Slip sliding away | Sunday Observer

Slip sliding away

They mean business - Prime Minister Ranil Wickremesinghe with World Bank Country Director in Sri Lanka, Idah Z. Pswarayi-Riddihough, Minister for Development Strategies and International Trade, Malik Samarawickrama and Deputy Minister, Sujeewa Senasinghe at the launch of the Roadmap for Improving the Investment Climate.
They mean business - Prime Minister Ranil Wickremesinghe with World Bank Country Director in Sri Lanka, Idah Z. Pswarayi-Riddihough, Minister for Development Strategies and International Trade, Malik Samarawickrama and Deputy Minister, Sujeewa Senasinghe at the launch of the Roadmap for Improving the Investment Climate.

Slip slidin’ away
Slip slidin’ away
You know the nearer your
destination

The more you’re slip slidin’ away – Paul Simon (compilation album Greatest Hits, Etc. – 1977)

News was not good to the government this week, with Transparency International´s Corruption Perceptions Index and the World Bank´s Ease of Doing Business Index (See our INSIGHT story this week) both indicating that Sri Lanka has slipped down from the previous year´s rankings. As indicated in our INSIGHT story, credibility is hard to gain once lost and perception is hard to change, once formed.

The country lost its credibility within the international community when former President Mahinda Rajapaksa let go of an excellent opportunity to reconcile with the war affected and displaced population of the north and east and to rebuild the country. Instead, using expensive and possibly corrupt loans from China, President Rajapaksa led the country to a debt trap. Last week, at least one such decision taken by the previous regime boomeranged – the Uma Oya project, where experts are now claiming that at least US$ 230 million cost cannot be explained. According to a paper cited by this column, the sub-contractor who built both the dams under the Uma Oya project only made US$ 35 million. As such, over US$ 500 million appears to have been allocated to dig two tunnels, one just less than seven kilometres long and the other 26 kilometres – a princely sum of US$ 15 million per kilometres. As we have not cited the complete cost projections, we do not know whether the cost of the hydropower station is included in the total cost or not.

Uma Oya

The Uma Oya project has a long history dating back to the 1950s. The United Nations Development Program and Food and Agriculture Organization (UNDP FAO) proposed a master plan to develop the Uma Oya basin by constructing two dams to create the Upper and Lower Uma Oya reservoirs in 1959. It was further discussed during 1988-1989 as part of a master plan to supply electricity in Sri Lanka. It proposed a three-stage development program to Uma Oya basin. This was later revised to a two-stage project. However, all these proposals were abandoned for various reasons, including funding issues and environmental concerns.

Nevertheless, in 1991, the Central Engineering Consultancy Bureau Sri Lanka (CECB) carried out a pre-feasibility study for Uma Oya Trans-basin project. This Trans-basin project proposed to divert the Uma Oya water to southern Sri Lanka. However, it was rejected by the Asian Development Bank due to water rights violations of the people. CECB, in connection with Lavalin Inc., Canada, posed this again as the Uma Oya Trans-basin project in 2000.

President Sirisena, addressing an event in Polonaruwa last week said that the previous regime rammed the project through in 2008, just one year after his portfolio as irrigation minister was given to Chamal Rajapaksa, who went on to be the speaker. “The secretary to the ministry resigned after refusing to sign the agreement,” the President said.

President Sirisena was not in a mood for banter when he walked into the cabinet meeting on Tuesday. Demonstrators against the Uma Oya project had taken a Minister hostage and he had just appointed a new secretary after virtually asking the former to resign. He also had been informed that the Anti-Corruption Committee Secretariat (ACCS), a showpiece body appointed immediately after the President took oaths in January 2015, had just ceased to exist. The ACCS was established to funnel anti-corruption cases to investigative departments including the Financial Crimes Investigative Decision (FCID) and the Bribery and Corruption Commission. Led by the Prime Minister, the secretariat has a sub-committee and a rapid response committee. The secretariat also has its own short-term and long-term goals. The secretariat functioned at its premises near Temple Trees for 28 months.

That straw apparently broke the camel´s back. According reports published earlier this week, President took umbrage at the Minister of Law and Order and Southern Development Sagala Ratnayake and the Minister of Justice, Wijeyadasa Rajapakshe, demanding to know why high-profile cases that involve the family of the former President, Mahinda Rajapaksa, is yet to begin. One report, published in asiamirror.lk, indicated that “The FCID and the Attorney General’s Department will be placed under the President for three months, if necessary, to achieve results,” quoting a government source. While this may not take place, with Prime Minister Ranil Wickremesinghe intervening in the issue, the government needs to fast track some of these high profile cases if its credibility is to be regained.

Minister Ratnayake was to explain that he had never influenced law enforcement agencies and allowed the police to function without any hindrance, speaking at a media event on Thursday, July 6. “The government expected those law enforcement agencies to function independently,” he said. “If the work of such organizations require review, I am prepared to put in a place a better mechanism for it,” reports published elsewhere said, quoting the Minister.

It is in this light that government was to take serious note of the contents of the speech by the World Bank Country Director in Sri Lanka, Idah Z. Pswarayi-Riddihough, “I believe that the package of reforms is sound and overall will be beneficial; but to get better than satisfactory impact the reform process will need commitment and perseverance,” she told the launch of the government’s ‘Roadmap to Improve the Investment Climate’. “But as with all windows of opportunity they are unfortunately time bound. Inaction over a period of time; and more importantly lack of results will hasten the window’s closure.”

Investors use the rankings to make decision on whether they invest or not, Pswarayi-Riddihough said.

“They will be looking at the actual result but also at the trend of progress over a number of years. They may even use these results to make a prediction on the following year’s results.

“To do this it must stay on the reform path. Consistency and determination to deliver high quality reforms will earn credibility.”

Reforms

Riddihough´s comments closely followed the Sri Lanka Development Update (SLDU) of the World Bank launched earlier in June. Sri Lankan Government led reforms to improve competitiveness, maintain macro-fiscal stability, and strengthen institutions, with broad support in the country, are key to robust economic growth, jobcreation, and poverty reduction, that report said. “While robust contributions from construction and financial services sectors is a good sign, Sri Lanka needs to continue to take forward its reform agenda if it is to adequately boost revenues and provide its people with more and better jobs.”

Implementing the new Inland Revenue Act, submitted last week to the Parliament, will make for a good starting point. For Sri Lanka to attain the status of an Upper-Middle-Income Country, it will have to bolster its economy’s competitiveness and ability to pursue an export-led growth model, the report said.

Among the risks identified by the report are delays in implementing structural revenue measures, slower than expected improvement in tax administration, less favourable growth in the global economy and faster than expected global commodity price rises.

In addition, faster implementation of several vital reforms, identified by the government, such as those affecting state-owned enterprises like SriLankan Airlines and measures to strengthen accountability and transparency are crucial, the report said.

FDI

According to the report, Sri Lanka also attracts a much lower volume of Foreign Direct Investment than peer economies. “Sri Lanka has an opportunity to move to new sources of growth and jobs by opening up to trade and diversifying its economy,” said Ralph Van Doorn, Senior Country Economist and one of the authors of the Sri Lanka Development Update.

Although Sri Lanka must cope with a turbulent external environment and domestic political considerations, a strong political will and the support of the bureaucracy could help advance the reform agenda, the report concludes.

Support of the bureaucracy and the judiciary has become thorny issues to the government. On Wednesday, intervening in Parliament, Prime Minister Ranil Wickremesinghe showed some concern as to how courts can issue interim injunction orders on garbage dumping when it has been declared an essential service. “I learnt that an interim order has been issued prohibiting garbage dumping at Muthurajawela till July 20. When the courts start issuing restraining orders like this, waste disposal in cities become problematic. The spread of dengue and other health issues will aggravate. This is a serious issue and I direct the attention of the House to it. The Municipal Council, Police, and Army are ready to intervene. The courts should also act responsibly during this crisis situation,” he said.

The Prime Minister said the problem in metropolitan Colombo and adjoining cities is not the garbage collection, but disposal.

The Premier also urged the Kesbewa Magistrate’s Court to give its verdict soon on a case pertaining to garbage dumping at Karadiyana.

Wickremesinghe said garbage disposal has become a problem in Colombo, Kolonnawa, Kaduwela, Biyagama and Kelaniya areas. “We asked Minister Patali Champika Ranawaka to shoulder the task of garbage disposal and Minister Faiszer Musthapha to make sure LG bodies collect the garbage properly. We want to come up with a durable solution to waste management without creating another garbage mount like Meethotamulla,” he said.

He added the Government has allocated Rs. 2 billion for the Aruwakkalu Sanitary Landfill Project in Puttalam in 2017 and another Rs. 4 billion in 2018. “Once constructed, we can use it for 20 years. The World Bank too agreed to support this project,” he said.

The Premier observed that the Kandy Gohagoda dumpsite has also reached the maximum capacity. He said a new sanitary landfill would be constructed in Kandy.

He was intervening following a question posed to him by JVP MP Bimal Rathnayake, during the first reading of the new Inland Revenue bill.

Lands and Parliamentary Reforms Minister and Chief Government Whip Gayantha Karunatilake moved the Bill, which will provide for the imposition of income tax for any year of assessment commencing on or after April 1, 2017.

Prime Minister Wickremesinghe, updating the House on the purposes of the new Bill, which consists of 22 Chapters and runs to 218 pages, said: “The Bill has hindered the space for tax evasion, removing certain loopholes in the prevailing Act. Any concerned party can go before the court now over its content. I propose drafting bills in simple English language to make it easy for the ordinary public to understand. Many other countries have adopted similar measures now.”

Meanwhile, a Fundamental Rights petition challenging the gazette notification issued by President Maithripala Sirisena in the capacity as the Environment Minister over garbage issue in the country was also fixed for support on August 9 by Supreme Court.

When the petition came up before Supreme Court two-judge-bench comprising Chief Justice Priyasath Dep and Justice Buwaneka Aluvihare, the Attorney General sought further time to get instructions from the respondent parties.

The petitioners stated that the concerned Gazette Notification is a violation of the Fundamental Rights of the majority of the citizens as it paves the way for illegal dumping of garbage by the Local Authorities disregarding the public health sanitation, environmental sanitation and environmental stability causing danger of spreading vector diseases.

Fiscal management

On Friday, the Prime Minister took the high road. Delivering a wide-ranging assessment of the economy, while speaking at the opening of the new building of the Institute of Bankers of Sri Lanka (IBSL) in Colombo, he hailed prudent fiscal management for tackling debt interest payments and outlined the way ahead for key investments and growth.

The Premier noted that the total gross assets held by the country’s financial system are estimated to be around Rs. 23 trillion, which is nearly two times Sri Lanka’s annual Gross Domestic Product (GDP).

“We must be mindful that these financial assets have been created by us without any underlying real value or real wealth. Therefore, money, banking and finance are the bread and butter of our economy,” he stressed.He explained that when the Coalition Government took over the economy it was heavily burdened with debt incurred through various unproductive infrastructure projects and the facility obtained by the International Monetary Fund (IMF) came in handy to manage the situation prudently, which helped to raise the Government’s revenue considerably through various tax reforms.

“When we had to increase VAT there was a lot of criticism, but it helped immensely to improve our revenue. Today we are in a position to pay off the interest of the debts obtained, which I think is a huge achievement,” he stated.

“In the next five to six years our GDP will improve significantly and the revenue generated from that could be used to pay off those debts taken in the past. However, until such time, we need to count on external funding facilities. I assure that the Government will only obtain those facilities with a vision and a source to repay them,” he pointed out.

The Prime Minister assured that the Government would provide its fullest support by way of tax incentives, trade adjustment packages and other facilities. “We will help them. Many of the domestic manufacturers are quite close to becoming exporters. It is a few more steps and our job is to encourage them.” 

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