Sri Lanka: Questionable Honors

Parliament should investigate how the Committee on Public Accounts (COPA) recently recognized the Finance Ministry, despite its involvement in the 2019 tax cut without parliamentary approval, the 2020 sugar duty scam, and negligence leading to economic collapse, awarding them the Silver prize for those years, prompting questions about the appropriateness of the honor during challenging times for the country's people.

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Dr. Nandalal Weerasinghe appearing before the Committee on Public Enterprises (COPE) in late May 2022. Secretary to the Treasury Mahinda Siriwardena is next to him (pic courtesy Parliament)

Pivithuru Hela Urumaya (PHU) leader and former Minister Udaya Gammanpila, MP, on Nov 16, 2023, said that the first warning of the impending economic crisis had been given by a section of the ruling Sri Lanka Podujana Peremuna (SLPP) in 2020.

The declaration was made in Parliament two days after the Supreme Court determined that ex-President Gotabaya Rajapaksa and former Finance Ministers Mahinda Rajapaksa (Nov 2019-June 2021) and Basil Rajapaksa (June 2021-April 2022), Treasury Secretary S.R. Atygalle (Nov 2019-April 2022) and ex-Governors of the Central Bank Prof. W.D. Lakshman (Nov 2019-Sept 2021) and Ajith Nivard Cabraal (Sept 2021-April 2022) bore responsibility for the current economic crisis. That determination was made in respect of several fundamental rights applications.

In addition to the above-mentioned politicians and officials, they found fault with Dr. P.B. Jayasundera, Secretary to the President, and the Monetary Board consisting of five persons. At the time of the crisis, the Monetary Board consisted of Governor CB Prof. W.D. Lakshman/Ajith Nivard Cabraal (ex-officio), Treasury Secretary S.R. Attygalle (ex-officio) and Samantha Kumarasinghe, Dr. Ranee Jayamaha and Sanjeeva Jayawardena, PC.

The SC, in a historic ruling, determined they violated the fundamental rights of the people by mismanaging the economy between 2019 and 2022.

Chief Justice Jayantha Jayasuriya, PC, Justices Buwaneka Aluwihare, PC, Priyantha Jayawardena, PC, Vijith K. Malalgoda, PC, and Murdu N.B. Fernando, PC comprised the bench. Justice Jayawardena disagreed.

But the judgement has exonerated ex-Central Banker Dr. Rani Jayamaha and senior Attorney-at-Law Sanjeeva Jayawardena from any penalty. Why did Dr. Jayamaha and Jayawardena not resign if they disagreed with those wrong policies?

Four days after the SC declaration, the Central Bank, in a statement headlined ‘COMPOSITION OF THE GOVERNING BOARD (GB) AND THE MONETARY POLICY BOARD OF THE CENTRAL BANK OF SRI LANKA’ stressed that Dr. Jayamaha and Jayawardena were no longer members of the Governing Board of CBSL appointed in terms of the provisions of the Central Bank of Sri Lanka (CBSL) Act, No. 16 of 2023. The new Act was passed on July 20, 2023. Dr. Ranee Jayamaha who had been a member of the Monetary Board (MB) since 29.07.2020, tendered her resignation from the MB with effect from 12.09.2023, and, therefore, was not a member of the GB. Jayawardena, who continued as a member of the GB, tendered his resignation with effect from 05.11.2023. Therefore, both Dr. Jayamaha and Jayawardena submitted their resignations before the Supreme Court made its final judgment.

Against the backdrop of the SC ruling, the role and the collective responsibility of the Cabinet-of-Ministers regarding the economic collapse should be thoroughly examined. Every member of the then Cabinet, including Attorney-at-Law Gammanpila, therefore bear the responsibility for the current crisis. the Members of the Monetary Board, too, should bear the collective responsibility.

In spite of the five-judge bench being divided 4 to 1 in favour of the decision, it is undoubtedly the most important judgment delivered since the enactment of the 1978 Constitution.

Many an eyebrow was raised when Namal Rajapakse, MP, addressing Parliament on Nov 20 questioned the right of the petitioners to challenge government policy in court. The former minister asserted that such was contrary to the Constitution.

Addressing the Parliament on Nov 16, on the third day of the Budget debate, Colombo District lawmaker Gammanpila said: “We warned in advance of the impending crisis. I’m happy, Dr. Ramesh Pathirana, who served as a member of the then Cabinet, is here. We sought a meeting with the then President Gotabaya Rajapaksa to discuss the deteriorating economic situation. Having repeatedly asked for a meeting we were finally granted an opportunity on Oct. 26, 2020. Dr. P.B.J, Treasury Secretary, Central Bank Governor and the then State Finance Minister Ajith Nivad Cabraal were among those present. The State Minister made the main presentation. We asked them to immediately decide on IMF intervention. All of us were of the view the country required IMF assistance to overcome the crisis. At that time Bangladesh experiencing a similar situation had taken steps to restructure their debt in addition to take a loan facility from the IMF. We stressed the need to restructure our debt. We proposed to seek IMF assistance. They didn’t pay attention to our request. Instead, we were told of them having a domestic solution.”

PHU leader Gammanpila explained how the government turned a blind eye to their repeated efforts to persuade the GR government to control fuel consumption by increasing prices or to introduce a quota system. Lawmaker Gammanpila recalled the SLPP attack on him after he declared on June 11, 2021 the immediate need to increase fuel prices due to the volatile economic situation. “Finally, a marginal increase of Rs. 7 and Rs 20 for a litre of diesel and petrol, respectively, was effected. The SLPP attacked me over the fuel increase even before the Opposition did.”

The SLPP owed the public an explanation why repeated warnings were ignored. Who actually convinced the Cabinet-of-Ministers of an impractical domestic solution? The bone of contention is whether someone deliberately thwarted counter measures, if taken, could have saved the country.

A callous approach

In spite of rapid deterioration of the economy, the Finance Ministry acted in a manner most unbecoming of one of the two most important ministries, the other being the Defence. Amidst the economic crisis triggered by the Corona epidemic, the Finance Ministry callously decided to issue duty free vehicle permits to 225 MPs of Parliament. That move went awry after print, electronic and social media mercilessly hammered the government.

Then the Finance Ministry shocked the country by slashing the Special Commodity Levy (SCL) on imported sugar. Special gazette notification, dated Oct 13, 2020, brought SCL on imported sugar from Rs 50 to 25 cents a kilo. The then Premier Mahinda Rajapaksa served as the Finance Minister while S.R. Attygalle functioned as the Secretary to the Treasury.

In August 2023, United Republican Front (URF) leader Patali Champika Ranawaka alleged that in spite of both the Committee on Public Finance and the Committee on Public Accounts recommendation that the government take measures to recover losses amounting to Rs 16 bn, the Wickremesinghe-Rajapaksa government is yet to do so.

By then, the Gotabaya Rajapaksa government has caused irreparable damage to the economy by slashing a slew of taxes. That ill-fated decision taken at the first meeting of the Cabinet-of-Ministers, chaired by President Gotabaya Rajapaksa in Nov 2019, marked the beginning of the end. Who actually convinced the wartime Defence Secretary who courageously spearheaded the war effort, that was brought to a successful conclusion in May 2009, to gamble on economic-political-social stability?

In April 2021, amidst further deterioration on the economic front, Dr. PBJ declared his confidence in the overall strategy.

ECONOMYNEXT, in an online report posted on April 04, 2021, quoted Dr. Jayasundera as having said: “President Gotabaya Rajapaksa knew revenue will be lost by tax cuts but he considered it an investment, and an 8 percent tax rate slashed from 15 percent, will remain unchanged for 5 years.”

The report was headlined ‘Sri Lanka President knew revenues will be lost, VAT cut to remain for 5 years: Jayasundera’

ECONOMYNEXT further quoted Dr. Jayasundera as having told Colombo Development Forum in April, 2021: “The President promised this nation a new taxation strategy. He knew the revenue will be lost but he considers that lost revenue as an investment in the country. Therefore, outdated archaic taxes have been given up. Single rate VAT has been introduced. New corporate structure has been introduced.”

Jayasundera is also on record as having said the value added tax cut from 15 to 8 percent will stay for another 5 years and income taxes will not be changed, but the deficit will be brought down to percent in the medium term with economic growth.

“We are assuring the tax regime that what we have instituted will not change. For the next 5 years VAT is 8 percent. Income tax is whatever the rate we have gazetted. No other taxes will be brought in. Custom base taxes will be rationalized. We need much more efficient, transparent, compliance, friendly, tax regime and that is given. If you want to raise the turnover, raise the volume, raise the GDP. That is what this is all about. The Treasury Secretary is not allowed to make any changes in taxes.”

What really went wrong? Dr. PBJ. is certainly not a novice and certainly one of the most capable and experienced people having been a veteran Central Banker who had been seconded to the Treasury from as far back as during Finance Minister Ronnie de Mel’s time and retained by virtually all governments up to the last regime in various capacities. He managed the economy as the Treasury Secretary during the costly fourth phase of the Eelam conflict at a time Western powers sought to undermine the economy in a bid to throw a lifeline to the sinking Tigers.

CBSL Chief sets the record straight

Those who carefully listened to the Governor of the Central Bank Dr. Nandalal Weerasinghe when he appeared before parliamentary watchdogs, namely Committee on Public Finance and Committee on Public Enterprises on May 24, and May 25, 2022, respectively, and his unparalleled attack on the political party system, also in Parliament, on August 31, 2022, clearly explained the circumstances leading to the current crisis. The August 31, 2022 speech must have been the strongest delivered by an official at any level in Parliament since independence (Change catastrophic strategies or face consequences – CB warns Parliament, The Island, Sept 07, 2022)

Unfortunately, political parties, represented in Parliament, and the media, didn’t pay sufficient attention to Dr. Weerasinghe’s views. Having perused the SC ruling on the economic collapse, the writer is of the view the SC judgment has justified the CBSL Governor’s declarations in Parliament over a year ago. The Island reported Dr. Weerasinghe’s bombshell revelation in a lead story, headlined ‘MR, ministers, CBSL Governor, Dr. PBJ ignored IMF warnings’ with strapline ‘Dr. Jayamaha says Monetary Board acted regardless of strong opposition’ (The Island, May 26,2022)

Dr. Weerasinghe didn’t mince his words when he declared that the government slashed taxes regardless of IMF advice and also disregarded the CB’s warning regarding the urgent need to secure IMF assistance

The GR government ignored Dr. Weerasinghe’s disclosure. At the time, the outspoken official appeared before the two parliamentary committees in late May 2022, Gotabaya Rajapaksa remained the President though the SLPP was in disarray in the wake of UNP leader Ranil Wickremesinghe receiving the premiership. The Gajaba Regiment frontline combat veteran remained confident of overcoming the crisis. Dr. Weerasinghe’s declarations at watchdog committees didn’t receive the attention they deserved. By the time Dr. Weerasinghe lambasted the political party system on Aug 31, 2022 in Parliament, Gotabaya Rajapaksa was overseas, having fled the country.

Had the SLPP genuinely felt the need to take remedial measures, it could have invited the Opposition to head a Special Parliamentary Select (PSC) Committee to probe the origins of the crisis and to make recommendations. Instead, the SLPP did absolutely nothing. Finally, the Wickremesinghe-Rajapaksa government appointed a PSC in July, 2023, 15 months after Dr. Weerasinghe’s disclosure and a year after Wickremesinghe election by Parliament as the President to complete the balance portion of the ousted President Gotabaya Rajapaksa’s term.

Now that the Supreme Court has declared its verdict, the PSC is irrelevant. The PSC that has been rejected by the main Opposition SJB serves no purpose. The party leaders without delay should reach a consensus on the PSC, headed by SLPP General Secretary and Attorney-at-Law Sagara Kariyawasam.

Perhaps, Prof. Charitha Herath, who has undertaken special assignment to produce a report on the economic ruination, should reconsider his project. The SC judgment must compel both the government and the Opposition to study the verdict.

SLPP lawmaker Namal Rajapaksa revealed how naïve he was when he recently declared that the Parliament is the best place to discuss the economic crisis and remedial measures. Had he listened to Dr. Weerasinghe’s declarations in Parliament in May and August last year, the former Sports Minister wouldn’t have said so. Lawmaker Rajapaksa should realize that having squandered previous opportunities to address the issues at hand, now the matter is certainly out of its hands. All political parties in Parliament should take the SC verdict seriously and appropriately address the issues raised therein.

The way forward

Let us hope all political parties represented in the current Parliament realize that they cannot overcome the crisis by political spin. The overall political environment is bleak. The continuing crisis in Sri Lanka Cricket (SLC) has exposed all with accusations and counter accusations directed at the executive, legislature and the judiciary.

The Wickremesinghe-Rajapaksa government’s response to Opposition backed Sports Minister Roshan Ranasinghe’s offensive against SLC has bared the fragility of even the parliamentary system. The SLC fiasco exposed all. Those who benefited from SLC ended with egg on their face. One thing is clear. The government hasn’t learnt from the catastrophic destruction suffered by the SLPP as a result of the SC judgment. The Supreme Court has given the public fresh hope that politicians and powerful officials aren’t immune to punitive actions. There is hope the SC judgment will strengthen the rule of law. Perhaps, the powerful attack on an utterly corrupt set up that destroyed the country may compel the executive, legislature and judiciary to take a fresh look at the situation on the ground.

The judgment underscored that no one is above the law. Dr. Harsha de Silva, MP, is on record as having said that those who had been faulted by the SC should be deprived of their civic rights. The former UNP State Minister is of the view that strongest possible measures should be taken against them all. The Anti-Corruption Movement affiliated to the SJB recently, in writing, requested President Ranil Wickremesinghe to suspend payment of pension, other facilities, security and vehicles to former Presidents Gotabaya Rajapaksa and Mahinda Rajapaksa. The SJB also asked for suspension of pension to others named by the SC.

But, the breakaway UNP group SJB must be reminded that it owed an explanation regarding three matters namely (1) Treasury bond scams perpetrated in Feb 2015 and March 2016 during the Yahapalana administration (2015-2019). Some of those MPs and several defeated candidates at the last parliamentary polls conducted in August 2020 actively supported bond racketeers. The two massive bond scams caused by that government is yet legally unresolved. For example, then Finance Minister Ravi Karunanayake who was termed by some overseas publication as the best such Minister, claimed, before the Presidential Commission of Inquiry that probed the first bond scam, he was not aware who paid for the costly penthouse he and his family occupied at the time in Colombo.

(2) Why as much as USD 12.5 bn were borrowed from the costly international bond market during the Yahapalana administration for inexplicable reasons without the country at the time either being in any financial crisis or undertaking any new major development projects.

(3) Finally what did the Yahapalana government intended to achieve by doing away with time-tested Exchange Control Act of 1953. The UNP and the SLFP voted for a new Foreign Exchange Act in 2017 that had been brazenly exploited by unscrupulous exporters and others. SJB leader Sajith Premadasa and two of its experts on economic matters Dr. Harsha de Silva and Eran Wickremarathe remained conveniently silent on this issue. It would be pertinent to mention that the controversial Bill was presented in late July 2017 by the then Prime Minister Ranil Wickremesinghe though he didn’t vote. Parliament approved the new law with 94 votes whereas 18 voted against. Others skipped the vote. That decision alone has enabled flight of capital ever since and still not corrected. So no wonder unscrupulous exporters for instance have parked abroad billions of dollars that should have been brought back to the country. So the above could be termed as one of the root causes of the debt crisis that the country is yet trying to extricate itself out of.

Shamindra Ferdinando

Shamindra Ferdinando is a Deputy Editor of a Colombo-based daily newspaper, The Island.

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