“Government must set up a Social Safety Net” - Dr. Harsha De Silva -

• The government and the President are trying to implement a model which was rejected by the voter. So how are you going to obtain the support of the people? The government and the President have to make a lot of explanation. The issue at hand with the people is that their very survival and how to make their ends
• Sajith has evolved over time. His thinking from subsidies to reforms has evolved. He has a team comprising me, Eran and Kabir to take forward his economic, tax and monetary reforms. We continue to have serious discussions on how we progress to our goal of lessening the immense sufferings of the masses under a SJB administration in a shortest possible time
• If you are talking about the selling of the Sri Lankan Airlines with loses to the tune of billions of dollars, it has the profit making Catering Service and the Ground Handling arm. If you keep Sri Lankan Airlines which is loss making and sell off the profit making Sri Lankan Catering and Ground Handling, it does not make sense
• The people moved to the SJB from the UNP lock stock and barrel. A large number of voters did not vote in 2020.  People are extremely tired of queues, scarcities, high cost of living, collapse of law and order. They have been denied of enjoying the gift life by their rulers. The voter today wants a political party and a leader he or she can trust
• We are running a massive inflation and looking at a massive dip in growth combined with a shrinking economy. It is difficult for the government to generate revenue to make the economy run smoothly and it is difficult to pay salaries to public servants 

Former minister and Colombo District SJB Parliamentarian Dr. Harsha De Silva, one of the top economists in Parliament and also the Chairman of the Committee on Public Finance, in an interview with the Daily Mirror discussed the current economic, political and social catastrophe in the country in the aftermath of the conclusion of the talks on a staff level agreement with the IMF to obtain US$ 2.9 billion. 

EXCERPTS:

Q The IMF has laid down an extremely strict and results oriented set of conditions for the government to secure a bailout package of US$ 2.9 billion in a period of four years. As an economist and an observer of the IMF, how do you analyse this offer?

Basically we are in a grave trouble. Sri Lanka is bankrupt and unable to make our debt payments to our creditors and import what we need to keep our economy moving. We are running a massive inflation and looking at a massive dip in growth combined with a shrinking economy. It is difficult for the government to generate revenue to make the economy run smoothly and it is difficult to pay salaries to public servants. So we not only have a liquidity crisis, but a solvency crisis as well. Therefore the solutions needed to solve the fundamental problems in our economy will be like bitter medicine. On one hand we have to be able to increase our revenue and restrict our expenditure, so that budget deficit is narrowed. Then we can manage on our own. We are running a huge deficit in our external balance. This includes not just the goods alone, but services and remittances too. In that, we are facing a twin deficit problem. In order to fix it, you need to address the deficit in the budget as well as addressing the deficit in the external account.  In order to do that, we will have to completely reorient our economy with a major reform programme. What complicates matters further is that we have to agree with our creditors on some sort of restructuring of our debts. What the IMF is suggesting is ‘to give us a plan’ in order to allow us to build up some hope, have peace of mind and receive some money in order for Sri Lanka to have a sigh of relief.

Q The mission head of the IMF team, Peter Breuer categorically says that the political environment matters and a regime with a clear mandate from the people and the political and social stability are extremely vital to obtain debt relief from Sri Lanka’s creditors and additional financing from multilateral partners to ensure debt sustainability and close financing gaps. Do you think that the Ranil Wickremesinghe regime- with no clear mandate from the people- is capable of fulfilling these conditions to satisfy the IMF?

This is not about satisfying the IMF. It is about getting the people out of this mess which they have fallen into. Immaterial of the IMF, we will have to go ahead with these reforms. Otherwise this country would sink. The question is whether RW has a mandate to do this. Obviously, he does not have a mandate. Even the mandate of the government - the massive Parliamentary majority that Gotabaya Rajapaksa had in Parliament has basically vanished. Given that RW is constitutionally the legitimate president it is difficult to state whether he can convince the people who are around him and those who are keeping him afloat to undertake the kind of reforms that are prone to be very painful for the people. RW seems to have agreed to the staff level agreement with the IMF, but to implement it he needs people capable of doing it. Sadly, these people who are with him have completely opposed these reforms. They have been advocating for large public sector spending and all kinds of freebies. They have not supported the integration of Sri Lanka with the world. So the ideology of the RW government is poles apart to Ranil Wickremesinghe himself. How are they going to say that the economic model they were pursuing for decades was wrong? This is a 180 degree change. So there is going to be an ideological crash with the reforms. The issue is whether they are looking at their political future or agreeing to these reforms; while forgetting their ideology. If that is the case how long or how genuine are these attempts? I feel that the lack of people’s support for RW’s regime will be the biggest setback implementing the IMF reforms.       

                  
Q The IMF wants the government to take credible steps to restore debt sustainability from her official creditors and make a good faith effort to reach a collaborative agreement with private creditors before the IMF can provide financial support to Sri Lanka. This is a herculean task for Ranil Wickremesinghe as he has no mandate of the people. As such isn’t IMF’s bailout plan amounting to wishful thinking from a government perspective?

This is precisely my point. Yes it is a herculean task as you said. The people elected the Pohottuwa government in complete opposition to these reforms. They promised hundreds of thousands of jobs, large development projects, lower tax, huge public service etc. The people rejected and roundly defeated RW for these very reasons. So, RW’s ascension to the presidency through the SLPP is extremely a conflicting political phenomena and an uncharacteristic and unusual situation.  

The government and the President are trying to implement a model which was rejected by the voter. So how are you going to obtain the support of the people? The government and the President have to make a lot of explanation. The issue at hand with the people is that their very survival and how to make their ends meet. With the increase of taxes, inflation at 94%, skyrocketing of price of foods and services, how is the government going to convince the people about the necessity of these reforms?   

 
Q  Can you brief me about the root cause to the current economic, political and social crisis in the country and its origin?

For a long period of time we have been living beyond our means which has today turned into an economic, political and social catastrophe. But, the immediate catalyst of this mess was the massive reduction of taxes by the SLPP regime under GR which created a huge dip in state revenue and attempting to hold the currency at a level that was completely impossible and in order to do so selling down of all foreign reserves; and on top of that the attempt to become the fully organic agricultural country in the world overnight.

• We not only have a liquidity crisis, but a solvency crisis as well
• RW seems to have agreed to the staff level agreement with the IMF, but to implement it he needs people capable of doing it

Q The suffering of 22 million people of this country is unexplainable and unprecedented. Does the government simply ask the people not to live with the unending increase of prices of essential commodities and services and the utter failure to provide basic needs combined with its incompetency, misrule and corruption?

Yes, indeed. All these difficulties have been thrust upon the people by the wrong policies, incompetency, misrule and corruption of the incumbent regime as you said. During no time in recorded history have we seen prices going up like this. A large majority of the people are living under extreme poverty. They have lost their savings and the face value of the rupee by more than half. Inflation is at its highest ever. People’s wealth has been stolen. The concept of ‘Gift of Life’ has vanished for almost all Sri Lankans. Pensioners find their pension insufficient to purchase their medicine. Parents cannot give three square meals per day to their children and they cannot afford to pay for tuition classes and the school van. On top of all this we are expecting an 8% negative growth in 2022; which means job losses, further depreciation of the rupee and a dip in state revenue compelling the RW regime to resort to further restrictions on the public. Even the high income earners have been hit though they can manage the situation. But there is not a single Sri Lankan living in the country who has not been affected under the GR – RW regimes except perhaps those filthy rich of their inner circle.   

             
Q You released a research paper on the current national crisis last month titled “Out of the Debt Trap and Towards Sustainable Inclusive Development. A ten Point Common Minimum Programme for Sri Lanka’s Economic Recovery’. After a casual glance I found that most of the recommendations of this paper tally with the conditions prescribed for Sri Lanka by the IMF. Your comments?

My policy paper has nothing to do with the IMF. What I am doing is to show the way as to what we have to do to come out of this highly precarious situation and have an analysis on the crisis we have fallen into. What the IMF is doing is to assist countries with the crisis in the balance of payment and what has to be done regarding the problem. In my paper I have attempted to identify the crux of the problem and said that these are the things you have to do. It is immaterial whether the prescription is from the IMF, the government or from me. My ten point formula addresses the main issue. The government must set up a ‘Social Safety Net’ to alleviate the sufferings of vulnerable and marginalized sections of the society when reforms are implemented.

The cost reflective price for fuel becomes a total flop when the poorest sections as well as the super-rich pay the same price for fuel. The fuel subsidy must not benefit the rich. Besides, they get the biggest advantage from the dual subsidy as they use the bulk of fuel with the subsidy. 

                     
Q Are you confident that you will be in a position to carry out this programme in a future SJB government led by Mr. Sajith Premadasa which will be unchallenged by the left aligned politicians and doomsday prophets who oppose anything and everything related to economic reforms?

It does not matter whether reforms are implemented by a future SJB government or any other. If the people are going to oppose for the sake of opposing we are not going to do this. But what is the alternative. I have not seen anyone else coming up with an alternative plan to the reforms. We have come with a plan. Where is the plan by the others? Where is the plan by the left? The Solvency issue is a greater and complex structural problem. It has to be resolved with a re-structural mechanism. Structural issue is long-term and the solvency issue is short term. We must find solutions to both accordingly.     

  
Q The campaign to restructure loss making SOEs is understandable. But why does Ranil wants to sell the few profit making commercial ventures like the Sri Lanka Telecom, National Insurance Corporation and the Sri Lankan Catering etc. despite heavy protests from employees and the public?

I think we must look at SOEs not as profit-making or loss-making ventures, but how can they be run more efficiently. We have to have a clear policy. How much of SOEs are going to be there into the future? What are the priorities on the expenditure for the state? Should it be running hotels, airlines and hundreds of enterprises or should they prioritise the tax revenue on education and healthcare or clean water for the people. If you are talking about the selling of the Sri Lankan Airlines with loses to the tune of billions of dollars, it has the profit making Catering Service and the Ground Handling arm. If you keep Sri Lankan Airlines which is loss making and sell off the profit making Sri Lankan Catering and Ground Handling, it does not make sense. There are vast opportunities for Private Public Partnerships (PPP) with a gamut of options. Privatization is only one. We cannot be ad-hoc. It is not advisable to say today that ‘we will sell this and tomorrow ‘we will sell that. What is the model for SOEs for privatization, diversification or PPPs. Singapore Telecom, the Ports, Banks and Singapore Airlines etc. are major profit making ventures running under different models. The Singapore government is a shareholder at these enterprises, but they are not managed by politicians as our SOEs giving subsidies and freebies. They are run as commercial ventures with the absolute target of profit making under the Temasek Group. We have to look at these options and decide on how we go forward.

Q How can you contribute as a top economist and the chairman of the Public Finance Committee (PFC) to plug the misuse and embezzlement of public money and introduce necessary tax reforms to increase state revenue and prevent tax evasion?

Yes, as Chairman Public Finance Committee, I have a greater responsibility of checks and balances on the public account. The standing orders of Parliament clearly say that the chairman of the Public Accounts Committee must be chosen from among the opposition members. So, to ask questions and not to approve all what the government says is our job. I understand the difficulties of the RW government. But I have a responsibility to make sure that they do a sort of surgical intervention to cushion the extreme hardships of vulnerable and marginalized segments.                 
Q I would like to draw your attention to the prophetic comments made by the, CBSL Governor Dr. Nandalal Weerasinghe when he addressed lawmakers in Parliament recently that a blood bath of unprecedented proportions is  around the country and inevitable.  Do you agree?

I was also taken aback a bit at the comments he made that the next aragalaya would lead to a blood bath. The aragalaya that we saw was mainly on governance issue, democracy, rights, dictatorial decision making that caused much pain upon the people. But they were chased away finally. It is true to say that people find it difficult to make ends meet and 6.1 million people don’t have three proper meals per day. The food shortage, malnutrition and anemia among children and women and drug shortage are wide spread. Those issues must be addressed not tomorrow but today. A catastrophic disaster in the country is unavoidable. So, what he says is that we have to ensure that this does not happen.     

 
Q  In that case, for how long will the people of this country tollerate this?

In my view the churn after this type of reforms in many countries are high. Governments, Presidents, Prime Ministers, cabinet and party allegiance change out of an electoral process. People are impatient for a change as these rulers came to power pledging something completely different to what they are doing right now. 

Q Don’t you think the only remedy for this extremely precarious and dangerous situation in the country is a general election for a fresh mandate as hinted by the IMF?

I agree 100%.

Q How are the preparations of the main opposition SJB for a snap poll?

We are ready. We have concluded our ground work. We are pretty certain that we have a robust ground network across the country covering the entire electorate on grassroots level representing the youth, women, public, private and estate sector voter base, the professionals, all the religions and ethnic groups and so on. 

Q  It was quite an achievement when the SJB won 54 seats in Parliament as a political infant at the August 2020 General Election having launched only in February 2020. As once said by Mr. Lakshman Kiriella the only ‘Manthra’ to win the second largest number of seats at the polls was ‘Sajith’ while the UNP was totally annihilated and SLPP had a landslide at the Presidential poll held in November 2019. Your comments?

Because of the pandemic and the ground situation existed prior to the August 2020 general election, a proper election campaign was unthinkable for the SJB. So, we are very satisfied with the results gained in such a short period of time under severe constraints. The people moved to the SJB from the UNP lock stock and barrel. A large number of voters did not vote in 2020. People are extremely tired of queues, scarcities, high cost of living, collapse of law and order. They have been denied of enjoying the gift life by their rulers. The voter today wants a political party and a leader he or she can trust and to get them out of the current socio-economic mess. The SJB has the capability and strength to fulfill these aspirations of all Sri Lankans. We have a leader and a team the people respect and enjoy their confidence. Mr. Premadasa draws huge ground support where ever he goes.     

     
Q How do you assess SJB’s chances of winning the forthcoming parliamentary polls comprehensively to form a government with an absolute majority under Sajith’s leadership?

The SJB’s victory at forthcoming elections is rest assured. I am not going to act a Gnanakka to predict the number of seats for the SJB, but our party will be the major player at the polls to bring  like-minded people together. You can’t lie to the people any longer. You have to explain and get them on the same page.   Sajith has evolved over time. His thinking from subsidies to reforms has evolved. He has a team comprising me, Eran and Kabir to take forward his economic, tax and monetary reforms. We continue to have serious discussions on how we progress to our goal of lessening the immense sufferings of the masses under a SJB administration in a shortest possible time. We are for a market liberalism which means an efficient market, competition and political liberalism combined with social justice and equity. We have to create wealth, grow the economy and create jobs. Not handouts and freebies. Our government will create opportunities for jobs and self-employment to get a good salary or income as the case may be. We must expand the industrial sector to produce goods not only for the domestic market but for the global market as well. To achieve this, value addition, new technology and a higher productivity level are the key to penetrate the foreign markets for Sri Lanka made products.