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Sri Lanka: Chamber congratulates Government on securing IMF Bailout

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The Ceylon Chamber of Commerce congratulates the Government on securing the Extended Fund Facility (EFF) with the IMF. We appreciate the efforts of the Government led by the President, the Governor of the Central Bank of Sri Lanka, Secretary to the Treasury, other key officials and independent experts who have assisted in this process. We also appreciate the bilateral and commercial creditors for providing the necessary financial assurances towards debt restructuring. Along with the initial proceeds from the IMF program, we expect multilateral agencies to also support the country by unlocking fresh financing.

We acknowledge and hail the difficult steps taken by the Government in the lead-up to securing the EFF, such as cost-reflective tariffs for utilities, tax regime changes, legislation of the new Central Bank Act and the move towards a flexible exchange rate, to name a few.The country cannot afford to revert to an unsustainable subsidy driven economy and a fiscal deficit that is financed by the Central Bank. We believe this is a crucial point for the economy, with the implementation of long overdue economic reforms acting as a vital impetus towards sustainable economic revival.

We urge the Government to prioritize focus on reforms such as tax administration, State-Owned Enterprises, trade and competitiveness, labor and land reforms, which need to be unlocked in order to pursue a sustainable growth path. The country will need to prioritize these reforms in meeting its fiscal targets, which  will be central to the IMF program and debt restructuring. In focusing on revenue, the State should look at overall productivity improvement and curtailing of government expenditure where possible. These can be achieved by ensuring data driven and evidence based policymaking that will incorporate technology and digital tools.

The country must prioritize these reforms in order to ensure a successful 17thIMF program which will complement the macro stabilization efforts undertaken. The country cannot afford any pauses in the program, or returning for an 18th program with the IMF,where similar reforms will eventually and unavoidably need to be undertaken. In this regard, we request all political parties, civil society, trade unions and the public to view this IMF program positively and support the reforms process so that the country can move towards greater prosperity with a stable economy for all its citizens.

The Chamber recognizes that the Private Sector is an equal partner in ensuring an accelerated economic recovery, and to this end will continue to support the Government in implementing progressive reforms.

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Unpacking the Factors Behind the Dismantling of the U.S. Banking System

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The breakup of banks that is now occurring in the United States is the inevitable result of the way in which the Obama administration bailed out the banks in 2008.

When real estate prices collapsed, the Federal Reserve flooded the financial system with 15 years of quantitative easing (QE) to re-inflate real estate prices—and with them, stock and bond prices.

What was inflated were asset prices, above all for the packaged mortgages that banks were holding, but also for stocks and bonds across the board. That is what bank credit does.

This made trillions of dollars for holders of financial assets—the One Percent and a bit more.

The economy polarized as stock prices recovered, the cost of home ownership soared (on low-interest mortgages), and the U.S. economy experienced the largest bond-market boom in history, as interest rates fell below 1%.

But in serving the financial sector, the Fed painted itself into a corner. What would happen when interest rates finally rose?

Rising interest rates cause bond prices to fall. And that is what has been happening under the Fed’s fight against “inflation,” by which it means rising wage levels.

Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets against depositors.

The result today is similar to the situation that savings and loan associations (S&Ls) found themselves in the 1980s, leading to their demise.

S&Ls had made long-term mortgages at affordable interest rates. But in the wake of the Volcker inflation, the overall level of interest rates rose.

S&Ls could not pay their depositors higher rates, because their revenue from their mortgages was fixed at lower rates. So depositors withdrew their money.

To obtain the money to pay these depositors, S&Ls had to sell their mortgages. But the face value of these debts was lower, as a result of higher rates. The S&Ls (and many banks) owed money to depositors short-term, but were locked into long-term assets at falling prices.

Of course, S&L mortgages were much longer-term than was the case for commercial banks. And presumably, banks can turn over assets for the Fed’s line of credit.

But just as QE was followed to bolster the banks, its unwinding must have the reverse effect. And if it has made a bad derivatives trade, it’s in trouble.

Any bank has a problem of keeping its asset prices up with its deposit liabilities. When there is a crash in bond prices, the bank’s asset structure weakens. That is the corner into which the Fed has painted the economy.

Recognition of this problem led the Fed to avoid it for as long as it could. But when employment began to pick up and wages began to recover, the Fed could not resist fighting the usual class war against labor. And it has turned into a war against the banking system as well.

Silvergate was the first to go. It had sought to ride the cryptocurrency wave, by serving as a bank for various brand names.

After vast fraud by Sam Bankman-Fried (SBF) was exposed, there was a run on cryptocurrencies. Their managers paid by withdrawing the deposits they had at the banks—above all, Silvergate. It went under. And with Silvergate went many cryptocurrency deposits.

The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds?

What was crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers?

Silvergate was a “special case,” given its specialized deposit base. Silicon Valley Bank also was a specialized case, lending to IT startups. First Republic Bank was specialized, too, lending to wealthy depositors in San Francisco and the northern California area.

All had seen the market price of their financial securities decline as Chairman Jerome Powell raised the Fed’s interest rates. And now, their deposits were being withdrawn, forcing them to sell securities at a loss.

Reuters reported on March 10 that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2% on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8% or almost 4%. No wonder well-to-do investors are running from the banks.

This is the quandary in which banks—and behind them, the Fed—find themselves.

The obvious question is why the Fed doesn’t simply bail them out. The problem is that the falling prices for long-term bank assets in the face of short-term deposit liabilities now looks like the new normal.

The Fed can lend to banks for their current short-fall, but how can solvency be resolved without sharply reducing interest rates to restore the 15-year, abnormal Zero Interest-Rate Policy (ZIRP)?

Interest yields spiked on March 10. As more workers were being hired than was expected, Mr. Powell announced that the Fed might have to raise interest rates even higher than he had warned. Volatility increased.

And with it came a source of turmoil that has reached vast magnitudes beyond what caused the 2008 crash of AIG and other speculators: derivatives.

JP Morgan Chase and other New York banks have tens of trillions of dollars worth of derivatives—that is, casino bets on which way interest rates, bond prices, stock prices, and other measures will change. For every winning guess, there is a loser.

When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.

There is now a flight to “cash,” to a safe haven—something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders.

It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.

So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015.

So the chickens are coming hope to roost—with the “chickens” being, perhaps, the elephantine overhang of derivatives.

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IMF Statement on Lifeline for Sri Lanka

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The Executive Board of the International Monetary Fund (IMF) approved today a 48‑month extended arrangement under the Extended Fund Facility (EFF) with an amount of SDR 2.286 billion (395 percent of quota or about US$3 billion).

Sri Lanka has been hit hard by a catastrophic economic and humanitarian crisis. The economy is facing significant challenges stemming from pre-existing vulnerabilities and policy missteps in the lead up to the crisis, further aggravated by a series of external shocks.

The EFF-supported program aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, safeguard financial sector stability, and strengthen governance and growth potential. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 254 million (about US$333 million) and catalyze financial support from other development partners.

Following the Executive Board discussion on Sri Lanka, Ms. Kristalina Georgieva, Managing Director, issued the following statement:

“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities. Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical.

“Ambitious revenue-based fiscal consolidation is necessary for restoring fiscal and debt sustainability while protecting the poor and vulnerable. In this regard, the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor. For the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management, and energy pricing are critical.

“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors to make swift progress towards restoring debt sustainability consistent with the IMF-supported program. The authorities’ commitments to transparently achieve a debt resolution, consistent with the program parameters and equitable burden sharing among creditors in a timely fashion, are welcome.

“Sri Lanka should stay committed to the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime. As the market regains confidence, the authorities’ recent introduction of greater exchange rate flexibility will help to rebuild the reserve buffer.

“Maintaining a sound and adequately capitalized banking system is important. Implementing a bank recapitalization plan and strengthening financial supervision and crisis management framework are crucial to ensure financial sector stability.

“The ongoing efforts to tackle corruption should continue, including revamping anti-corruption legislation. A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners.”

The statement issued by the International Monetary Fund on 20 March 2023

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Ceylon Chamber of Commerce Celebrates International Women’s Day

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With International Women’s Day 2023 centred around the theme of #EmbraceEquity, the Ceylon Chamber of Commerce, as a forerunner in promoting gender equality in the private sector and beyond, continues its longstanding pledge to support and empower women in business and societal spheres, through numerous initiatives and partnerships.

A workshop to facilitate women entrepreneurs to become export ready and expand their businesses to the global market was the most recent of such initiatives. Conducted in Ratnapuraon 3rd March, by the Ceylon Chamber of Commerce Centre for SMEs in collaboration with Seylan Bank and the Sabaragamuwa Chamber of Commerce, 65 women entrepreneurs from diverse sectors were coached on consolidating and adding more value to their product ranges, identifying opportunities and attracting international buyers.  

A staff workshop on decoding and identifying nutritional information on food labels will also be conducted on 8th March, coinciding with International Women’s Day, in order to promote better health and food choices amongst individuals and families and contribute towards a healthier nation.

The Chamber is the principle implementing partner of the International Labour Organization’s South Asia Leadership in Entrepreneurship (SALE) programme, which promotes youth entrepreneurship, and aims to address challenges such as gender bias and inequality among other challenges in this field. Other initiatives such as joining the global 16 Days of Activism against Gender-Based Violence campaign annually, is further demonstration of its commitment to ensuring female empowerment in all spheres.

Adhering to the maxim that change must first begin from within, the Chamber has long been a champion of female empowerment and gender equality, demonstrated by its workforce composition, with women accounting for 59% of all employees, and a significant presence of 83% at the senior leadership level.

Deputy Secretary General and Chief Operating Officer of the Ceylon Chamber, Mrs. Alikie Perera said, ‘we believe that empowering women is essential for creating a more inclusive and prosperous economy, and we are committed to supporting women entrepreneurs and leaders in Sri Lanka’.

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Sri Lanka: Is unbridled tourism the panacea for all economic ills?

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Tourism, as it is well known, is a major industry in Sri Lanka. The foreign exchange it brings into the country and the hundreds and thousands of people who are directly and indirectly employed in this sector makes this industry a vital one for the country. It is one of the most effective windows to the world provided the country develops and displays an image that is both unique, culturally and geographically, and offers an interest based, value for money option for tourists.

It is evident that there is a renewed focus on tourism in Sri Lanka. Rightly so considering what it has to offer to potential tourists. Its ancient and more modern cultural history, geographical beauty, its rich flora and fauna habitats, unparalleled beaches and its trekking adventures are all part of a package of diverse interests that are offered to tourists. It needs to be noted that tourism is not limited and should not be limited to non-Sri Lankan overseas domiciled foreign nationals, but also to the ever-growing Sri Lankan Diaspora, many of whom still call Sri Lanka their “home” and who would wish to enjoy the beauty of the country.  One hopes that the potential arising from Sri Lankan origin foreign nationals are not overlooked when it comes to promoting tourism.

A news report appearing in the Daily FT notes that India, Russia, China, the UK, France, Germany, the Middle East, Nordic countries and Australia as focus markets for tourists according to Sri Lanka Tourism (https://www.ft.lk/top-story/Sri-Lanka-to-focus-on-9-key-markets-to-woo-tourists-in-2023/26-745624. Tourist arrivals in the first two months of 2023 have reportedly exceeded 100,000 each month.

However, tourism also brings in unwanted negatives such as crime, drugs and cultural degradation While genuine tourists need to be protected, equally importantly, the Sri Lankan people and its culture also needs to be protected.

Madison Mussio, Hospitality writer and professional author writing in Quora, (https://www.quora.com/What-is-the-negative-effect-of-tourism) encapsulates some of the negatives of tourism “The biggest drawback of tourism is the authentic culture of many cities are lost to mass tourism and tourists. Every city has its own culture and culture is always changing. But some of the greatest and most beautiful cities in the world have changed from being wonderful cities to mega-tourist attractions and nothing more”. Another comment states “Spreading of various diseases, Rise in environmental pollution, Rise in criminal activities, Seasonal unèmployment may rise, and the Extension of endangered species of plants and animals.

Madison Mussio goes on to say “Citizens of cities like Barcelona and Venice are now heavily protesting the development of tourism in their cities. They have seen prices for their homes increase due to the loss of housing to hotels. They have seen entire neighbourhoods bought up by real-estate investors, only to never use them. The thing is, the government of these cities want tourism, they provide many jobs to the local people and tax revenue for them. Barcelona alone has 1.6 million residencies (2016) but had close to 8 million tourists in 2014. Twenty years ago, they had less than 2 million, in 2000 a little over 3 million. At what point does a government look at the number of tourist to residence in a city and say they need their biggest industry to slow down? Barcelona has recently voted in an anti-tourism mayor. Her biggest claims were that the rising pricing of housing and loss of culture is due to the mass tourism that is unnecessary and that the city should focus on its citizens, not the tourists. Currently, the building permits for hotels have stopped for at least one year and she has now required all Airbnb properties to have tourist licences to operate. She was also the first person to fine Airbnb in history (30k). They are now increasing the fine to 600k for every illegal listing.

Venice on the other hand, is trying to separate from Italy. In 1866 it because part of Italy, before then it was an independent kingdom. It has seen massive tourism since it became part of Italy. Fishing and agriculture jobs have been replaced with tourism jobs. The culture of a great and powerful nation surrounded by water and farmland has been destroyed. In 2014 in an unofficial vote, 89% of citizens voted to leave Italy. One of the biggest reasons was because they claim the city has been lost to them in favour of tourists. To be fair, I am part of the tourism industry, and my job is provided by tourists. However, even I agree sometimes it can be too much and that governments need to plan for tourism and local sustainability, rather than just developing the tourism industry blindly”.

Long term strategic planning however is a must to maximise on the opportunities that are there now and may be there in the future. Such opportunities may be lost if planning is not done.

The Borgen Project, a nonprofit organization that is addressing poverty and hunger and working towards ending them, states that “unless well planned, the disadvantages of tourism may greatly outweigh the advantages in a country (https://borgenproject.org/advantages-disadvantages-of-tourism/). It says that “A major factor to take into consideration is environmental damage. Many countries with ancient ruins or natural attractions are also in danger of destruction or erosion with significant foot traffic and human interaction. Additionally, flora and fauna can decrease in areas or change their growth and migration patterns when there is an overflow of humans interact. Foot traffic and continuous touching can also slowly degrade the stability of ancient structures. As previously stated, the profit gained from tourism is often reinvested into the industry. However, with unequal infrastructure development, the tourism industry can inadvertently sustain itself without aiding a country’s other vital sectors. As such, many countries end up developing tourism hot spots while the rest of the country suffers. In these countries, there are visible socioeconomic gaps between the wealthy and the poor. Focusing mainly on the tourism industry and places of mass attraction could leave disadvantaged communities at risk of financial instability”.

Econsult solutions Inc (ESI), a US based consulting company, emphasises the importance of strategic tourism planning efforts that achieve comprehensive and successful results. They mention four critical ingredients for such planning (https://econsultsolutions.com/tourism-strategic-planning-the-tried-and-true/)

  1. Attractions: Creating a compelling experience for visitors to enjoy
    1. Determine gaps in the tourism products.
    2. Enhancement and new product / event opportunities
    3. Support for and partnerships with attractions
  2. Tourism Infrastructure: Helping visitors successfully navigate their experience.
    1. Availability, variety, quality, and competitiveness of accommodations, restaurants, transportation, signage, visitor centers, retail, and visitor domains
  3. Marketing: Getting the right message to the right audience
    1. Addressing the appropriate target audiences and ensuring that the destination’s marketing helps:
    2. Attract new and repeat visitation; extends stays; increases tourist spending;
    3. Reflects the destination so that the visitors’ expectations are met.
    4. The right mix of paid, earned, owned and shared media for promoting the destination.
  4. Organizational Structure: Effectively and efficiently improving local tourism
    1. The most appropriate organizational structure to meet various responsibilities and achieve a strong return on investment.
    2. Ensure that the tourism organization figures prominently in political, policy, and planning discussions.
    3. The role to be played in determining and collecting public and private funding.
    4. The value and opportunities of partnerships

ESI states that “this framework is the starting point rather than the end point for the crucial discussion of the prioritization of opportunities, resources, and efforts to address gaps. Through collaborative discussions with key stakeholders, the most effective planning processes arrive not at a laundry list of recommendations, but at an identification of the most important priorities, and the initial implementation steps needed to address them”.

Sri Lanka Tourism is said to have developed a tourism policy. Presumably this will be in the public domain soon. Hopefully this policy is of strategic nature and is a long-term policy that addresses the positives of tourism and how to ensure tourism potential is matched to global trends in tourism, as well as its negatives and what measures can and will be taken to address such negatives.

If not already included, such a policy should include a promotional strategy based broadly on interest priorities of potential tourists. Is the emphasis of this policy about providing a composite package of everything the country has to offer say within a period of two weeks? Or are there interest-based packages such a sea and beach packages, cultural packages, wildlife experience packages, sports packages (for example, why not Golf tours that include Colombo, Digana, Nuwara Eliya, Trincomalee, and Hambantota?). If such interest-based packages are included, there will be a potential to improve the infrastructure associated with such interests through investments in these areas, and an overall benefit to tourism in general within the country.

While individual travel companies may undertake such interest assessments, it would benefit the country in the longer term if the national tourism policy, developed in consultation with all relevant stakeholders, includes this approach as a composite of such a policy.

It is also worth considering a zone based tourism approach from an interest and an infrastructure aspect. For example, a Southern zone with Hambantota as the centre of it, a Northern zone with perhaps Vavuniya as the centre of it, an Eastern zone with Trincomalee as the centre of it, and a Central zone including the cultural triangle with Kandy as the centre of it, could become the epicentres of an investment policy on tourism.

These zones are mentioned considering the proximity they have to various, current, and potential tourist interests. Hambantota has the advantage of having an international airport, a bustling port that could have the potential for cruise ships to call over, a network of roads that connects it to beach hotels in popular sea spots, wild life and bird sanctuaries, and the potential to link Hambantota to the East and places like Passekudah and Potuvil by extending the highway beyond Hambantota.

Unchecked, unplanned tourism could spell disaster for Sri Lanka from several aspects. The quality of tourists is as important or more important that the economic benefits they accrue to the country. Tourists will come and go, but the culture of the country, its environment, its fauna and flora and its natural beauty has to remain for the benefit of many generations to come. 

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New pattern crucial for China’s high-quality development – A Chinese Viewpoint

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The Chinese leadership has placed the new development pattern high on the country’s policy agenda, according to which the domestic market is taken as the country’s economic mainstay with domestic and foreign markets complementing each other.

Accelerating the establishment of a new development pattern is a strategic decision for the country’s long-term development and security.

Only by doing so can China consolidate the foundation for its economy and enhance the security and stability of its development. China’s capability to deal with predictable and unpredictable storms and high winds can also be strengthened in the fostering of a new development pattern.

As the world’s most populous country, China enjoys a massive domestic market, on the basis of which a virtuous circle of goods production, circulation, distribution and consumption should be enhanced. That lays a solid foundation for China’s high-quality development.

Over the past Spring Festival holiday, the first since China optimized its COVID response, the country witnessed a booming domestic market and expanding consumption in various sectors such as tourism, box office, retail and catering.

About 308 million domestic tourism trips were made during the seven-day holiday, up by 23.1 percent year on year. The holiday box office generated a whopping revenue of 6.76 billion yuan (about 970 million U.S. dollars), the second highest in history for the same period.

Demand drives supply and supply creates demand. Efforts should be made to coordinate the expansion of domestic demand and the deepening of supply-side structural reform, so as to create a higher-level dynamic balance and achieve a virtuous cycle in the national economy.

Electric vehicle (EV) brands have sprung up across the nation, providing a number of new options for Chinese consumers. China’s production and sales of new-energy vehicles reached 7.05 million and 6.88 million, respectively, in 2022, both registering growth of over 90 percent year on year, according to the China Machinery Industry Federation.

Consumption is a constant driver of the economy. The promising signs mentioned above have ensured a good momentum for China’s economic growth. To further tap into the potential of the domestic market, the country’s vast rural areas, home to hundreds of millions of residents, cannot be neglected.

The coordinated development of urban and rural areas, as well as of different regions, should be advanced. On the one hand, China’s rural areas shoulder the responsibility of producing enough food to feed its population. On the other hand, rural vitalization will unleash a strong consumption power for China’s post-pandemic growth.

Along with the rising income of rural residents, China’s rural consumption is expected to accelerate upgrading, and 2 trillion yuan in new consumption demand is expected to be created annually, Minister of Agriculture and Rural Affairs Tang Renjian said.

Emphasizing the domestic market doesn’t mean the international market is no longer important. The various comparative advantages, division of labor, and supply and industrial chain cooperation have made the global economy operate in a more efficient way.

China has benefited greatly from its reform and opening-up over a period of 40-plus years, in terms of exporting and attracting foreign investment. China is determined to continue the policy and improve mechanisms regarding intellectual property rights protection, market access and fair competition, so as to nurture a more favorable environment for all types of market entities.

The rebound of the Chinese economy has attracted new interest among international investors. The foreign direct investment into the Chinese mainland, in actual use, expanded 14.5 percent year on year to 127.69 billion yuan in January, according to the Ministry of Commerce.

The year 2023 will mark the 10th anniversary of the proposal of the Belt and Road Initiative, a prominent achievement of China’s opening-up and international cooperation in recent years. China has signed over 200 cooperation agreements with 151 countries and 32 international organizations so far. China’s active participation in global trade and economy not only boosts the country’s development, but also contributes to global economic growth.

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Sri Lanka: Time to Policy Overhaul to Ensure Retail Industry’s Future

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The Sri Lanka Retail Forum (SLRF) 2023 conducted by the Sri Lanka Retailers Association (SLRA) on 1st March, 2023, will address many of the pressing challenges currently faced by the industry, and explore proven strategies and vital avenues to explore to ensure stability and sustainability for the industry, SLRA President Murali Prakash stated.

Against a backdrop of economic turbulence, Mr. Prakash called for urgent regulatory and policy overhauls to support the industry in the current context, which would also provide more visibility on overall strategy at a macro level. ‘Such a framework which facilitates enhanced access to finance, focuses on entrepreneurship and support, and infrastructure and technology building efforts are key factors for retail where a policy framework can be built to facilitate a robust retail that can aid in the country’s growth. In doing so the legal framework associated with including various acts such as consumer protection to shop and office, can be revisited’, he said. With indirect taxes and related costs directly impacting the industry, he called for better understanding and whetting of such taxes with a view to a gradual easing out, citing their detrimental impact on the industry.

Mr. Prakash also stressed the need for speedier action on SOEs and related entities to ensure that the inefficiencies of these organisations do not spill over and impact the retail industry and business at large, negatively.

With higher costs and volume challenges putting pressure on margins and cash flows, while inflation and added taxes causing alterations in consumer spending, along with dollar supply and related supply chain issues, he emphasized that ‘re-enacting the supply chain to be leaner, meaner, and perhaps more locally focused, could be one strategy to leverage for cost advantages in selected areas. New market spaces both locally and on the export front due to changing customer perceptions and a greater focus on dollar earnings, technology-driven future-centric applications for efficiency, speed and to fulfil the aspirations of younger consumer segments’, are among other strategies the industry now needs to explore and leverage, he pointed out.

In this regard, the SLRF 2023 will feature an impressive line-up of public and private sector policymakers and industry veterans and experts, offering a timely platform to address the current challenges, and explore avenues for stability and sustainable growth, Mr. Prakash said.

Expanding on the benefits of collaborative effort that organisations such as the SLRA, an approved association of the premier business chamber of the country, the Ceylon Chamber of Commerce, bring to the industry, he said that the SLRA as the ‘apex body of organized retail in Sri Lanka has a collective strength of over 5000 retail outlets across the country, catering to over 250 million footfalls a year’. SLRA is a member of the Federation of Asia Pacific Retailers Association (FAPRA), a collective body of 20 nations across the region including highly developed retail nations such as Japan, China, and Korea, which facilitate opportunities for greater collaboration in areas such as knowledge sharing and investments to technology and other retail platforms.

Through this membership, Sri Lanka has been chosen as the destination for the largest bi-annual FAPRA event, the Asia Pacific Retail Conference and Exhibition 2024. Mr. Prakash added that as the retail and tourism industries are interwoven, the growth of the retail industry will complement ongoing efforts to boost tourism.

– Ceylon Chamber of Commerce

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Bangladesh withdraws duty on sugar import to stabilize local market

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Bangladesh’s National Board of Revenue (NBR) on Sunday withdrew import duty on both raw and refined sugar in order to enable consumers to get the sweetener at lower prices.

In a notification, NBR withdrew a 3,000 taka (about 28 U.S. dollars) specific duty on the import of raw sugar and 6,000 taka duty on refined sugar per tonne with immediate effect.

Apart from this, the NBR reduced the regulatory duty on the import of sugar to 25 percent from 30 percent.

The reduced import benefit, which reportedly comes following a proposal from the commerce ministry to bring down the prices of sugar from its current record level of up to 120 takas per kilogram, will remain effective until May 30 this year.

The overall import cost of raw and refined sugar is expected to decline by 6,500 takas and 9,000 takas per tonne respectively following the fresh duty waver and reduction measures, according to an estimate by the NBR. (1 U.S. dollar equals about 106 takas)

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Myanmar’s maritime trade up 19.42 pct in over 10 months

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Myanmar’s seaborne trade surged 19.42 percent year on year to about 22.24 billion U.S. dollars in over 10 months of the 2022-23 fiscal year beginning in April last year, official data showed on Saturday.

From April 1 last year to Feb. 10 this year, the country’s maritime export rose 10.21 percent to over 9.22 billion dollars from a year earlier, while maritime import climbed 26.94 percent to over 13.01 billion dollars, data from the country’s Ministry of Commerce showed.

During the period, the country saw a total foreign trade value of over 29.33 billion dollars, including its border trade value of more than 7.09 billion dollars, the ministry’s figures showed.

The Southeast Asian country usually does most of its foreign trade through sea routes as it has a long coastline. It conducts border trade with China, Thailand, Bangladesh and India.

The country exports agricultural products, animal products, fisheries, minerals and forest products, manufacturing goods and others, while it imports capital goods, intermediate goods and consumer goods.

YANGON, Feb. 21 (Xinhua)

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Sri Lanka: Why not tax the informal rich rather than the formal poor?

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While levying an income tax on individual earnings to supplement government revenue is a necessity to meet government expenditure, the issue in question is the perception and/or the reality of its unfairness and the lack of confidence and trust that people have about the way the tax they pay is spent by the government. There is no evidence that just and equitable approaches have been taken by politicians to address revenue raising and the curtailment of unaffordable expenditure in a systematic manner.

On the question of unfairness, many are of the opinion that there are a significant number of individuals who operate in a cash economy, with black and/or white cash, who either do not pay any tax or pay a minuscule amount by declaring an income far less than their real income. Big guns in this group are said to include some specialist doctors, architects, engineers, lawyers, customs officials, tuition teachers, and officials of the department of motor traffic among others. A report of a specialist doctor who charges a huge amount of money in cash per patient for a procedure that takes less than 15 minutes underscores the massive earnings of some and the underreporting of income by professionals and government officials, the latter category obviously making their money via bribes, depriving the government of much-needed revenue. There is anecdotal evidence of properties and luxury motor vehicles purchased for large sums of money, and extravagant expenditures incurred for weddings and other functions by individuals who apparently pay for these with cash.

On the same side of the coin of lost revenue, but on the corporate side, the Morning newspaper reported on the 13th of February that the government lost Rs. 560 mn in revenue due to tax concessions for listed companies in 2021/22.

Imesh Ranasinghe writing in the Morning stated that “the Government of Sri Lanka missed out on Rs. 560 million in corporate income tax in the financial year 2021/22 from 13 companies that enjoyed a 50% tax concession for being listed on the Colombo Stock Exchange (CSE) in 2021, financial statements of the listed companies revealed. As per the financial statements of the said 13 companies to which the concessions were granted for being listed on the CSE between May-December 2021, First Capital Treasuries PLC and Capital Alliance PLC recorded losses for the financial year 2021/22, while Lanka Credit and Business Finance PLC LOLC General Insurance paid deferred taxation charges. Some of the major companies that enjoyed higher taxation benefits include LOLC General Insurance PLC, which had earned a profit before tax (PBT) of Rs. 1.2 billion and had only paid Rs. 170.6 million under the concessionary tax rate after paying Rs. 413.5 million as taxes in 2022. Prime Land Residencies PLC had made a PBT of Rs. 1.8 billion and had paid Rs. 162 million as taxes from Rs. 289 million in 2020 and Cooperative Insurance PLC paid Rs. 97 million as corporate income tax from a PBT of Rs. 933 million after paying Rs. 260 million as taxes in 2020”. 

This example of loss of tax revenue from 13 companies may be the tip of the iceberg as there could be other companies, smaller and bigger, who have paid less tax although their revenue was higher and their profit before tax was higher, and companies which are unlisted who may have not paid or paid fewer taxes although their revenues and profit before tax were higher than previous years.

In the context of the individual and corporate situations noted, increasing income tax from those at the bottom end of the income/revenue scale cannot be regarded as a fair proposition. As per the International Monetary Fund, Government Finance Statistics Yearbook and data files, and World Bank and OECD GDP estimates, the tax revenue in Sri Lanka had dropped to 7.7% of GDP in 2020 from 19% in the 1990as illustrated in the graph below. The revenue in 2022 was reported at 7.6 % of GDP in Sep 2022. As the graph depicts revenue has been steadily declining since 1990

Economynext in an article state that quote “Sri Lanka has aimed at increasing tax revenue by 69 percent to fund government spending in the crisis-hit economy, but analysts say the 2023 budget failed to address core issues on excess spending and articulate strong policies on restructuring loss-making state-owned enterprises (SOEs). The budget has aimed at increasing tax revenue by 69 percent to 3,130 billion rupees next year from this year’s 1,852 billion rupees while bringing down the budget deficit to 7.9 percent in 2023 from this year’s revised 9.8 percent. The high tax revenue target comes as millions of Sri Lankans face the impacts of the ongoing economic crisis – 66 percent inflation, job losses, and shrinking disposable income, unquote.

These factors portend even more of a difficult period in the coming years as no one appears willing and/or able to take the difficult decisions that must be taken to yield an effective course correction that will take the country out of the economic mess it is in. However, the pain of such decisions cannot fall unjustly on ordinary people who are already in great pain, while some segments of society enjoy a largesse that is both embarrassing and unkind to those who are struggling to find their next meal.

The following table on tax revenue estimate and collection by tax type (2019) published in lankastatistics gives an insight into the contribution to tax revenue from different categories. As can be seen, value-added tax and income tax comprise nearly 90% of the tax estimated and collected.

 The value-added tax also contributes to the unfairness of tax because of its regressive nature. The Tax Policy Centre, is a joint venture of the Urban Institute and Brookings Institution made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government.

A briefing book, states, “because lower-income households spend a greater share of their income on consumption than higher-income households do, the burden of a VAT is regressive when measured as a share of current income: the tax burden as a share of income is highest for low-income households and falls sharply as household income rises. Because income saved today is generally spent in the future, the burden of a VAT is more proportional to income when measured as a share of income over a lifetime. Even by a lifetime income measure, however, the burden of the VAT as a share of income is lower for high-income households than for other households. A VAT (like any consumption tax) does not tax the returns (such as dividends and capital gains) from new capital investment, and income from capital makes up a larger portion of the total income of high-income households”.

If Sri Lanka is serious about an equitable and fair tax system, it needs a complete overhaul of the system and not patchwork changes at the behest of external agencies. The morally and politically bankrupt politicians and special interest groups may not wish for such an overhaul and the country would continue its debilitating slide into further trouble despite the best efforts of a few.

Firstly, if as suspected, a significant number of high earners are either not paying their fair share of income tax or not paying any income tax, that loophole needs to be fixed. There are measures that could be considered. The idea of levying a tax at the source could be considered for professionals who deal in cash payments. For example, unless a law exists, a new law could be brought in to make it compulsory that doctors see patients only in hospitals or certified medical or home practices, and that ALL cash or credit card transactions are recorded as auditable, legal documents. If patients are seen or treated at a hospital or a similar medical institution, the attending doctor SHOULD be paid by the institution and no direct patient transactions should be permitted. The hospital in these instances could be compelled by law to deduct a percentage of the doctor’s fee as a tax, with the doctor permitted to disclose this payment in their annual tax returns. A similar methodology could be adopted with some variations to other high earners by way of a registration process where and all such registered individuals are required to submit periodic returns to the Inland Revenue department.

Government officials who become high earners through bribe taking will be harder to rope in although in their case as well as in the case of professionals, strict asset tests conducted by the tax office, and also bank disclosures on ALL cash deposits over a given amount, plus a tax levy imposed when deposits are made, for deposits over a given value, could be some of the plugs that can be used to close loopholes. 

In all cases it is vital that penalties for violating existing and new tax laws are very stringent and they include jail terms and confiscation of assets including any unlawfully held cash assets in the name of the individuals. As suspected, if such assets are written in the name of relatives or friends of the individuals concerned, such persons should be called upon to explain and justify how they managed to acquire such assets.

Secondly, value added taxes needs to be revised and redress given to individuals when they purchase essentials. Instead, a tax overhaul could investigate increasing value added taxes for functions held in hotels and function halls. It is no secret that vast sums of money are spent on these functions. Many such spending is unconscionable and an affront to the hundreds and thousands of ordinary people who do not have money for their basic, routine meals. However, rather than focusing on the morals and ethics of such high spenders, as that would be more or less water off duck’s backs, charging a high value added tax would at least allow the government to support the most vulnerable with such funds. To the best of the writer’s knowledge, no surveys have been carried out to ascertain the revenue to hotels and function centres from such functions.

The tax office could undertake such a survey to ascertain the current and potential value added tax collection from such venues.A tax overhaul should naturally include corporate taxation and a re look at concessions provided and how a situation reported in the Morning newspaper described earlier could be addressed. CEIC Unlimited states the following

  • Sri Lanka Tax Revenue was reported at 6.562 USD bn in Dec 2021.
  • This is a decrease from the previous figure of 6.566 USD bn for Dec 2020.

The decline in tax revenue is shown in the illustration below. The corporate tax component and individual income tax component is not mentioned here, and this is something that needs to be examined to ascertain the contribution from the corporate sector and if the Morning article is to be taken as perhaps the tip of the iceberg, the potential loss of income tax from the corporate sector.

Clearly, it appears that there are some individuals who earn vast amounts of money but hardly pay reasonable income taxes, corporate earnings and profits are not consistent with taxes paid, there is no assessment of the income of some individuals who purchase high-value properties and other assets and whether they have fulfilled their tax commitments. On the other hand, successive governments seem to have and still are taking the easy way out by taxing wage earners.

If the country is serious about increasing its revenue base from taxes, it should engage in a complete overhaul of the tax system, strengthen the hand of the tax department by way of suitable legislation and introduce serious punitive measures to punish individuals and corporate entities who firstly do not declare their real income, and secondly who do not pay their fair share of taxes. The VAT system too should be revised in such a way that the most vulnerable are safeguarded from the regressive nature of the VAT system.

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