From left: Jonathan Alles, Nishan de Mel, Dhananath Fernando, Dr. Anila Bandaranaike and Murtaza Jafferjee PIX BY NISAL BADUGE

The Sri Lanka-Korea Business Council this week hosted a prolific panel discussion under the theme ‘Sri Lanka’s Future: Forecast, Scenarios and Challenges’, which delved into pressing topics concerning the country. 

The objective was to raise awareness about the critical issues within the economic and socioeconomic spheres of the country. 

The panel was addressed by Advocata Institute Chairman Murtaza Jafferjee, Verite Research Executive Director Dr. Nishal de Mel, Senior Economist and former Central Bank Assistant Governor Dr. Anila Dias Bandaranaike and Hatton National Bank Managing Director and CEO Jonathan Alles.

‘‘Do businesses really expect employees to live in poverty?” -Senior Economist and former Central Bank Assistant Governor Dr. Anila Dias Bandaranaike

The session was moderated by Advocata Institute CEO Dhananath Fernando.

Following are the excerpts from the panel discussion.

If we were to continue with the status quo, even with improved fiscal management and governance reforms, there would still be a significant social impact, particularly on the women and labour force. While the politicians may unite and implement some reforms, more needs to be done, especially on the labour front. What are your thoughts on this and what would you recommend?

Dr. Bandaranaike: I actually think the elephant in the room are the labour market dynamics and linked to that is actually the stagnation of the formal private sector, to which all of you belong. To meet the future commitments, the economy has to grow and it has to grow with stability but it can’t go without the workers and current scenario.
We have a labour force participation rate of below 50 percent, where only one in every three women joins the labour force. And actually, it is not worth the women joining, when their salaries can’t even support their child and elderly care expenses. 

Over 200,000 to 300,000 leave each year for migrant employment and every business complains of employee shortages but for the last so many years, only 30 percent of our employees and labour force have jobs in the formal private sector companies. So, why is the formal private sector stagnant and does not expand? And for me, I’ve identified three key reasons. First, study archaic regulation, completely outdated labour laws.

Second, according to the long overdue wage reports, as an example, the national minimum wage in this country, officially was raised by Rs.5000 to Rs.17,500 a month. But since 2022, we have something called an official poverty line. The monthly income to just be at the poverty line for a family of four is Rs.60,000. So, if a family of four has one earner, that man or woman has to earn Rs.60,000 a month to be at the poverty line. If you are lucky enough to have two wage earners, the minimum wage should be Rs.30,000, just to get to the basic needs.
I mean, what more can I say? The laws and regulations have to reflect the 21st century, not the dark ages. 
Then there is the bloated public sector. We have one and a half million employees – 15 percent of our labour force, in 1300 institutions. As an example, there are 90 government institutions supporting agriculture and we know how badly that sector is doing. The government has to rationalise its workforce. 

The third factor: so, we have archaic regulation; we have a bloated public sector. And finally, the unrealistic low formal private sector wages. Among the listed businesses and in other sectors, the starting salaries for youngsters with degrees and now after raising the wages, it is between Rs.30,000 and Rs.40,000 a month. 

This is the scale after the recent wage increases. In 2022-2023, the salaries ranged from Rs.15,000 to Rs.25,000. Do businesses really expect employees to live in poverty? It’s no wonder they prefer jobs abroad in greener pastures. Wages have to be linked to productivity and businesses have to watch the bottom line. I accept but they really must pay decent wages to employees.

‘‘Abolish the executive presidency. It is designed for Lee Kuan Yew” -Advocata Institute Chairman Murtaza Jafferjee

The Employers’ Federation, work organisations, unions, basically, you can’t give all this burden to the government. We can see how ‘efficient’ the governments are. Sit together, chat, focus on productivity. Lobby hard and whichever government comes in, update these. 

You know you circumvent outdated laws that no longer serve the current economic landscape. It’s better to prioritise revising these laws, making it a win-win situation. I also recommend that professional private sector institutions lobby hard for government downsizing.

Dr. De Mel: One of the things that is keeping women from the workforce is actually discriminatory hiring and this is seen in the surveys done by the Census and Statistics Department because it’s more costly to hire a woman than a man. You have to pay four months of maternity leave every time there is a child in the family. Now what is fascinating is, there are 159 countries in the world that don’t make the company pay maternity leave. 

The ILO convention says, in no event shall we put the burden of maternity leave on the employer because it’s well understood that when you do that, you will incentivise the employer to hire a man rather than a woman for the same job. 

There are plenty of research studies that show where there’s high discrimination, like in Sri Lanka. The labour force participation can increase by at least 10 percent for women when the state takes on the cost of maternity benefits. And we’ve done the calculation. If it’s a small cost, it used to be Rs.3 or 4 billion; it went up to Rs.6 billion. It’s still under Rs.7 billion. It is peanuts compared to what they spend on other social welfare. 

‘‘If you want to have any hope of the IMF programme working, if you want to have any hope of development taking place, keep therefore the private sector to perform the final part” -Hatton National Bank Managing Director and CEO Jonathan Alles

But interesting is, this was in a budget. I think now I see it in the Ceylon Chambers recommendations to the government. But you know, there are not enough women perhaps in the private sector leadership to ask for something so simple and obvious that most of the world does, which costs so little, which is, by not doing, very violation of an international agreement that we have signed up for over 30 years. Which is that the state pays the maternity leave benefits or you have a general taxation that does that. It’s a small amount of money but it fundamentally changes the dynamic with regard to hiring women and increasing opportunity. 

Second, we did a research study on the cost of women going to work. What we found is, as I said, the care economy, the cost of child and elderly care, cost of outsourcing or the difficulty of outsourcing is so high that women find it better to stay at home than go to work and earn what they do. 

And of course, other countries overcome it in multiple ways. But there is an opportunity here. I won’t go into details. To build care facilities, this is an entrepreneurship opportunity. If you can build credible care facilities for child and elderly care, there’s a huge business case. And actually, working globally now with other countries to see how we can, you know, take the care economy out of the home, into the community, into the market and also some elements of government provision and support for the care economy. 

‘‘The labour force participation can increase by at least 10 percent for women when the state takes on the cost of maternity benefits” -Verite Research Executive Director Dr. Nishal de Mel

So, if we can get the care economy going in the marketplace and even the state can pay for maternity leave, these are two ways I think, that very, very, very concretely create a huge opportunity to release the ability for women to be more productively engaged.

How do you see the banking sector? Because in the first debt restructuring, it was more towards the superannuation funds. Of course, we are yet to see some of the impacts on the banking sector. If it’s the case, if it’s a scenario of a secondary restructuring, what would be the case of the banking sector? What reforms can we do in the meantime to avoid the impact of minimising.

Alles: We were not happy the first time around as well as the banking sector, the opportunity that there was to look at the high interest rated T-bills, T-bonds, etc. Where the bankers were coming from was that it’s a primary instrument, as it’s a regulatory instrument, where it actually invests in bills and bonds, whether it’s rupees or dollars, mainly as an LAR component. Now LAR is not there in the new Banking Act. So, it’s more the LCR. It’s done for that purpose. If we were given a choice, it’s not as if that’s the first instrument that we would want to invest in. 

So, now that we are actually aware of the possibilities, I mean, to be fair, three years, five years down the road, we never looked at the dollar bond. We never looked at, you know, International Sovereign Bonds, etc., except when the NRFC, when the expatriate remittances were picking up. There were very little dollar disbursement opportunities. The SLDBs were sort of drying up and at that time, there weren’t other instruments that met the LAR requirement that prevailed at that stage. 

And there was a blessing all around to actually invest in sovereign bonds. But now, if you say that this is at risk and you know, everybody might need to participate in further haircuts, which the first time around, maybe we got away unscaled in terms of a haircut. 

But there was an NPV in terms of the reschedule of the new bonds that were issued at the longer tenure and at the lower rate. We all had to take a hit on P&L for what was the new bonds that were issued. We need to look at new instruments and then the SLBA and CEOs will need to have discussions at an early stage now, with the Central Bank and others saying, look it’s not as if we are evaluating and investing, we have got to meet the component that you know. You’ve got to mandatory do this. Given a choice, we would want to invest it in; we would want to start giving the loans. We would like to evaluate credit for the customers and give loans to them. 

Now, would you give a loan to somebody if you know that there’s a potential for it to be defaulted a year down the road and is this what we’re actually talking of now? If you say no, you’ve got to meet requirements; you’ve got to sort of invest in your bills and bonds but you also have a chance of losing 30 percent of it. Why do you have to do that? 

Let’s look at alternative products that actually then make the necessary NFSR, SFR and the LCR requirements for banks. It would not be fair to knowingly invest shareholder funds and depositors’ funds at the end. Just remember, at the end of the day, all those international funds and creditors gave money after evaluating the credits. 

Now ours is basically depositors’ funds that are putting here. The contra entry of every haircut that you perceive of a bank, let’s say Treasury bill or one has, that is a customer deposit. A small part of it is the shareholder funds. 
Yeah, so what is the requirement? What needs to be done? The three areas that I broadly look at are basically already mentioned. Small government, it was mentioned there is no capacity, no capability, to run. So, then, why spread your tentacle? So, why doing things that you cannot do other than for the pure interest of greed, corruption and wanting to make money everywhere you put your fingers in, right? So, basically, be as small as possible and only play the role that you’re supposed to play, right? 

Diversify away the things that you are not supposed to, which you don’t have the capability and grow the private sector with that; divest the staff, excess staff that you have into those areas. You can actually encourage the private sector to, you know, absorb some of these. You know, staff, wasteful expenditure. Get rid of the unnecessary tamashas. Bring in the frameworks, governance on corruption as well as bribery and put a stop to it.
And in terms of economic development, which is key in terms of whether it’s exports, manufacturing, whether it’s health, education, housing, tourism, digitalising for transparency, IT services driving SME, driving microfinance and entrepreneurship and the government creates the framework for all this to be done in order, basically, is that you need to sort of look at the banking sector very closely, because at the end of the day, I mean, we are trying to save every single dollar for the country and I see where everybody is coming from. But what are we saying? How did we get in here? It’s because the country couldn’t do anything for the last half a century and we are trying to save money back for them to do the same thing. You give them US $ 1 and think they will use it for the betterment of the country? It will go to their pockets again, right? So, we leave it with the people who can do something for the country. 

And the only thing we do morning and night is, if you want to have any hope of the IMF programme working, if you want to have any hope of development taking place, keep therefore the private sector to perform the final part.
In case we have got to face another scenario, I would say hopefully we don’t have to, the financial sector must strongly empower them to drive this economy along with the other sectors and make it happen for Sri Lanka and for the people of Sri Lanka.

You are working with the SOERU and I am unsure if the bids have geopolitical influence or not. What is your solution in navigating between China, India and the Quad? 

Jafferjee: We have to frame it to our economic challenge, which is, we have to grow. So, in order to grow, we have to grow by increasing productivity. The most important driver of productivity improvement is commercial. So, whatever we do, it has to be framed in the context of how we increase competition in the economy. Now, if geopolitics dictates that there are external powers who want to do, discuss it, let them come on a competitive basis. 

We can’t give unsolicited things. I don’t believe it is government-to-government. It’s all nonsensical. Now, I have said this before and I want to say this again. I’m in the renewable energy sector. So, I have some understanding. When you bid out power projects on a competitive basis, the prices have come down 40 percent. 

I started engineering. I pivoted to economics, the second use of my life. Both are studies of constraint optimisation. If you want to do any kind of projects, if you have scarce resources, if you’re constrained, you have to really be innovative and create how to do more with less. So, in the case of this wind power tender, which I have spoken about, we are trying to avoid tenders at 8.2 cents for people who are doing similar projects in India, at 3.36 cents. So, how can geopolitics dictate the energy security and energy affordability.

You mentioned the option of revising the debt sustainability analysis. How practical is it? And all candidates mainly had said that either they are going to bring some amendments to the IMF agreement or stick with it. How practical it is with the political environment?

Dr. De Mel: So, I think, you know, if there is an agreement on the debt restructuring and tomorrow, the official creditors agree with the private creditors, we have to close it.

This train has travelled too fast. There is a small risk that we will not get the agreement. The official creditors could really reject the private creditors’ offer. And if that happens, you get into another cycle. I think, if you do, don’t see that as a disaster; see it as an opportunity. If you don’t, accept it and then work to have better targets than the IMF is giving you. If you don’t fix the government, you can’t fix it.

I think if we imagine that we’re going to fix this thing without fixing the government and political leadership, not to act in a way for the interests of the few rather than the many, it may be quite hard to get there. You know, maybe ignoring the main constraints or constraint optimisation. But here’s a constraint; you’ve really got to reduce this constraint, right? The constraint is too much. We need a far better ability and commitment in the government. Not the poor man, not the businessman. 

If you have a single advice for the presidential candidates, what would it be?

Alles: Have a policy and implement it strictly. Have a policy that is a statement of intent of anybody who wants to be part of them, about honesty, integrity and a culture of no corruption.

Dr. Bandaranaike: Look at the labour laws, labour regulations and wage system and see what can be done to make the women join the labour force.

The presidential candidates say they all agree on one single thing. What is the one thing they should agree on?

Jafferjee: Abolish the executive presidency. It is designed for Lee Kuan Yew.

You have been quite vocal about governance and let’s imagine you’re running an advertising agency and you are given the task to write the payoff line on the governance reform that all presidential candidates have to follow.

Dr. De Mel: Independent corruption prosecutors as independent as our Central Bank.