commode. So, one may argue, she would have considered it a favour if the Rajapaksas had demolished the plaque carrying her name. Who wants to have his or her name associated with a commode?