Last week, President Donald T. Trump, announced the withdrawal of the United States from the Paris Climate Agreement (PCA), a procedure that will take four years to complete and will in fact be complete one day after the next US Presidential Elections is scheduled to be held. Being the number two polluter in the world (China is number one) the withdrawal by the USA has serious ramifications to countries like Sri Lanka, where climate change is real and kills people.
On May 25th, torrential, unprecedented rains deluged parts of Sri Lanka, with the death toll now exceeding 200 with scores still missing and more than 10,000 homes damaged. While our government is now scrambling to pick up the pieces, the country has a whole has once against galvanized together to look after those affected, without heed to creed, caste or race.
In the midst of the mad scramble by the Ministry of Disaster Management to pick up the pieces, President Maithripala Sirisena made some additional changes in his government, swearing in a couple of state ministers and deputy ministers. Amongst those invited to the Presidential Secretariat Wednesday 30th morning to take their oaths was Dr. Anoma Gamage, powerful wife of Daya Gamage, the Minister of Primary Industries. Dr. Gamage was told she would be given the plum position of deputy minister for foreign affairs, to be vacated by Dr. Harsha De Silva, who was moving over as deputy Minister of National Policies and Economic Affairs.
Common knowledge
It was while she was seated outside the President´s room, taking selfies with Dr Harsha and Eran Wickramaratne, who was to be made State Minister of Finance, that Dr. Anoma realized something was amiss. It was only there that she realized thatWasantha Parakrama Senanayake, who was to be elevated to her former position as Deputy Minister of Petroleum, had in fact been promised the position of state minister of foreign affairs by the Minister of Foreign affairs, Ravi Karunanayake, the week before.
This was common knowledge within the diplomatic circles in Colombo and was discussed extensively during that weekend, with senior diplomats welcoming the suggestion of suave and calm Senanayake, a grand nephew of Sri Lanka´s first prime minister, D.S.Senanayake, being elevated to that position.
Wasantha Senanayake, M.P., was reluctant to take the petroleum portfolio and work under Arjuna Ranatunga, and the President was informed of his discomfort. Dr. Anoma was consulted and she had informed the President that she would be happy to continue as the Deputy at Petroleum.Only at this juncture was the list of changes called for and a black felt tip was run over Dr. Anoma´s name and the word “ Videsha – foreign affairs “ written next to Wasantha.
Its common knowledge that Ministers Ravi Karunanayake and Daya Gamage are bitterly opposed to each other and one wonders why the original decision was made to make Dr. Anoma the deputy to Ravi Karunanayake.
Also taking up space in the media was an apparent request by Minister Karunanayake to transfer some of the institutions that comes under the Minister of Finance to his new Ministry, the Ministry of Foreign Affairs. According to the Special Gazette Extraordinary No. 1933/13 - MONDAY, SEPTEMBER 21, 2015, the following non-departmental institutions come under the Ministry of Finance in addition to the departments that directly come under Ministry.
• Sri Lanka Customs
• Department of Excise
• Insurance Board of Sri Lanka
• Sri Lanka Accounting and Auditing Standards Monitoring Board
• Public Service Mutual Provident Association
• National Lotteries Board
• Development Lotteries Board
• Lady Lochore Fund
• Tax Appeals Commission
• Sri Lanka Export Credit Insurance Corporation
• Academy of Financial Studies (Miloda)
While the media speculation is that some of these institutions will be transferred to the Ministry of Foreign Affairs once Prime Minister Wickremesinghe returns to the country, this is highly unlikely to happen.
The issue with Dr Anoma Gamage was not the only miss-step the President had to contend with this week in the absence of Prime Minister Ranil Wickremesinghe, whose absence from the country sparked a social media furor and had to be explained following leaked information that he is in the United States for a medical check-up.
There was also the news that the Auditor General H.M.GAMINI WIJESINGHE had refused to certify the national accounts for 2016 and disclaimed saying he was unable to express a view. According to media reports, the AG had said that national debt was83.3 percent of gross domestic product and not 79.3 percent as reported.
These are numbers stemming from unreported and sometimes undocumented loans taken by the previous regime that should have been documented and cleaned by now.
While that issue is still be to be settled, the National Accounts for the 2016, compiled as of 31st March 2017 and published by the Finance Ministry last week, had some good news for an otherwise beleaguered government.
Sri Lanka now has almost complete coverage of 99.3% of households having access to Electricity, a slight increase from the 98.5% of 2015 and 98% in 2014, an increase of nearly 2% in access to pipe borne water from 45.9% in 2015 to 47.7% in 2016 and a jump from 24.3 million cellular phone subscribers in 2015 to 26.2 million subscribers in 2016. In logistics and shipping, improvements continue in total cargo handled in 2015 of 77.6 million metric tones increasing to86.5 million metric tones in 2016.
Installed power generation capacity has increased to 4018 Megawatts in 2016 from 3,850 MW with most of that increase coming from Private Sector clean power plants. The Real GDP in the meanwhile has slowed down mainly due to a drop in agriculture production and a slow down in industrial production.
The Finance Ministry claims“demand management policies implemented by the government and Central Bank resulted in a slowing of consumption demand, as necessitated by improving macroeconomic fundamentals while agriculture sector contracted by 4.2 percent due to supply side disruptions during the year. With improved activity in industry and services sectors, the unemployment rate declined to 4.4 percent in 2016 compared to 4.7 percent in 2015.”
The decline in the agriculture sector is highlighted in the poor export earnings from spices, which contracted by 16.0 percent to US$ 317.1 million in 2016 from US$ 377.4 million in 2015 due to weaker exports in pepper and cloves despite the higher exports of other spices, especially cinnamon, nutmeg, and mace. This is despite a very high profile campaign launched by the Ministry of Primary Industries to increase production of pepper and cloves.
According to the National Accounts report, growth will pick up in 2017, as growth in manufacturing, construction, and services will offset somewhat the drought impact on agriculture.
Inflation
“Headline inflation rose to 7.3 percent in March 2017 from 4.5 percent at end-2016, due to higher food inflation and the VAT rate increase in November 2016, and is expected to stabilize in the second half of 2017.
Meanwhile, a report released by the IMF last week tracking the national accounts says that Sri Lanka has embarked on revenue-based fiscal consolidation in 2016 under a 3-year IMF-supported program.
“The fiscal deficit was reduced to 5.7 percent of GDP in 2016 (from 7 percent of GDP in 2015), supported by strong tax collections including from the VAT measures introduced in November 2016. The government has committed to achieve primary balance in 2017 and reduce the overall fiscal deficit to 3.5 percent of GDP by 2020. Fiscal structural reforms are underway, including a new income tax law that widens the tax net through removing exemptions. Besides the income tax reform, the authorities have been strengthening tax administration and public financial management, as well as enhancing oversight, and transparency of major state-owned enterprises,” the IMF report said.
“The outlook for South Asia’s economies remains strong. Aggregate growth in the region decelerated somewhat to 6.5 percent in 2016, reflecting slowdowns in India, Sri Lanka, and Nepal. However, growth will to pick up again to 6.9 percent in2017 and 7.3 percent in 2018, with all countries accelerating their rates of expansion. Growth in the region is being driven largely by domestic demand, which is benefitting from still favorable terms of trade and financial conditions. Addressing the region’s remaining macroeconomic vulnerabilities remains a work in progress. Fiscal deficits and debt levels in South Asia are expected to decline somewhat in 2017 and 2018, due largely to continuing consolidation in India and Sri Lanka, but will remain high relative to other regions.
Annual credit growth has touched or topped 20 percent in the Maldives, Nepal, and Sri Lanka, and impaired loans are approaching or exceeding 10 percent of total loans in all countries excepting Nepal and Sri Lanka.Durable fiscal consolidation remains essential in the Maldives and should continue steadily in several other countries, including India, Sri Lanka, and Pakistan,” the IMF report said.
According to the National Accounts report, “various measures have been initiated to improve tax administration which is considered to be a major impediment to enhancing tax compliance.
Revenue Administration Management Information System (RAMIS) at the Inland Revenue Department (IRD) and Single Window System at the Sri Lanka Customs (SLC) which commenced operations in 2016 would need to be to enhance coverage across all sectors, thereby management function of the government.”
Last week, this column wrote of a possible hole being created in the exchequer because the National Insurance Trust Fund (NITF) had failed to obtain a re-insurance cover for natural disasters.
On Tuesday last week, the cabinet was presented a memorandum to select a reinsurance company as recommended by the Technical Evaluation Committee and Cabinet Appointed Procurement Committee, and to pay its premium and to enter into relevant agreements, and was approved by the Cabinet of Ministers.
Natural disasters
“ According to a budget proposal in 2016 above cover was introduced for natural disasters covering the whole country. Rs. 500 million has been allocated for further improvement of this scheme. The payments of claims have been expanded including wide range of accidents due to natural disasters. The policy will be renewed with a Cover of Rs. 15 billion and to prevent any abnormal losses to this policy it requires to be reinsured,” the memorandum said.
As covered elsewhere, the government had picked Renaissance Re, a global re insurance player, to be the lead reinsurer for the disaster insurance of the National Insurance Trust Fund (NITF) for acover of Rs. 15 billion.
Manjula De Silva, a seasoned insurance insider and the current Chairman of the NITF, confirmed to Sunday Observer that since the reinsurance has not taken place as yet, the most recent flood damage will not be covered by the reinsurer. However, De Silva says NITF has the full capacity to bear the cost. For 2016 may flood, NITF has settled 3 billion rupees in claims only a few more to go with the total estimates at 3.8 billion. NITF has the capacity to provide for the claims as it has an over 10 billion rupees fund capacity with an annual profit of 3-4 billion rupees, De Silva told Sunday Observer.
However, as the NITF is a government institution, this is cash that comes back to the coffers of the government and if timely action was taken to re-insure, before the policy lapsed, at least some money could have been saved.
In today´s Sunday Observer INSIGHT on the events of the past ten days, the role of the Ministry of Disaster Management is explored in terms of its mandate, its capabilities, and its budget. As highlighted elsewhere in the INSIGHT report, one chunk of information needs somewhat closer information. This is the claim that the Ministry has spent less than 8% of the Rs 260 million allocated to the Ministry for capital expenditure in 2016, while asking for over Nine Billion rupees of new funds to improve its services.
In the light of the national accounts showing some glaring holes in debt numbers and international financial agencies asking the country to belt-up, one wonders how many other Ministries are under-spending on capital expenditure while over spending on recurrent expenditure.