The opposition’s view on the economic crisis and the additional tax bill – The Island
Speech by Oppisition Leader Sajith Premadasa in Parliament on February 8, 2022.
It is an inescapable fact that the Sri Lankan economy is in deep recession and it is the common people of our country who have to bear the brunt of this economic collapse. The government has always accused the Covid-19 pandemic of being the main driver of this recession.
The institutions responsible for macroeconomic management are long-established and have the necessary authority to intervene in the event of externalities that could jeopardize the financial stability of our country.
However, the Sri Lankan economy and its people have been disproportionately affected by the pandemic, especially when compared to peer countries and I submit to you that this is a direct result of the failure of the heads of key institutions, especially the consecutive Ministers of Finance, the Monetary Council and the Central Bank as well as its Governor.
Accordingly, considering that this is a matter of urgent national importance, I await specific responses and explanations from the government to the following questions.
Headline inflation, as measured by the Colombo Consumer Price Index, rose from 3% in January 2021 to 14.2% in January 2022. Food inflation rose from 6.8% to 25 %.
Pursuant to Section 64 (2) of the Monetary Law Act No. 58 of 1949, if the amount of the money supply has changed by more than 15% (15%), or if the index of the cost of life has changed by more than 10% (10%), of its level at the end of the corresponding month of the previous year, the Monetary Council must submit to the Minister responsible for finance matters and, if not not prejudicial to the general interest, make public a detailed report which includes an analysis of:
* the causes of anticipated economic disturbances, or actual abnormal movements in the money supply or price level;
* the likely effects of such disturbances or movements on the level of production, employment and real income in Sri Lanka; and
* the measures that have already been taken and the other monetary, fiscal or administrative measures that it is recommended that the government adopt.
Has the Monetary Board submitted this report to the Minister of Finance? If not, has the Minister of Finance requested this report under Article 64(2)? If he has requested such a report, will steps be taken to table it in Parliament?
If the Currency Board submitted a report, what action has the Currency Board taken to address the increase in money supply and prices?
What measures did they recommend to the government to remedy this situation?
What were the main reasons for the rapid increase in inflation? And in particular the rise in food inflation?
How did the 37.5% increase in the reserve currency and the quantitative increase in the Central Bank of Sri Lanka’s holdings of treasury bills contribute to the price increase?
Hon. Chairman, Gross official reserves had fallen to US$1.6 billion at the end of November 2021, from US$5.7 billion at the end of 2020 and US$7.7 billion at the end of 2019. The decline means a reduction of 4.2 months of import cover to one month in the year.
Under section 68(1) of the Monetary Law Act No. 58 of 1949, whenever the Currency Board foresees that an international balance of payments deficit may develop of such magnitude that ‘it would cause a significant decline in the international reserve, or whenever there is an imminent threat of a serious decline in the international reserve, or a potential threat to such stability or are detrimental to national welfare, it is du duty of the Council to prepare policies to keep these conditions under control and to submit a detailed report to the Minister in charge of the subject of Finance in order to adopt the appropriate corrective measures. This report should contain,
*the nature, causes and extent of the actual or potential threat to the international stability of the Sri Lankan rupee; and
*measures that the council has already taken, and other monetary, fiscal or administrative measures that it recommends for adoption by the government. If applicable,
Has the Monetary Board submitted this report to the Minister of Finance? If not, has the Minister of Finance requested this report under Article 68(1)? If such a report has been requested, will steps be taken to table it in Parliament?
If the Monetary Board submitted a report, what measures has the Monetary Board taken to deal with this decline in foreign exchange reserves?
What measures did they recommend to the government to remedy this situation?
Mr. Chairman, I would like to offer a brief explanation. At this point, the Central Bank officially declares that our reserves stand at 2.3 billion dollars at the end of January, compared to 3.1 at the end of December.
While this certainly signals a critical situation, it is immeasurably aggravated by the fact that this 2.3 billion figure is misleading, as it also includes an amount of 10 billion yuan, approx. $1.6 billion, which has been received.
Therefore, the reality, Mr. President, is that our country’s foreign exchange reserves are currently around 700 to 800 million US dollars. The IMF has stated unequivocally that only usable dollar assets should be included in reserves. So the actual level of usable reserves – usable capital – in that $2.3 billion they’re talking about, is only US$700-800 million.
Indeed, to date, our reserves are limited to three weeks of imports. Never in our history have our reserves collapsed so much. Therefore, I would especially like to ask the minister why such lies are presented in the country.
Hon. Mr. Speaker, the Rs/US$ exchange rate depreciated sharply from Rs.185 in September 2020 to Rs. 200 in May 2021. Since May 2021, the rate remained relatively stable until it reaches Rs. 210 in September 2021. As of September 2021, the Central Bank has “fixed” the rate at Rs. 203. However, the black market price remains somewhere around Rs. 240.
Under Section 65 of the Monetary Law Act No. 58 of 1949, the Currency Board shall endeavor to maintain the parity of the Sri Lankan rupee or, if no determination of such parity has been made , maintain exchange arrangements and thereby link its exchange with other currencies to ensure its free use for current international transactions.
At present, migrants no longer transmit their income through the country’s official banks. As a result, official migrant remittances started to decline from June 2021. This is a drop of more than US$1 billion from the previous year. Therefore, I would like to ask the following:
Is the Minister of Finance convinced that the Monetary Board is not in breach of Article 65 of the Monetary Law Act?
If so, can the Minister of Finance justify the decline in migrant remittances so far in 2021? Will the Minister of Finance submit a report on the amount of remittances received by this country in recent months?
If not, has the Minister of Finance asked for a justification of the foreign exchange agreements?
Furthermore, Mr. Chairman, I must draw your attention to the bill introduced yesterday by this government, which introduces a tax surcharge that will target the workers of Sri Lanka, the backbone of our nation.
You know that the most important fund in our country is the Provident Fund, it has approx. Rs. 3 trillion. The profit of this provident fund for the year 2020 will be around Rs. 250 billion which according to the provisions of this bill will levy a Rs. 65 billion tax on this profit, thus siphoning off hard earned savings workers, to redistribute said funds to their patrons and political henchmen.
I ask the Minister of Finance not to implement this unscrupulous process. Don’t steal money from Sri Lankan workers. Please withdraw this Bill/Gazette – effective immediately. Please don’t deprive people of their hard-earned funds in the Provident Fund.
We know that today the country is ruled by those who have dipped into provident funds in various ways throughout history. This is the real story. Therefore, I ask the Minister of Finance to please answer my question at this point – we demand an answer today, the people of this country deserve an answer TODAY. Make this answer clear and unambiguous. I would like to take this opportunity to ask you to withdraw the provident funds as well as the pension funds from this 25% tax which is a tax on the workers of our nation.
Hon. Mr. President, I respectfully draw your attention to the remarks made by the Minister affirming that the rise in the inflation rate in the country is nothing but gossip! These are not gossip, these are facts, these are official figures. How can the minister talk about gossip?
Are cost of living increases and property price increases just rumors? Is the fact that we only have three weeks of foreign exchange reserves also a rumour?
Hon. Mr President, when we ask such an important question related to the remittances of our workers who go abroad and shed blood, sweat and tears, is it acceptable that there is no minister of Finance and no Minister of State for Finance in the House to respond?
Let me try to explain to you in English. At least you can listen. Hon. President – I am trying to explain to you in English. There is a convention when the Leader of the Opposition is standing – standing – there is a convention, there is a custom that you are allowed to speak and your microphone is not suddenly turned off. Why are you all engaging in such unparliamentary practices? What is this nonsense? Are you unable, from this so-called august chair, to control the microphone? Why are you all suddenly turning off the microphone? Like a tradition – there is a convention, there is a custom – which is practiced. Do you know parliamentary practice?
Mr. Chairman, there is no problem if the Minister of Finance is too busy to answer an important question of this nature. Neither a Minister of State nor a Deputy Minister is present to answer such a question and that, in my opinion, is not only a travesty of parliamentary tradition, but also a grave injustice to the people from the country. Please take the necessary steps to include it in Hansard.