18 December 2014 07:58 pm Views - 5255
JHU General Secretary and former Minister Patali Champika Ranawaka, in a candid interview with explained the true picture behind the fast-paced economic growth claimed to have been achieved by the Government, the dangers of embarking on mega-development projects and on how the poor are footing the bills for the rich to keep up their exorbitant lifestyles . . .
By Lakna Paranamanna
When did you start writing this book and what prompted you to author it?
I have been interested in economics for the past few years and have been studying it through a green angle - particularly on how to develop and sustain a green economy. During the time I held the portfolio of Science and Technology, I became fascinated with the third wave of the industrial revolution that came about after the innovation of transistors in the 60s. It gave birth to a new phase driven by innovation technology and knowledge-based economies. This stirred my interest to deeply study the economic conditions of Sri Lanka and the world. This book is a result of that analysis and the comparisons I have done on Sri Lanka against the rest of the world.
This book is only 55 pages but I am planning to author a bigger book with 300 pages focused on innovation, knowledge based economy and the economic conditions of Sri Lanka. My aim was to highlight and break the illusions that have been created by the Central Bank and the Finance Ministry regarding the domestic economy. I wanted to reveal the contradictions and inconsistencies of the indices as well as reveal the mis-informations of these claims.
Sri Lanka’s post-war economy has been heavily reliant on borrowings. Wasn’t this crisis foreseen? Did you warn the Government at any point?
I warned the President several times on the dangers of these mega development projects. I pin-pointed three key issues that need to be addressed. Since 2011, I voiced my concern through letters, discussions and even during several economic council meetings, but they were all limited to mere discussions.
The first issue I identified was the lack of prioritisation. Today, I believe top priority should be given to improving the productivity of the oil-refinery - on fixing a hydro-cracker and expanding the refinery. Presently, it produces only 38 barrels of fuel out of 100 barrels of crude oil and only 20% of the petrol and diesel consumption of the country. The consumers are bearing the costs of the losses being incurred due to the failure to implement these measures. Moreover, discoveries were made on oil and gas deposits in the sea way back in 2006, but until now, no measures have been taken to extract the resources.
There is also a vital need to diversify the power sector and also focus on water conservation and food security. The projects that have been initiated to conserve water are an absolute mockery. We will suffer the repercussions of this lackadaisical planning in the near future since the country is heading towards a water stress.
There is also no impact assessment carried out on any of these mega development projects. It is customary to calculate the economic net percent value of every development project prior to embarking on it, but no such checking is done. Deal-makers woo those in power and win the projects, and the unplanned development is allowed to continue. There is also no checking into the standards of the constructions. For example, an expressway should last for at least 80 years since its construction and a power plant should run without major breakdowns for at least 35 years. But we constantly see the expressways being mended here and there and I have personal experience of the constant breakdowns in the Norochcholai power plant.
In this book ‘the doom-boom economy’ you have spoken of the large-scale financial misappropriations carried out through these mega development deals. Could you please shed some light on it?
Whenever there is talk of corruption, some tend to justify it by stating that such issues were prevalent since the reign of the kings and even during the tenures of recent Prime Ministers and Presidents. But the inflated costs fixed on every development project by the incumbent regime is appalling because they have been over-estimated up to 2000% in comparison to their benchmark costs. For example, in the construction of the Katunayake expressway, the cost has been over-estimated up to 505% and the cost of the Kadawatha-Kerawalapitiya road had been inflated by 2062%. The construction of the Matara-Beliatta railway line had been inflated by 2086%.
These exhorbitant costs could have been justified at least to a certain extent, if the country benefited through its multi-player effects. Unfortunately, the projects neither involve local produce nor local workforce. So there is no contribution to the economy during its construction phase.
Afterwards, who bears the responsibility of their debt servicing? Today, 90-92% of the state revenue is generated through taxes and 80% of that amount are broad-based taxes paid by the common man/woman. When David Ricardo introduced the concept of taxation, it was to bridge the gap between the rich and the poor. But in Sri Lanka, it is the poor that are being heavily taxed; Rs. 52 off a litre of petrol, Rs. 17 off a litre of diesel, Rs. 135 off milk powder etc. is ripped off them to maintain the lavish lifestyles of the rich.
The Government claims to invest the tax revenues in invigorating domestic production but instead, the public funds are being allocated to settle the debt services of development projects such as the expressways. Ultimately, the majority of those who pay for this debt servicing - those who travel on motorbikes or trishaws - cannot even use these expressways.
Then there are the high-end boutiques that have mushroomed in Colombo that sell branded items. Can the common man afford to purchase these designer products? Can they afford to eat hoppers priced at Rs. 200 each? This is a grave social injustice. This plundering is done on a national level and it has worsened to the point that it has led to the collapse of the country’s economy.
But the government claims to have reduced the public debt from 105% in 2002 up to 74% last year and has set goals to reduce it further?
In the years 2012, 2013, and 2014 the Government’s true revenue has been less than the installment and interest component of the country. Moreover, the revenue figures presented by the Government are completely misleading. Earlier this year, they stated in Parliament that the state revenue would be Rs. 1426 billion in 2014 but it eventually dropped by 24%, reaching a total of only Rs. 1100 billion.
The state expenses increase constantly as various financial benefits are awarded to the masses at every election. Today, the Government cannot afford to run the country once the debt payments are settled – in order to maintain state institutions, pay public servants and fund welfare schemes, the Government has started borrowing off banks at a 6.8% interest rate. Who is to bear the burden of these loans?
The claims of state debt reduction are only a numerical gimmick staged by the Government. By changing the standards/ regulations governing financial management aspects of state institutions, they have managed to branch out and replace the debt in other state establishments. For example, debts of certain state institutions that were earlier managed by the External Resources Department have now been transferred to the relevant institutions such as the Ceylon Electricity Board, the Ceylon Petroleum Corporation, the Water Board etc. As a result those establishments are in severe debt.
The Petroleum Corporation records for 2013 indicate debts as high as Rs. 421 billion but those figures are not included in the budget. A sum of Rs. 227 billion of that debt has to be paid to the Bank of Ceylon and a total of Rs. 18 billion has been paid to the BoC as interest alone. In 2013, the profit of the BoC was Rs. 15 billion – so the bank is being completely run by CPC money. Similarly, the People’s Bank’s profit for 2013 was Rs. 7 billion and it was the very amount paid to the bank as interest by the CEB. In turn, these state banks have taken foreign borrowings heavily; they have borrowed as follows - People’s Bank 1500 million USD, BoC Rs. 500 million USD; the National Savings Bank has borrowed Rs. 1000 million etc.
These figures are not absorbed into public debt. But the burden of the debt service is borne by the common man/woman who bears the brunt of the ruinous development that the Government has launched.
For example, the construction cost of the Kottawa-Pinnaduwa expressway was inflated by 300%. The debt service for this 96 km is close to Rs. 6500 million. But the revenue off the expressway is only Rs. 1000 million. As a result, the common man has to pay the rest of the Rs. 5500 million. The Government has made plans to construct 383 km of expressways and their debt services will be settled similarly. This means that the cost of debt servicing that the common man has been forced to bear will increase by ten-fold in the coming months.
A similar gimmick has been carried out with regard to the Hambantota port where a debt service worth Rs. 31 million USD has to be paid annually. The number of ships that arrive in the local ports has reduced from 4136 to 3976 since the construction of the Hambantota port. The Ports Authority today incurs a loss of Rs. 1500 million and this will only worsen. The Colombo Port has been given away to the Chinese and now Hambantota has been given to them as well. This Government keeps talking of foreign interferences, but it is this unaffordable development that would systematically push Sri Lanka into being ruled by a foreign force.
Another example is the Mattala Airport where it cost 210 million USD for the constructions. Its operational loss alone for the past year is Rs. 2750 million and it will increase upto Rs. 4000 million inclusive of debt servicing. When aircrafts arriving in Colombo touch down in Mattala, it’s an added expense. Presently the Sri Lankan Airlines incurs a loss of Rs. 28 billion annually. So who will pay the increasing costs of the debt servicing of this project?
But what about the claims being made by the Government on reducing poverty rates and unemployment?
The Government claims to have reduced the unemployment rate upto 4.4%. But this is not a feat achieved by their skills or policies! Unemployment is low because 23% of Sri Lanka’s labour force has migrated.
There are two major issues with regard to unemployment in the country. Some 13% of those who have passed their A/Ls are unemployed while only 12% among those with O/L qualifications remain unemployed. So the higher the qualification, the less job opportunities there are. Some 20% of those aged between 20 - 24 are unemployed and this is a major cause of resentment among youth.
The Government has also claimed of having controlled the inflation. But if it was truly controlled, the cost of living should have decreased. Instead the child and maternal malnutrition has remained at a continuous 20% over the years. Based on the figures released by the Statistics Department, I analysed the real income of a family. Within the period of 2006 - 2012 the real income of a family have increased only by 3% while the expenditure of each family has increased by 7%. Meanwhile the savings of a family has decreased by 27% - so it is obvious that these claims are blatant lies spewed by the Government.
As for the poverty levels, it is a great achievement to have been able to reduce it upto 6.4% but the Statistics Department itself states that the levels would increase upto 8.3% if the pension is not paid. Take Moneragala as an example, where the Government boasts of having carried out large-scale development. The poverty level that was at 12% in 2006 has increased to 20% by 2012. It indicates that these achievements are not sustainable and would collapse even for the slightest shock that might come in the form of an environmental disaster, economic crisis etc.
Sri Lanka is also facing the scarcity of a labour force. We achieved a demographic dividend in 1992 but we have not reaped its benefits. Within a few years, the ageing population of Sri Lanka will increase, which means the number of dependents will rise. What plans have been made by the Government to address this issue? What about the impacts of climate change? The economy is supposed to contract by 6% due to impacts of climate change. What are the plans to grapple these issues? This is why I call this a boom-doom economy - development projects are being carried out according to their whims and fancies, funds are wasted with absolutely no long-term benefits.
Sri Lanka has announced plans to reach the upper-middle income level by 2016. How will this be possible if the economy is steeped in such issues?
If we are to consider the World Bank definition of a middle-income status where the income per capita is 1060 – 12,060 USD, Sri Lanka reached the middle-income territory in 1998. But it is important to escape the middle-income trap and in order to achieve it, the country should record an economic growth at a continuous 4.7%. This has to be achieved sans inflation and rupee devaluation but in Sri Lanka the rupee devaluation is already 8%.
The truth is, as a country we have no plan to overcome the middle-income trip. All these claims are just a game they play with figures. Inflated costs are fixed on to development projects which are then calculated into the GDP which increases and it is then divided by the population, which would indicate an increase in the income. But this is not the real value. These is a psuedo-development and a mis-information campaign. There is no real change.
A true economic development has to also go hand-in hand with social stability. In Sri Lanka, the economic disparity has further deepened and the gini co-efficient has not changed for the past 15 years. As the gap between the rich and the poor widens, the frustration among the masses increases. The more these people see these high-end boutiques and million dollar cars on the road, the more resentment it brews among the masses.
Capital alone is not enough for a country to run smoothly - social capital is vital and this can only be achieved through legitimacy. If there is no good governance, if people live in fear and there is no level playing field when it comes to economic opportunities, there will be no social capital. The reason for the present situation in Sri Lanka is due to the decision-making process being handed over to a set of white-collar criminals.
What would be the end result if the present economic crisis is allowed to continue?
The country will be bankrupt and the Government would be compelled to resort to debt equity when it starts defaulting on the debt. Then the transactions of settling the debt will be made through real estate, the way Colombo and Hambantota ports have been given to China. The south of the country will be given away to China and the North to India.
The other grave danger lies with the US’ major involvement in the sustenance of the domestic economy as its largest investor in the stock market and the treasury bills. US individuals have invested finances worth six billion USD in the local economy. There will be no economy left to manage if they decide to pull this money out tomorrow. A case in point is the recent Argentinian debt crisis when it refused to pay 1.5 billion USD owed to US hedge funds. Argentina, being a country with large oil reserves and a massive economy could not withstand its impact. It is not a TNA conspiracy nor Sison who led Sri Lanka to this plight where the most strategic points were served on a platter to the US, making the country extremely vulnerable. It is the work of the very individuals of the Rajapaksa regime who manage the economy.
Who should be held responsible for this crisis?
Chiefly, it would be the President. He cannot wash his hands off this matter because he is the Minister of Finance and even the other state institutions are being controlled by his henchmen. Therefore, it is his brothers and him who should bear the responsibility of this situation.