Cabinet Spokesman Minister of Mass Media, Transport and Highways Dr. Bandula Gunawardana said that if all join hands and work together with dedication, we will be able to find a solution to the current economic crisis. The Minister in an interview with the Sunday Observer said in order to find a stable solution to the issue, the task of public finances should be fulfilled properly and this is the long term solution.
Dr. Gunawardana said steps should be taken to safeguard the banking network and somehow increase the foreign exchange earnings flow into the country and reduce the import expenditure adding that a consensus should be reached among all political parties to fulfill this challenging task.
Whatever Government that comes to power, this crisis would continue until 2029 because the 10-year International Sovereign Bonds issued in 2019 would mature in 2029. Therefore, whoever takes over the Government, they will have to adopt a sound public finance management system until 2029.
Excerpts of the interview
Q: As an economist what is the way out for the current economic crisis?
A: If we properly understand the crisis, we would be able to find a solution to it. Therefore, we can’t suggest solutions to the crisis without properly studying it. Otherwise, it would just become a mere exaggeration. After independence, this was the biggest crisis that emerged in Sri Lanka. When the world economies declined due to the Covid-19 pandemic, Sri Lankan economy also recorded 3.6 percent minus growth. Under that atmosphere, the issue on public finance reached a climax. The public finance crisis has a longstanding history.
The budget had continuously recorded a deficit and an unbearable amount of local and foreign loans were obtained to bridge the budget gap by creating a situation of not being able to settle loans and pay interests. This is one of the crises that we have faced. The second crisis is that there were no local productions to meet the increasing demand of the economy due to a budget deficit and this led to continuously importing goods.
However, the exports were not increased sufficiently to cover the import expenses. This led to a massive balance of payment crisis and deteriorated the foreign exchange ratio and declined the foreign reserves.
Finally, all these factors led to a massive foreign reserve crisis in the country. At present, we don’t have sufficient rupees even to bear the recurrent expenditure and pay the salaries of public servants due to the budget deficit and foreign exchange crisis. We don’t have foreign exchange to import essential food commodities, drugs, fuel and fertiliser. This is the crisis which has emerged today. According to clause 148 of the Constitution, the full responsibility on public finance management is vested with the Parliament. But it didn’t identify this crisis early and find solutions due to the lack of representation of legislators on the subject matter.
Q: However, as a politician who has continuously represented Parliament since 1989, weren’t you able to identify this emerging crisis?
A: Since my maiden speech made in Parliament in 1989, I have continuously talked about this both in and outside Parliament. I have made complaints to the Speakers as to how the Parliament is completely misled on the budgetary process. In recent times, I have written 12 books on this issue. I have written a separate book titled “Rajya ayaweye mithyawa ha yatharthaya” and proved how the Parliament is misled. Unfortunately, I have engaged in an isolated struggle and I didn’t get adequate support from Parliament and the media. I just got insults and embarrassments.
Q: As a professional in the field, didn’t you try to convince the State leadership regarding this situation?
A: I have made a lot of attempts both in and outside the Cabinet to make aware of this situation. However, I was able to make a successful attempt after the year 2000. When I was the Cabinet Minister of Rural Industries and Deputy Finance Minister, I passed the Fiscal Management Responsibility Bill, 2003 in Parliament to prevent this situation from emerging. Three laws were imposed through this Bill. One is to reduce the budgetary gap to 5 percent by 2006 and after that maintain it below 5 percent. Secondly, it was recommended to bring down the percentage of the total amount of Government’s non-payment loans up to 60 percent of the GDP without exceeding that limit. That had to be done by 2013. Thirdly, the debt to GDP should be brought down to 4.5 percent. If those three factors were fulfilled and the law was properly implemented by the Treasury and the Finance Ministry, this economic crisis wouldn’t have emerged. At present, the budget deficit has exceeded 10 percent and State debt to GDP is 119 percent. .
Q: According to you, who are responsible for not implementing the Fiscal Management Responsibility Bill in 2003?
A: That responsibility should be taken by a few top level officials who mislead the Parliament without allowing the State leaders and Ministers to handle the economy. It has not been able to achieve targets as this Bill has been amended by these top officials on three occasions. Under the present economic crisis, we have to amend this Bill once again. However, no complaint has been made against the relevant officials but the allegation is always leveled against the Ministers and Parliamentarians who have a lack of understanding on the subject matter.
During the entire history, Finance Ministers J.R.Jayewardene and Dr.N.M.Perera were the only two Finance Ministers who formulated budgets based on their knowledge on the subject matter. The other Finance Ministers had just presented the facts and figures and methodologies prepared by others to the State leaders and the Government Parliamentary Group of MPs paving the way to create a division between the Government and the Opposition MPs by accusing each other.
To find a stable solution to this issue, the task of public finance should be fulfilled properly and this is the long term solution to the issue. Steps should also be taken to bring down the budget deficit to below 5 percent and convert the entire country into an export processing zone to increase foreign exchange earnings and overcome the balance of payment crisis.
The growth of the economy externally would help to pay the loans which are due and create confidence in the international monetary market. The rebuilding of the country is the biggest challenge before us today.
Q: When the people have faced severe hardships, once again the prices of consumer goods have been increased due to the decision taken by the Government to increase several taxes including the Value Added Tax and Inland Revenue Act. Would you like to comment?
A: Actually, this had to be done to prevent the people facing more hardships. The exchange of money, printing money and public finance is a subject. The country would further collapse when measures are taken by those who have no understanding on the subject of finance. As I mentioned earlier, the budget deficit should be reduced. The budget deficit should be reduced to prevent the prices of goods from going up. Two facts have to be fulfilled in this regard. One is to increase the Government revenue and reduce its expenditure. Whether they like it or not, whatever Government in power will definitely have to do this. Eighty five percent of the Government revenue is gained through taxes. Therefore, the objective is to increase taxes and curtail the Government expenditures so that the budget deficit will be reduced.
Through such a move, the Government will be able to find medium and long term solutions to the cost of living crisis. The then Opposition made a huge protest over the decision taken by then Prime Minister and Finance Minister to reduce and remove taxes in 2019. The then Opposition said the taxes were reduced to provide concessions to their friends. Now they have to admit the fact that the taxes were reduced to ease the burden of the people when it had reached an unbearable level.
The Government’s revenue has been drastically dropped so that the taxes will have to be increased. However, the Finance Minister has increased taxes less than the percentage in 2019. In 2019, the VAT was 15 percent and it has been increased up to 12 percent now. As there is no other alternative, these measures are being taken to ease the burden of the people. Some of those who criticise this move however fail to submit an alternative.
The JVP General Secretary Tilvin Silva has said that when they form a Government, their well-wishers will start sending dollars so that the foreign exchange crisis in Sri Lanka will be sorted out.
These are mere exaggerations. The monthly income of Sri Lankans who work in Middle East countries is nearly US$ 150 to 300. If one million Sri Lankans each send US$ 50 to their bank accounts monthly, we can receive only US$ 50 million.
This money is not sufficient even to bring a single ship of fuel. Some may also think if we export more gems, we would be able to earn foreign exchange to import fuel and gas. However, the total income we gained last year through the import of gems and other mineral products exports was US$ 44 million.
The politicians and some of those who make various analyses have no proper understanding of these figures or the nature of this dollar crisis. The former Yahapalana Government received only US$ 1.4 billion by selling our biggest asset, Hambantota Port, to China. The biggest development project we commenced was the Colombo Port City Project and its investment is US$ 1.4 billion. Both Hambantota Port and Port City would bring a US$ 2.8 billion investment.
However, we have to pay US$ 6 billion for foreign loan instalments and interests per year. How can we pay these loans? That is why the Central Bank Governor Dr. Nandalal Weerasinghe has stressed the importance of restructuring debt payments.
However, Sri Lankan experts have not enough experience and expertise in this regard. If we tell political party leaders and professionals in those parties to propose a methodology to be adopted to pay loan instalments and interests, there is no one in Sri Lanka who is capable enough of doing so.
Therefore, Cabinet approval was given to hire advisors from Lazard and Clifford Chance for debt restructuring. At least intellectuals and intelligent people in Sri Lanka should realise that there are no easy solutions for the current economic crisis emerging in Sri Lanka.
Q: As reported by the media the differences of opinions had been expressed at the Government Parliamentary Group meeting held a couple of days ago on the proposed 21st Amendment to the Constitution. Some Government lawmakers have said that instead of bringing yet another Constitutional amendment, the Government should take immediate measures to resolve the economic crisis and provide relief to the people who have faced severe hardships. Could you explain?
A: There can’t be a one point of view among all 225 MPs on the proposed 21st Amendment. There are divergent views on it and of them a two thirds majority should agree to implement it.
Q: Do you think the proposed 21st Amendment to the Constitution would pave the way to eliminate political instability in the country?
A: There is no political instability in the country. There were instances where some former Governments continued with a majority of a single vote. If we have more than 113 MPs, what is the instability in the Government? If we don’t have the majority, we would have been defeated in the previous elections.
Q: How do you view Prime Minister Ranil Wickremesinghe’s proposal to set up a National Council to reach a common consensus among political parties to find a lasting solution to the current crisis?
A: Actually, this is not to find a solution to the crisis. The Prime Minister has proposed this National Council to properly identify this crisis by all the political party leaders represented in Parliament and reach a common consensus to get rid of it. According to the prevailing atmosphere, this is not a task which can be fulfilled by Parliament alone. If we don’t increase our foreign exchange earnings through a national consensus, it won’t be able to issue Letter of Credits (LCs) through our banks. At present, there is a shortage of fuel, gas and medicines in the country. If the LCs cannot be opened, there won’t be fuel, gas and medicines in the country. This is the ground reality. Therefore, we should safeguard the banking network and somehow increase the foreign exchange earnings flow into the country and reduce the import expenditure. In order to fulfill this task, a consensus should be reached among all political parties. Otherwise, whatever Government comes to power, this crisis would continue until 2029. Because a 10- year International Sovereign Bonds issued in 2019 would mature in 2029. Therefore, whoever takes over the Government, they will have to adopt a sound public finance management system until 2029.
Q: Do you believe the mere change of the Prime Minister and the Cabinet of Ministers would help resolve the current economic crisis and other burning issues in the country?
A: If that cannot be done, that is the most unfortunate situation faced by the country. Prime Minister Ranil Wickremesinghe has also accepted the Finance ministerial portfolio and it is a very challenging task. Due to his vast experience and connections with the international community, he is making a big effort to seek international support to get rid of this crisis as we are not in a position to sort it out internally.
Therefore, the Prime Minister is having continuous discussions with friendly countries such as India, China, America, Japan and Korea which provide us financial assistance. According to my knowledge, Prime Minister Wickremesinghe is the person who has the most capability in our country to fulfill this task. It is irrelevant to look at his past performance, we should only see whether he can get rid from this crisis.
If we are not in a position to pay back our loans, it is a crisis which goes beyond the limits of our country. If we don’t have foreign reserves to import foods and medicines, that is a crisis that prevails outside the country. It is a crisis created with regard to the country’s external economy. The Premier is making an attempt to manage the crisis. If it becomes unsuccessful, more pressure will be exerted on the people. Therefore, nothing will happen through a mere Government change.
Q: The Opposition alleges that the Government has just changed figure heads and appointed a Cabinet of its own members without forming an Interim Government to find solutions to the current crisis. Your views?
A: A Government cannot act against the Constitution. A country is governed in accordance with the Constitution and it has not mentioned anything about an Interim Government. If the protesters demand the incumbent President to step down, there are no provisions in the Constitution to send him home.
In a civilised society, when a President is elected by a public mandate, provisions are clearly mentioned in the Constitution as to how he should be removed from his position. When a Member of Parliament is also elected by the people, it is also clearly mentioned as to how he should conduct within the democratic framework. Therefore, if attempts are made to go against these accepted norms, it looks like promoting terrorism.
Q: The TNA has said that the only solution to the current political crisis is to hold a General Election and elect a new Government. Would you like to comment?
A: At present there are problems of providing fuel, news print and other facilities to the officials to conduct an election. However, we can go for an election within the stipulated time frame. However, the issue is how a new Government that comes to power could bring dollars and sort out the public finance crisis in the country?
Can we sort out this problem by making the same old statements by some politicians as they wish? First, they should tell how they are going to sort out the crisis. We bring experts from France and some other countries as we are not in a position to find a solution within the country. Whichever Government comes to power, they will have to adopt the same strategy until 2029.
If the TNA and the people join hands and work together with dedication, we will be able to find a solution to this issue. Steps should be taken to increase the production and export the surplus of the production. More emphasis should be laid on the export-oriented products to get more foreign exchange earnings. We should attract more investors while steps should be taken to turn loss-making institutions to profit making level. A massive economic reform has to be made. The Government is attempting to convince the people of the true situation and get rid from the current crisis. This Government has been elected for five years. Parliament will complete two and a half years in office after April next year. After that if the President wants, he can dissolve Parliament and go for an election.