Sri Lanka

A rare window of opportunity for pension reform

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Aneetha Warusavitarana

The inconvenient truth about pensions is that they are costly. Governments across the world struggle with striking a balance between the dual objectives of pension adequacy and financial sustainability. Looking at Sri Lanka’s government sector pension, it is glaringly obvious that the costs associated with this scheme are exorbitant. According to the 2018 Central Bank report, the Government has incurred Rs. 194.5 billion as pension payments. This was a little over 9% of recurrent expenditure for the year, for a group of around 623,000 pensioners. Let that sink in – 9% of recurrent expenditure for less than 3% of the population. In comparison, the Samurdhi allocation for 2018 is only 2% of recurrent expenditure, and goes to around 1.4 million households.

The costs associated with pensions will only grow, as has been highlighted by the Central Bank. The Census of Public and Semi Government Sector Employees shows that 77% of our government sector employees are between 30-55 years. This means that over the next 30 years, the Government will see an additional 800,000-odd individuals moving into retirement, and in a nutshell, this is a problem which will only snowball into something larger.

Quick fixes?

The government sector pension is non-contributory – the entire burden of payment is shouldered by the Government – and given our fiscal position, this is an area where reform should be seriously considered. Reforming pensions is tricky – it is a highly sensitive topic, and if executed badly, could mean that the Government still spends a similar amount on the same group of people, but through social transfers for the impoverished elderly as opposed to through a government-funded pension. There are however, some soft reforms which would be easy to implement, and which would have a positive impact on our pension system for both pensioners and the Government.

A quick fix would be to increase retirement ages…Sri Lanka’s demographics are such that we have a rapidly ageing population, with rising levels of life expectancy. In and of itself, this isn’t a bad thing, but it means the Government and policymakers need to think about how people will spend their old age. Future generations will be able to work for longer periods of time, and it is vital that this ability is reflected in our legal systems. Increasing retirement ages has been widely adopted across OECD (Organisation for Economic Co-operation and Development) countries which also have similar demographics to Sri Lanka. From the perspective of pension payments, this will slightly ease the burden placed on the system right now. To ensure that this reform doesn’t place undue shock on employees in older age brackets, who have planned to retire in the next few years, this is a reform that can typically be introduced to younger cohorts of employees.

It is impossible to introduce sustainable reform for the elderly without looking at reforms needed throughout an individual’s life cycle. Your quality of life as an aged person is determined by the life you led in your youth. Employment, health, disposable income, financial literacy, marriage status, and a myriad of other factors affect how an individual experiences their retirement.

Opportunity for greater reform

Right now, there exists a window of opportunity for the Government to holistically address old age security. This window exists for three reasons. The first is that all government employees hired after 1 January 2015 do not fall into the current non-contributory pension scheme. They are in a kind of no man’s land where they have been promised a pension, but the details of what this pension benefit will be like has not been made clear. It is not an enviable position to be in, but in making this adjustment, the Government has created a window for pension reform. As it is clear that these employees do not fall into the current non-contributory pension, the Government can bring in a new contributory pension scheme for the government system, where both the Government and the government sector employee contributes.

It will take decades to move out of the current commitment the Government has to those in the non-contributory scheme, but at least we can be certain that decades from now, the pressure that the non-contributory scheme exerts on the national budget will be reduced.

The second reason there is a window of opportunity is because the Government has promised to introduce a national pension scheme. The name implies that this would be a scheme that goes beyond the government sector, encompassing the private sector and the informal sector. As the private sector has coverage through EPF and ETF schemes, the widely uncovered informal sector will pose a challenge to those designing this pension scheme. However, the positive of this is that the Government has made a very public commitment to wide pension reform, under which reform of the government sector will be included.

The third reason for this window of opportunity is the recently discussed labour law reforms. Sri Lanka has a multitude of labour laws, and the reform proposed is to unify these laws under one common labour law. During this process, there will also be room for amendments to be made to the more archaic aspects of our labour laws – hopefully to ensure that our laws reflect a drastically different working experience than was there a hundred years ago. There is scope for reforms such as increasing the age of retirement and making flexible/part-time work more attractive – which would be a step towards attracting more women into the workforce. With female life expectancy, more women in work means more women with agency and greater financial stability in their old age.

What does all of this mean?

Labour reform and pension reform are inextricably linked to each other. The fact that discussions for reform in both labour law and pensions are ongoing is serendipitous – now the focus of work should be to ensure that reform has financial sustainability as well as adequacy at the forefront.

Will the sugar tax leave a bad taste in your mouth?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Aneetha Warusavitarana

Rising rates of obesity and incidence of non-communicable diseases (NCDs) have long been a point of concern for the Sri Lankan health sector. As a country, we have made significant strides in addressing the challenge of communicable diseases, and now policymakers are shifting focus onto NCDs. The imposition of a tax on sweetened drinks in 2018 was a point of serious debate. It was both lauded as an admirable step in tackling the issue of NCDs, while simultaneously facing serious protest from the soft drink industry.

In 2018, the 51-day Government reduced this tax, and now the present Government stated that it will re-impose the tax, citing health concerns as the motivation behind it. While a final decision is yet to be taken on this, given that this is the same Government that imposed the tax, it seems likely that we will be seeing a tax increase.

Political packaging

Sugar tax

Imposing this tax is an easy way to gain some political mileage. The narrative presented is simple – obesity and non-communicable diseases are a serious health concern for the Sri Lankan population. Sugar consumption is a contributor to this problem and as a responsible Government, they need to take steps to discourage consumption – this will be done through a tax per gram of sugar in carbonated drinks. In essence, the tax is packaged as a health-positive policy measure. Indeed, at face value, the tax does present as such. However, there are a few questions which can be raised.

Is this tax fair?

There are two things in life that are certain – death and taxes. While it may be that we will have to continue paying taxes, these taxes should be sensible, effective, and should not be prohibitively burdensome. This idea has been espoused in basic principles of taxation to ensure the tax is effective and equitable. One of the principles the OECD expounds is that of neutrality: “Taxation should seek to be neutral and equitable between forms of business activities.” Neutrality also means that the tax system will raise revenue while minimising discrimination in favour of or against an economic choice.

In the case of the sugar tax being imposed by the Sri Lankan Government, it is clear that the principle of neutrality is not adhered to. At a fundamental level, it is a “sin tax” or a “fat tax” – a tax being imposed to change the economic choices of the population – the aim of the tax is not to raise revenue, but to shift consumer behaviour away to more healthy options. Given that the sugar tax is applicable only to carbonated drinks, and excludes other sweetened drinks like fruit juice or milk packets, it is clear that the principle of neutrality has been ignored here.

Does unfair equal ineffective?

The principle of neutrality in taxation is all well and good, but does this affect people? The answer is yes. When the principle of neutrality is violated and a tax is imposed in a manner that is inequitable to business activities, it loses its effectiveness. The objective of this tax is to discourage the consumption of carbonated drinks with a high sugar content, to achieve a higher goal of good health. When the tax is imposed unfairly only on carbonated drinks, it means the consumers which simply substitute a carbonated drink with an alternative – and there is no guarantee that the alternative will be a sugar-free, healthy one. In fact, the likelihood is that people will switch to a different product with a similar calorie/sugar count – if a bottle of fruit juice is cheaper than a bottle of Sprite in the supermarket, you don’t want to pay more for the bottle of Sprite and you are likely to buy the juice instead. The health concerns will not end up being addressed because consumers will simply substitute one drink which is high in sugar with another drink that is also high in sugar.

Unfortunately, in the case of taxing food and beverages, the issue is that consumers can simply choose to continue to consume a similar level of sugar, just from a different source. Given that this tax only applies to one category of sweetened beverages, consumers can easily substitute it with another, cheaper beverage. There is also the question of whether sales of carbonated beverages drop; international evidence has mixed results. While the WHO (World Health Organisation) applauds these taxes, other studies question whether the tax affects sales of carbonated drinks to an extent that it would have an effect on overall health, or whether consumers are simply shifting preference to an alternative which is an equally sugary substitute.

The final word on this is that there is, at best, uncertainty about whether this tax creates a positive health externality; and at worst, consumers switch to unhealthy alternatives while businesses lose out on revenue.

Are Japan and India taking over the Colombo Port?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Nishtha Chadha

Negotiations on the Colombo Port’s East Container Terminal (ECT) have certainly racked up their fair share of controversy over the last year. Infamous for the onslaught of last year’s political crisis, the ECT presents one of Sri Lanka’s greatest economic and geopolitical opportunities due to its prime position and immense untapped capacity. The recent ECT Memorandum of Cooperation (MoC) signed between Sri Lanka, Japan, and India is no exception. The agreement reignited hardline nationalistic debates from trade unions and recurring spates of “Indo-phobia”. JVP Leader Anura Kumara Dissanayaka even equated the move to selling off national resources as ransoms, which threaten the national security and economic sovereignty of the country. But such hardline opposition to the agreement begs the question: What exactly is being given up?

What’s in the Memorandum of Cooperation?

According to the Sri Lanka Ports Authority (SLPA), the MoC states that the SLPA retains 100% ownership of the East Container Terminal. The Terminal Operations Company (TOC), which will be responsible for all operations within the terminal, will be jointly owned by Sri Lanka, Japan, and India. Sri Lanka will maintain a 51% stake in the company, while Japan and India will hold minority stakes of 34% and 15%, respectively. Development of the ECT will be financed by Japan through a 40-year soft loan of between $ 500-800 million. The loan will be at a 0.1% interest rate with a grace period of 10 years. The SLPA boasted the terms as one of the best agreements it has ever negotiated.

So, why is the ECT so important?

Estimates suggest that within the next three decades, over 45% of global GDP and trade will emanate from the Asia-Pacific region. At the heart of the Indian Ocean, the Colombo Port is in prime position to enjoy the lion’s share of this predicted growth. Ranked 11th in connectivity and 22nd amongst global ports, demand for the port is increasing steadily, and so is its competition. As the Colombo Port’s three current operational terminals, the Jaya Container Terminal (JCT), South Asia Gateway Terminal (SAGT), and Colombo International Container Terminal (CICT) struggle to meet capacity demands, the development of the ECT has certainly become a matter of urgency.

India’s new Sagarmala port development initiative also escalated anxiety amongst policymakers about potential loss in business, as over 70% of transhipment that passes through the Colombo Port is linked to India. Construction of the Enayam Port in nearby Tamil Nadu and the Kerala port, which is soon to be world’s deepest multipurpose port, suggest an explicit and pressing need for Sri Lanka to diversify its partners in the shipping business to keep the Colombo Port competitive. The best way to do this is to implement incentives for new investment, upgrade ancillary services for current and prospective consumers, increase efficiency to facilitate quicker turnovers, and expand berthing capacity to meet growing demand.

Why can’t the SLPA just develop the terminal?

Indeed, the largest opposition to the agreement has been the argument that if the SLPA is fit to develop the ECT itself, why is the Government getting other partners involved? However, the capacity of the SLPA to complete these development activities is more than dubious.

Though the SLPA has been one of the few state-owned enterprises able to recover any semblance of profit in recent years, it is also suffering from serious decline. According to the Ministry of Finance’s 2018 Annual Report, the SLPA saw its profit after tax reduce by 88%, from Rs. 12 billion in 2017 to Rs. 1.4 billion in 2018. This is in addition to total expenditure of the authority increasing by 5.5%, from Rs. 28.5 billion in 2017 to Rs. 30 billion in 2018. Moreover, if one interrogates the sources of this profit, it becomes painstakingly clear that the only reason the SLPA is even able to recover “net profit” in the first place is because of the high performance of its privately run terminals, the SAGT and CICT, which markedly outperform the SLPA-run JCT. The authority is bloated, unproductive, and cannot specialise in service provisions the same way that private operators are be able to.

The Government itself has even admitted that the SLPA does not have the funds or capacity to undertake the required development activities within the time period or at the scale required. The recent Easter attacks, combined with the last 12 months of political turbulence, have tightened budgetary constraints and fiscal burdens on the national economy. As such, the optimal solution to Sri Lanka’s rising economic maladies is to capitalise on national assets by trying to attract external investment capital and improve efficiency. The liberalisation of port practices and the introduction of competition to the industry is an avenue worth pursuing. Given the importance of the port to Sri Lanka’s participation in international trade, the objective of the management system should be to achieve efficiency gains and generate new traffic in the ECT. This can only be done by improving service offerings and removing bureaucratic impediments, not coddling trade unions and stifling economic potential.

The fact that the SLPA retains a 51% stake in the TOC is a cause for concern in itself. The SLPA should not be playing the role of both a service provider and a regulator. This severe conflict of interest not only undermines competitive neutrality, but also consumer confidence. Instead, as the sole owner of the port, the authority should be transitioning its role into one of a landlord, responsible only for monitoring port performance and the enforcement of regulatory standards.

A step in the right direction

While the agreement on the ECT is not perfect, it is a step in the right direction. The dream of becoming Asia’s next maritime hub is not far-fetched for Sri Lanka, but it will only be possible with the right reforms in place and an honest openness to foreign participation. Time and again, we have seen global supply chains expand domestic markets, and there is no reason for Sri Lanka to miss out.

The performance of the SAGT and CICT have proven Colombo’s maritime potential, and it is time the Government made a concerted effort to achieve this. Sri Lanka has approximately 750 local shipping, freight forwarding, and clearing agents, but this is minuscule in comparison to Singapore’s 5,000. In order to make the most of the ECT’s capability, Sri Lanka needs to implement supplementary reforms that will attract leading shipping companies to bring their business to Sri Lanka and set up regional hubs for operations. This includes creating a stringent and transparent regulatory environment, as well as significantly reducing the bureaucratic and financial barriers that currently deter prospective stakeholders.

It is important to understand that maintaining economic sovereignty does not come from shutting out foreign capital and deep-diving into protectionist policies that accelerate economic decline; but rather, from capitalising on strategic opportunities that promote increased employment and growth, which thereby translate into economic agency. The Colombo Port is ripe for growth potential, and the Government should be proactive in implementing key reforms that will transform Sri Lanka into the maritime hub it seeks to be.

Limited government – Ideal State

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

Limited Government; Ideal State – Part IV

By Dhananath Fernando

This article completes Advocata’s four-piece series on “limited government”. Over the past three weeks, we have presented three arguments in favour of a limited government. We began the series by delving into the mounting costs associated with a government of this size. The article questioned the rationale behind expenditure on this scale, given that the services provided by the Government are characteristically inefficient. Erratic power cuts and railway strikes seen in the recent past are testament to this. From here, the series explored the question of how a government can best serve its citizens.

The main argument presented was that when the powers and responsibilities of the State are decentralised, voters are given a stronger voice and are better able to hold elected officials accountable. The result is that public finances are better managed and service delivery improves. The last topic tackled in this series was that of corruption, expanding on how the window of opportunity for corruption widens when a government grows in scope as well as physical size, without the necessary governance and accountability measures in place. All three articles concluded on the same point – the size and role of the Government needs to be re-visited.

At a fundamental level, a government exists to protect the life, liberty, and property of its citizens. This is the first and foremost responsibility of a government and it is vital that this is given priority. The danger of governments expanding into other sectors is that these foundational responsibilities are pushed to the sidelines. When a government provides subsidies, creates price ceilings, and gives ad hoc handouts, it loses incentive to focus on its priorities. Giving a subsidy has an immediate impact on its voters and a cycle of instant gratification begins. Parallel to election cycles, governments now have an easier, quicker method to win over voters. Ensuring the rule of law and enshrining the negative freedoms of a population does not have the shiny appeal of a handout – the positive, virtuous cycles these freedoms and protections create are strong, they can permeate institutions and change cultures of work. However, they can take years to come into effect and are difficult concepts to convey through the flashy advertisements of an election campaign.

Of course, this means that governments respond to the attractive incentive of a quick win and an extended term in office, and prioritises the handout over the fundamentals of freedom. As much as these freedoms can create virtuous cycles of growth and development, the neglect and deterioration of these freedoms can create dangerous cycles of corruption, misuse, and violence.

The best way to illustrate these dangerous cycles is through the justice system. Unfortunately, we witnessed first-hand the aftermath of the Easter attacks where virulent rhetoric against the Muslim community resulted in riots, with 500 Muslim-owned shops being attacked and set on fire. In the face of this outbreak of violence, the rule of law was flagrantly abused, and peace was not upheld.

Eammon Butler, in his book “Foundations of a Free Society”, expounds on this in some detail. According to him, the rules of justice are a cornerstone of any free society. While rules of justice would mean there are penalties for harming other people, in a free society, emphasis is also given to ensuring the role and power of a government is strictly limited. This will mean that the monopoly over violence a government has will not be used arbitrarily or in the self-interest of those who wield it. To quote: “The main problem of political organisation is not how to choose our leaders – that is easy – but how to restrain them.”

This seems reasonable and rational. No one wants an army-running rampant – you want to ensure the people with the guns and ammunition have clear rules on when and why they can use it. Most governments recognise this and have mechanisms such as constitutions and the separation of the executive, legislature, and judiciary to restrain those in positions of power. But the foundation of this is to ensure that citizens are all treated equally under the law – that all laws apply equally to all citizens and there is equal treatment and due process of justice. For freedom to have meaning, it has to apply equally to the whole population. When this does not take place and there is essentially a break down in the rule of law, the immediate impacts might seem inconsequential. It might mean that someone gets out on bail when maybe they shouldn’t. It might mean that tariffs are raised to protect politically important local business interests. Taken alone, these are singular events, which, while problematic, don’t cause much consternation. However, this is a slippery slope which often ends in widespread corruption in the best case, and a complete breakdown of law and order in other instances.

Once again, recent events illustrate that all citizens are not treated equally under the law, and that instances where law and order break down are increasing in frequency. The Wennappuwa Pradeshiya Sabha (PS) Chairman issuing a letter prohibiting Muslim traders from conducting business at the Dankotuwa Market is a case in point. It is of utmost importance that steps are taken to ensure the rule of law is maintained, and the Government prioritises its core functions putting the safety and freedom of all its citizens at the forefront.

Axe-ing local carpenters

Originally appeared in the Daily Ft and Daily Mirror

By Dhananath Fernando

On 6 June, for World Environment Day, the President stated that he will ban carpentry sheds, and will ban the import of machinery used to cut down trees. Since that statement, there has been considerable policy confusion. It is unclear whether the Gazette notification was amended to ban carpentry sheds and these saws, or whether given public outcry, the ban was not implemented (Update: the ban was approved).

The policy decision to ban carpentry shops will have a similar situation. The ripple impact across livelihoods, industries, and supply chains is difficult to quantify.

However, this is still a matter worth discussing. Even if the Gazette is not amended, a precedent has been set for people in positions of power to take misguided decisions, which could affect the livelihoods of thousands of people. In this instance, the intent of this decision is to address problems of deforestation - the question is, will it achieve this goal?

In Grade 8, we were taught the negative impacts of disturbing the equilibrium in a system or an ecosystem. That should be the first lesson for all leaders in Sri Lanka, before they even think of the word “policy”. To date, I recall the story of my Science teacher. In a forest where deer and lions coexisted, the then-ruler realised that deer were the prey for lions - a situation the king felt was unfair. As a result, the king made a royal decree that all lions in the forest should be killed, in order to protect the deer. For a few years, this appeared to be a wonderful decision. However, a few years later, the absence of a predator resulted in a sharp increase in the deer population. As a result, the food sources in the forest were not adequate to sustain this unprecedented boom in population, and the deer had to resort to eating the barks of trees. Overtime, the damage to tree barks affected the overall health of the forest, as trees began to wither and die. The increased scarcity of food meant that the deer population did not have enough sustenance to survive. In simple words, the good intention of protecting the deer population ended up in the collapse of an entire ecosystem. 

Undoubtedly, the policy decision to ban carpentry shops will have a similar situation. The ripple impact across livelihoods, industries, and supply chains is difficult to quantify. However, there are a few consequences we can predict. 

Carpentry Problem

Furniture prices are likely to increase 

The banning of carpentry sheds will reduce the furniture supply in the market, pushing prices of wooden furniture up. The hike in prices will mean that sales drop, pushing carpenters out of the industry. As the President has halted approvals for new carpentry shops, the industry is effectively condemned to an early death, with no ability for new players to enter, and no incentives for current players to expand in the industry. 

 Incentivising deforestation, bribery and corruption

With the prices of wooden furniture skyrocketing, the President has created a situation where any industrious, entrepreneurial minded individual would want to enter this industry. However, as permits for new carpentry shops have been halted, there is no legal path for people to enter the industry. The incentives are then for these people to enter the industry illegally, using bribery as their entry ticket. The consequences of illegal logging and unregistered chainsaws are much larger than those of allowing this industry to function within a regulatory system. The Government will not be able to monitor or regulate the levels of deforestation in the country, and we are likely to witness an increase in loss of forest cover. 

Lack of innovation and unemployment across sectors

These new restrictions placed on the carpentry industry provide no incentives for people to innovate within the industry. New, affordable and effective ideas which would aid environmental protection are unlikely to come about. Other countries have experimented with private forests, industrial timber cultivation and development of equipment to minimise wastage and enhances productivity. This will not be the case in Sri Lanka. The impact will not be limited to carpenters. No industry exists in a bubble, it is supported by a myriad of ancillary industries which will all be affected. Transportation, painting, polishing, varnishing, wood carving, cushioning, housing, construction are just a few examples of industries which will be affected by rising costs of furniture. 

Possible solutions 

At present the import tax on furniture is 88%, pricing imported furniture out of reach of the majority of the population. With no alternative, people turn to locally produced furniture. It is unlikely that the carpentry industry is the driving force behind all deforestation problems in the country - but even if it were - a more effective policy reform would be to lower these taxes. If imported furniture was more affordable, consumers would change their preferences and demand for locally produced furniture and the logging behind this industry would fall. 

The current tax of 88% on furniture imports is difficult to justify. If the Government is concerned about the environment, it should be able to put aside its protectionist agenda for a decrease in the rates of deforestation. That no steps have been taken in this direction indicates that their motives may not be as clear as we thought. 

Bringing down taxes on semi-products and finished furniture products is vital to improving consumer choice and competition in the furniture market. This would encourage new entrants to the industry, and the increase in competition would mean that there are more incentives for people to develop environmentally friendly business models. 

Less spending, less corruption

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

Why should we have a limited government? – Part III

By Aneetha Warusavitarana

The World Bank quite simply defines corruption as the “abuse of public office for private gain”. Accordingly, public office can be abused when private agents actively offer or accept bribes, institute practices of patronage and nepotism, and engage in the theft of state assets or misuse public funds. In Sri Lanka, corruption has become institutionalised and can range from the traffic policeman who accepts a bribe to a high-ranking bureaucrat siphoning public money for personal expenses.

In 2018, Sri Lanka ranked 89th out of 180 countries in Transparency International’s Corruption Perception Index. As a country, we score 38 out of 100, with 100 representing a clean, corruption-free country. The magnitude of this problem is clear.

What’s the big deal about corruption?


Is corruption really bad? You can’t deny that when your garbage is piling up, it’s easier to bribe the garbage collectors to take your garbage than visit your municipal council and file a complaint. Sometimes, it can just be easier to pay a bribe to the traffic police than go to court and settle a traffic violation, or to pay a little extra and get your driving license renewed faster. These are all very mundane, commonplace occurrences that have become normalised to the point one does not think of it as “corruption”. It’s just a small payment to make your life a little easier – a small payment to ensure an application is processed smoothly. So, if corruption can make things simpler, what’s the issue?

While corruption on this scale can appear to be insignificant, in reality, it is one component of a much larger, systemic problem which has far-reaching consequences. Corruption in government is institutional, and given the outsized role the Sri Lankan Government plays in markets and business, the impact is far-reaching. The difficulty in holding government officials accountable and the considerable discretion they can wield creates an environment in which corruption can flourish.

The far-reaching impacts of corruption

Large corruption scandals often focus on the amount of money that has been misused, placing emphasis on face value loss that is created by corruption. However, the impact of one act of bribery or corruption goes far beyond the initial monetary loss. Corruption raises the transaction costs of conducting business and creates uncertainty in the market. In an environment where corruption flourishes, a business will not win a contract based on merit and skill alone. Procurement-related issues (read: corruption) associated with the Kerawalapitiya Power Plant meant that it took three years to award the tender. This lowers profitability within firms and creates an overall environment of uncertainty which discourages foreign investment. The result is that the positive spillover effects from investments, like increased competition and technology transfers, will not take place. Corruption also reduces the attractiveness of entrepreneurship, resulting in higher prices and lower quality. The problem does not end there. The culture of corruption is one of impunity and complete disregard for the rule of law. When this culture permeates the government, it affects the independence and credibility of the legislature and the judiciary – the very institutions which should be ensuring that the rule of law is upheld.

State-Owned Enterprises and corruption

Sri Lanka’s state-owned enterprises are a prime example of institutionalised corruption. In Advocata’s flagship report, the State of State Enterprises in Sri Lanka – 2019, the problem of corruption is a key issue tackled. In this report, corruption is explained through the perverse incentives that exist in the Sri Lankan bureaucracy. In the case of state-owned enterprises, as the money invested in state-owned enterprises is not of the politicians, there are no incentives for politicians to work towards making these enterprises efficient or productive. However, given the deep-rooted culture of patronage that exists in Sri Lanka, there is a strong incentive for politicians to use state-owned enterprises for their own gain. The lack of oversight or accountability means politicians can hire almost indiscriminately, giving out jobs for political gain. The reports from the Committee on Public Enterprise (COPE) make this abundantly clear, highlighting the numerous instances where recruitment had taken place without the appropriate approval from the Department of Management Services.

This problem is exacerbated by weak systems of accountability and governance. While the COPE and the Committee on Public Accounts (COPA) do play a role in the governance of state-owned enterprises, they have access to limited resources and equipment and are in need of specialised skills such as legal aid.

What is the solution?

If corruption is the abuse of public office for private gain, then in order to stop corruption, we should focus our attention on how and where this abuse happens. When the government moves outside its core mandate to protect life, liberty, and property, it grows in size and in scope, making the government difficult to monitor and hold accountable. Additionally, as a government grows in size, so does its spending. Changing a culture of corruption will take a great deal of political will and leadership, as well as buy-in from the bureaucracy. While accountability and transparency play an important role in countering corruption, the effects of this are seen in the long term. In the short term, focus should be on limiting the scope of the government and thereby drastically reducing government spending. A 10% cut of Rs. 3 million is significantly lower than a 10% cut of Rs. 300 million; reducing government spending is the fastest way to reduce corruption in quantitative terms. A reduction in government spending will also make transparency within the government easier to enforce, helping create a culture of accountability.

If we are to seriously tackle the problem of corruption in government, the role and scope of the government needs to be revisited and limited.

Decentralisation: Taking governance to the ground level

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

Why should we have a limited government? – Part II

By Aneetha Warusavitarana

When speaking of a limited government, the first thing that comes to mind is the fact that governments tend to be so expansive. A plethora of ministries and an innumerable amount of departments and agencies spring to mind. However, it is important to keep in mind that when speaking of a limited government, the rationale goes far beyond arguing for fewer ministries and reducing the duplication of work and responsibilities within the government system. A limited government is one that is limited in scope – it identifies its key functions and expends all resources to achieve them. When speaking of the role of the government, its primary functions can be described as the protection of life, liberty, and property. When a government’s main role expands beyond this, there is a strong likelihood that the government will prove to be ineffective and even harmful.

How can a limited government run a country?

It’s all well and good to say that the role of the State should be limited to the protection of life, liberty, and property, but governments also provide a myriad of public goods. Doing all this requires resources, people, and departments. Given that this requires a significant amount of administration, how do you ensure the government does this effectively, while staying within its key mandate and with minimal corruption or abuse of power?

Can decentralisation be the answer?


Why should Sri Lanka move away from a centralised system of governance and increase the levels of decentralisation in the country? While there are some very theoretical explanations for decentralisation (which are important in their own right), we will use a simpler approach. In a population of approximately 21 million diverse people with different interests, preferences, and disposable incomes, how do markets allocate resources efficiently? Any A/L economics student will reply with the brief answer of the “invisible hand”. In reality, of course, there is no puppet master moving fruits and vegetables from one place to another. Each individual business acts in their own self-interest, resulting in a more efficient allocation of resources. Prices signal to these businesses – and the profits or losses these businesses make guide decisions to produce or sell – and thus, without the convening of committees or the presentation of any findings, an entire country is provided with goods and services it requires. William Easterly sums up this phenomenon as such: “The wonder of markets is that they reconcile the choices of myriad individuals”.

Price signalling works well in allocating resources because at any given point of time, it is impossible for one bureaucrat, or even a host of committees of bureaucrats, to have all the information necessary to dictate the production and distribution of a single good in an economy, much less all goods in an economy. This is because information and knowledge are localised, time sensitive, and tacit. In other words, information and knowledge cannot be transferred effectively in their entirety or in time. The fall of the Soviet Union is a testament to this.

What do markets have to do with decentralisation?

The same principle applies. The decision-making in a market economy is never centralised. While decentralisation will, of course, function differently – the spontaneous order created by price signalling in markets will not be making administrative decisions – the principle that centralised decisions are not effective stands. The reason behind this is that the information problems, which plague centralised decision-making of economics, also plague centralised decision-making for administration and governance. As much as a bureaucrat will find it impossible to distribute exactly the number of potatoes required to each province of this country, it is equally difficult for a bureaucrat to be located in a central government and to take decisions on local infrastructure. Any decision taken at a central level will not be ideal. There will always be information and local contexts that a bureaucrat is not privy to, and as a result, the decision will not be as effective.

Decentralisation brings governance and administration down to the ground level – it means decisions are taken by local government authorities who are best placed to make that decision. They are aware of local contexts and have been elected into office by the people in the locality, which would mean they have an understanding of what is needed. Of course, where the rule of law is weak, decentralisation can mean that local government authorities succumb to crony capitalism, as a system it is not without its faults. However, when comparing central governance and decentralised governance, in the case of decentralisation, there is greater opportunity for electorates to hold their representatives accountable, make their demands heard, and push for the reform that they want. In other words, it puts more power with the people and makes elected individuals more accountable to their voters – an admirable objective not only in principle, but also because of its effectiveness.

Should you say no to that government pension?

Originally appeared in the Daily Mirror

By Aneetha Warusavitarana

From a purely individualistic point of view, working in government can seem as a great choice. Government jobs come with perks; allowances of all natures and a guarantee that even if you underperform, the worst that can happen to you is a transfer – you will not lose your job. 

Once you hit 55, the deal is sweetened. At the point of retirement, you are provided with a pension package that beats ones offered by OECD countries, hands down. The best part of the pension package? You don’t contribute a single rupee towards it.

Why? Because the Sri Lankan government currently runs a non-contributory pensions scheme. Simply put, the government provides a monthly pension payment from the point of retirement to the point of demise. The World Bank places this monthly payment between 83 percent – 88 percent of the employee’s final salary, to which the employee does not contribute. In contrast, the private sector is covered by two provident funds, namely the Employers Provident Fund (EPF) and the Employers Trust Fund (ETF). In the case of the EPF, employers contribute 12 percent and employees contribute 8 percent. Employers contribute 3 percent to the ETF. When looking at the public sector pension scheme from a purely welfare perspective, it is difficult to find fault – a benevolent state is providing its retired government servants with a generous pension plan.

Why should citizens be wary of such benevolence?
According to the World Bank Development Update 2019, the current cost of pension payments amounts to 1.4 percent of GDP, and it is set to increase in the coming years. This is a considerable financial obligation that the government has made – and it is clear that there is worry about how financially sustainable a scheme like this is.

The government has made it clear that reform in public sector pensions is needed, and has taken an initial step to stem the outflow. All government employees hired after the 1st of January 2016 are not included in the present pensions scheme. The government has stated that a new pension scheme will be introduced for all employees hired after this date, making it evident that they wish to phase out the existing scheme.

Apart from the unaffordability of this public sector scheme, the consequences of it are far reaching - it affects productivity in the government service and labour markets in general.

 All the wrong incentives
Complaining about government inefficiency is a fond past time for many Sri Lankans. Some would say that nothing goes as well with a strong cup of tea than a good rant about the government. 

Let’s put the cup of tea down for a minute (just a minute), and ask why the government is so inefficient? There is a general understanding that if you want efficiency, you should look towards the private sector, and not the public sector. 

But why? Surely the government could hire the same sort of people and thereby achieve similar levels of efficiency. Part of the issue lies in the perverse incentives created by a culture of status, consistent increments which are not dependent on performance, and a guaranteed retirement. 

It seems a bit cold blooded to say that guaranteeing someone a decent retirement is a bad thing – but the argument runs deeper than that. Providing employees with retirement plans is not inherently bad. However, these plans need to be structured in a way which incentivizes your employees to work productively and efficiently, while ensuring that the employee (the government in this case) is not crippled by the financial obligation. 

Right now, in the government sector, part of the problem lies in the non-contributory pension scheme. Receiving a pension; receiving a good pension that you did not contribute towards creates a sense of entitlement.

A pension is now a right and not a benefit that is worked towards. After all, people are self-interested, and require the right incentives to be productive and efficient. The public service overall does not provide these incentives, and the pension scheme is only one contributor to this problem.

Labour markets 
Pensions also affect the flexibility and mobility of a country’s labour force. The long vesting period (requiring a worker to stay in that firm or that sector for a defined period of time to be eligible to receive a pension) of the government sector’s pension scheme affects labour mobility as workers are less likely to move between jobs and sectors. While one outcome would be that skills and knowledge would not be transferred across sectors, a more economically damaging outcome would be the perverse incentive for people to join a sector simply for the pension benefit, reducing labour productivity and competition.

This can be seen in Sri Lanka where many university students only want to work in the government sector. There are routine protests against the government for their not being provided cushy government jobs, and in response the government provides 10,000 students around election time. 

How does this impact labour markets? There is a continuous surplus of unemployed graduates, waiting for government jobs – and not considering other options.

Additionally, there is a significant opportunity cost that takes place - people join the government under the assumption that this is the best job available - the option of a job in the private sector is completely disregarded, even though opportunities for job progression, creating an impact, and better wages are all a possibility. 

Prudent financial management could mean that one retires with greater stability than a government pension provides. It is only a shift in mindset that is required. 

Sri Lanka pensions

Nevertheless, the budget speech 2019 stated that a national pension plan would be introduced, implying that this plan would extend beyond the public sector to include private sector and informal sector workers. However, the greatest reform need lies with the current government sector scheme. A few small reforms could be implemented to ease the financial burden that the government currently has to bear for all government employees hired before Jan 1st, 2016. 

The first would be increasing the age of retirement and changing the pension calculation to one that is based on the average wage over the best five years of employment instead of final salary. In order to make this reform more palatable, it is possible that these changes are introduced for the younger cohorts of employees and not those who will reach retirement age in the next five years. In conclusion, before acting on the promise of a national pension plan, the current one should be better managed and made 
financially sustainable. 

The burden of unprecedented costs

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

Why should we have a limited government? – Part I

By Dilshani Ranawaka

“The government that governs best, governs least” – Thomas Jefferson

A state has three core tasks within a society: Protecting the life, liberty, and property of the people. As societies evolved, these core tasks were overlooked when more emphasis was given to managing economies. Should the state intervene in economic affairs? Would that be more beneficial to the economy and society?

For the following four weeks, “The coordination problem” will discuss why large governments cause more harm than good when they engage in tasks beyond ensuring freedom and security of the citizens and the rule of law.

The series titled “Why should we have a limited government?” will justify why large governments are a bane to the economy through arguments on costs, problems of coordination, and corruption. The series will then conclude with a fourth piece on what an ideal state looks like.

It is intuitive that larger governments incur larger costs. This takes place through two avenues: recurrent expenditures and management expenditures. The present Government has lost count of the number of enterprises the State owns, as revealed by the Advocata Institute’s recently published report “The State of State Enterprises in Sri Lanka – 2019”.

As of 2017, 1,389,767 of the labour force in Sri Lanka are employed in the public service. This is around 14.5% of the labour force. The enormity of these numbers is clear when compared with developed countries. For instance, Canada, which has a population of 37.6 million, has a public sector of 262,696, according to the official Government of Canada website, making it clear that a government does not need to be expansive even in the instance of a large population.

To make things even worse, the Government introduces salary increments either at the onset of an election or during a new budget proposal, instead of having increments dependent on performance.

With the recently proposed increment of Rs. 10,000 for the public sector, the expenditure for wages adds up to Rs. 768 billion for the year. This is around 25% of the government’s expenditure, as per the Budget in 2019. This exceeds the amount allocated for public investment (Rs. 756 billion) for the year 2019, which is around 24% of the budgeted expenditure for this year.

These complicated numbers bring questions to mind: Is providing jobs a role of a government? What is the opportunity cost? What are the indirect consequences? What is the concealed political gain from this process?

A state’s role goes beyond providing job opportunities. Some of the crucial elements a state should look into are national defence and maintaining law and order. The Easter attacks and ensuing events highlighted that the Government should be focusing more on its core functions before moving beyond.

Furthermore, when looking retrospectively at political campaigns, politicians target the votes of government officers mainly through the introduction of wage increments. While increments are positive incentives for productivity, politicians use them for popularity. In such cases, two factors increase the costs for the government. Since larger governments require more state officers for administration purposes, the costs incurred just for administration purposes increase. When politicians promising higher increments become popular, the cost burden for the government piles up.

Every decision made in the economy has an opportunity cost. A state could allocate resources either for consumption or for investments. Investments generate direct income in the long run while consumption creates effective demand which indirectly generates income. Given this backdrop, it is important to answer why unregulated and irresponsible expenditure by a state is catastrophic.

Let us explain through a simple example. If a household spends on consumption which does not generate income, the household has to resort to loans. A similar argument can be transposed towards a state. If a state spends on consumption (in this case the cost for expansion of the government), they have to utilise other methods such as loans or taxes which are reflected back on the taxpayers of the country. These wage expenditures incurred by the government are utilised for consumption most of the time. Alternatively, if politicians stop promising salary increments and reduce the size of the government, these wages could be utilised for public investments – a critical requirement for economic growth and long-term income generation.

Cost Burden

Leaving vital services aside, what do state officers incur to the government? Losses or revenues? Would an additional state officer cover the cost of their wages and generate revenue through their productivity? Would it increase the efficiency of the department? These questions should be standard criteria before unnecessarily expanding particular state departments. The experience one has at most government institutions speaks for the inefficiency that plagues these institutions.

What is the underlying cause of incompetence of the State in Sri Lanka? If the government is supposed to facilitate services, why do they operate their entities in a manner they generate losses? Why do we constantly see power cuts through the Ceylon Electricity Board (CEB) if larger governments are meant to provide better services? Could we keep our trust on the State, given the way they function with our money?

Do larger governments function better? The evidence seems to indicate otherwise.

Excessive regulations in tourism – ‘So Sri Lankan’

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Dhananath Fernando

Tourism – a topic that politicians and bureaucrats never get tired of. Following Easter Sunday, the tourism industry is now on a different trajectory. Security concerns have affected over 170,000 people directly employed and 220,000 people indirectly employed in an industry that contributes about 5% of GDP. The initial plan the Government had for 2020 was to increase tourism earnings to $ 7 billion from its current earning position of about $ 4.3 billion, and increase spending per visitor to $ 264 per day from the current position of $ 178 per day in 2018.

The approach taken by every successive government to increase numbers has been to make their mantra “promotion”. Just as the country follows the same traditions every new year, every successive government and the minister of tourism proposes a new campaign and a slogan for the Sri Lankan tourism industry. They produce scenic showreels and graphics of this splendid island to showcase at many travel exhibitions and to run promotions online as well as offline. We were the “Wonder of Asia”, then converted to the “Little Miracle” for a short time, and to the “Land Like no other”. And now we are “So Sri Lanka”.

While the slogans and promotion campaigns are of paramount importance, governments have failed to provide sufficient focus on the actual details that matter to the industry. This is reflected in the debt relief package offered in the aftermath of the Easter attacks. It might seem unrealistic to expect the Government to address concerns across such a large and diverse industry – when stakeholders range from high-investment airline operators to the destination point trishaw. However, a few simple business principles can be applied regardless of the stakeholder category.

  1. Minimum regulatory barriers to enter and exit the market

  2. Lower taxation so the prices will be affordable

  3. Minimum government intervention to allow greater efficiency at the ground level

Let’s go into detail with a few regulatory barriers mentioned on the website of the Tourism Development Authority for registrations of online/offline travel agents (destination management companies).

Travel agents and destination management companies are entities that coordinate an entire trip within Sri Lanka for tourists. They recommend the travel route, book the hotels and lodging on behalf of the tourist, and arrange everything from airport pick up to drop off. In short, they do an extensive coordination job. These travel agencies can be found on the internet and tourists can directly reach them over the web. There is also a business to business (B2B) model which is common in the industry. In the B2B model, the respective agent from another country approaches the local travel agents and the local travel agent acts as an agent of the particular company, and this works vice versa.

The profile of tourists shows that about 2.3 million tourists only spend an average of $ 163 per day over 10.8 days. The industry needs to be accessible for business newcomers to enter the travel market and create new value propositions to attract more tourists to Sri Lanka, especially at a time where the entire industry is shaken by the Easter attacks.

In the category of registering as a travel agent of Sri Lanka Tourism Development Authority (SLTDA), there are certain requirements which have to be met. Prospective businesses must show a 1.2 million working capital for a sole proprietorship and a one million working capital for a limited liability. Additionally, a bank guarantee of 10% of the working capital is required. Furthermore, SLTDA wants the new travel agent to have 250 square feet of furnished office space with a reception, telephone line, fax line, and a computer reservation system.

They have further made it mandatory to employ a minimum of three professionally qualified or experienced staff to work on transport, accommodation, currency, outcome regulation, reservation of airline tickets, and general information on travel and tourism-related services.

I am sure all these guidelines must have drafted with good intentions, but this has made it almost impossible for a new entrant to enter the market as a travel agent. To fulfil all the guidelines to get a license, you need more than Rs. 3-4 million, which makes it very difficult for a small and micro entrepreneur to enter the industry. In reality, a small operation as a travel agent would require one laptop with internet an individual with excellent coordination and communication skills. It would require a maximum of two to run a small-scale operation. A reception is not required as your clients are visiting scenic destinations and staying in hotels – they will not be visiting your office.

Even if a company wanted to impress their clients with attractive office space, there are many co-working spaces in Colombo where you can hire a desk space and a board room for a few thousand rupees on an hourly basis. While other industries, most notably tech recognising the benefits of a co-working space for start-ups, SLTDA still wants telephone and fax lines for an industry where most clients communicate on email and database call apps.

The guidelines provided for recruitment are a clear-cut case of how government agencies create bottlenecks affecting the ease of doing business. An entrepreneurial individual starting small will never take a risk of having three professionals on the payroll during the start-up period. They will instead hire a semi-skilled person who has the capacity to learn on the go. A travel operation simply does not require a professional graduate to run a small-scale business.

The Government initiated “Enterprise Sri Lanka Loan Scheme – Erambuma” provides a maximum of Rs. 1.5 million for a young graduate with an innovative business idea. While this is commendable, the regulations brought in by SLTDA will make it virtually impossible for a young graduate to set up a travel agency, even with the loan.

If the Government is serious about getting tourism on the track, it is of paramount importance that they reduce entry barriers for new entrepreneurs. If not, the plan of creating a tourism industry worth Rs. 7 billion will remain a castle in the air.

While regulation is important, especially to maintain standards and ensure quality, it is also important to distinguish between regulations that will help the industry grow and those that will stifle it. SLTDA regulates more than 25 such industries from hotels to scuba diving, and bringing all these regulations to light would fit a decent-sized book. It is necessary that SLTDA revisits its guidelines, keeping in mind how these guidelines affect both established players as well as new entrants who would really make a difference.

It is said “how you do small things will determine how you do big things”. While tourism authorities run promotions on the “So Sri Lanka” slogan, it would be useful for them to keep this phrase in mind too, before imposing regulations which restrict entry into the market.

Drowning in a sea of hatred

Originally appeared in the Daily News

By Ravi Ratnasabapathy

In Singapore, we start with the irrefutable proposition that the alternative to multi-racialism… is genocide in varying degrees. – S. Rajaratnam, then Minister for Culture (1959–1965)

The flood of anti-Muslim hate speech on social media is a disturbing phenomenon. Are organised groups using social media to radicalise people and to encourage ethnoviolence?

Hate speech is a pre-requisite for violence but understanding the role it plays requires examining its psychological underpinning.

Human minds tend to stereotype - it is a convenient means of classifying information. Placing people, ideas and objects into different categories makes the world simpler and easier to understand. Survival in a jungle dictates judging everything on first impressions and stereotypes may be particularly useful in such a setting, although life in the urban jungle demands a subtler set of rules.

We may thus form unconscious beliefs about the characteristics of social group; that the French are romantic, or that the old are incompetent. These may not be particularly harmful but we may also develop prejudice—an unjustifiable negative attitude to a particular group; Indians, Chinese, Muslims.

Humans also need to feel that they are part of a group, as tribe or clan. People identify with and feel affinity for their own group but not to other groups, something social psychologists term in-group/out-group dynamics. While we tend to see members of our own group as individuals, we view those in out-groups as an undifferentiated—stereotyped—mass. When we feel threatened by perceived outsiders, we instinctively turn toward our in-group—those with whom we identify—as a survival mechanism.

Stereotypes, prejudice and in/out group dynamics form the axes of inter-communal tensions but to turn tensions to violence people must first overcome natural inhibitions and their fear of the law.

Attacking others becomes easier if they are no longer seen as human. We may hold prejudices and anger against people we view as an “outgroup” but this is more likely to turn to violence if the outgroup is seen as less than human.

This is the role of hate speech - it dehumanises.

Dehumanisation, is defined as ‘divesting people of human qualities or attributing bestial qualities to them’ such that they are ‘no longer viewed as persons with feelings, hopes and concerns but as subhuman objects’ Bandura (1996).

“Denial of the humanity of others is the step that permits killing with impunity. The universal human abhorrence of murder of members of one’s own group is overcome by treating the victims as less than human. In incitements to genocide the target groups are called disgusting animal names – Nazi propaganda called Jews “rats” or “vermin”; Rwandan Hutu hate radio referred to Tutsis as “cockroaches.” The targeted group is often likened to a “disease”, “microbes”, “infections” or a “cancer” in the body politic.”

The current campaign against Muslims consists of two strands; one dehumanises them, the second portrays them as a threat-to Buddhists, Sinhalese and Sri Lanka in general. The second strand features rumours, false or misleading news stories that are designed to stir suspicion or fear; triggering in-group responses.

While some hate speech is easily recognised, being blatantly spiteful they also include more subtle caricatures, racist slurs disguised as jokes, teasing or “edgy” comments. The latter and some of the false news were widely shared by those who were not otherwise openly racist. These work subconsciously, reinforcing or instilling prejudices and fears into the non-Muslim community.

It can be far too easy for non-Muslims to dismiss these as silly; a bad joke at worst but they all contribute to the same end. Some people who shared hate speech on social media were later seen sharing calls for calm in the aftermath of the riots, seemingly ignorant of their own part in the crisis.

The question is where is this leading?

This hatred cannot be dismissed as a passing reaction to the Easter attacks because:

  1. Anger abates with time, this is expanding instead of dissipating;

  2. the almost complete absence of any reference to the victims.

Normally after a disaster, such as a flood there is an outpouring of sympathy and rush to help victims. The dominant emotion in the public is one of sympathy. While there have been some efforts in this respect they have been relatively small. The actual victims; indeed even the incidents seem largely forgotten. Instead of sympathy or charity towards victims, the nation seems gripped in a virulent wave of hate.

After the riots (that created a second set of victims, who are also forgotten) the blood lust seems temporarily satiated but the hatred has not abated. Much malicious and misleading material is in circulation. Muslims encounter routine hostility and discrimination; from neighbours, in the street and even friends. This is frightening them into greater insularity.

Meanwhile some non-Muslims, especially families with children are still wrapped in their own fears of further attacks, unable to think beyond their own concerns over security.

Fear often shuts down our ability to experience empathy so the different communities are retreating into isolation and insularity within their own groups. The social fabric is in shreds, breaking down under the strain of fear and anger.

Equality, and equal safety for all humans, is dependent not only on the law, but also on the empathy everyone in a community has for each other. If this is lost and society is divided along ethnic or religious lines into fearful and mutually suspicious groups it creates a potent cocktail that can burst into flame at the slightest provocation.

This is more so since the government seems to have only a tenuous grip on law enforcement. Impunity breeds contempt for law, and emboldens thugs, who can literally get away with murder.

These create the potential for further episodes of violence. New flashpoints are building in Kurunegala and Negombo.

Does the political leadership realise that we face a prospect of intermittent, internecine ethnic violence? Do the media houses realise their contribution to this? The media are potent and pervasive communicators; false, misleading and alarmist stories are as important as hate speech in ethnoviolence.  

Putting the genie back in the bottle seems an almost impossible task and demands a strong and coherent response.

  1. The Government needs to regain control of the narrative and reassure people.

  2. A zero tolerance policy for those who break the law.

In the aftermath of a disaster the political leadership should have acted jointly, sending a unifying message, channeling the emotions of the population. It should have emphasized the jointly shared societal values among all communities and stressed that this was a battle between all citizens against violent extremism.

That moment has been lost but even now those central themes must inform all communications. People are frightened, so they must first be reassured:

  1. That the threat from ISIS has been effectively dealt with. They must explain the extent of the threat, the measures taken and progress toward ensuring the populations safety.

  2. That structures are in place to prevent future threats: to detect and prevent radicalisation.

An information vacuum permits rumours and falsehoods to flourish, exacerbating tensions. The government needs to dominate the narrative-and match it with actions.

For example, experts seem to confirm that there is little immediate threat-the security measure must reflect this. In any case the convoys, checkpoints, road closures are a throwback to the LTTE and has little relevance today.  When MP’s cocoon themselves behinds layers of security people will be suspicious as to whether the threat has actually abated.

Pardoning a central actor implicated in previous Islamophobic incidents sends entirely the wrong message, about the commitment to upholding the law and the rights of citizens, including tolerance of violence.

Sensationalist news reporting of police raids uncovering weapons or other suspicious items add fuel to the fire. These may simply be ordinary criminals. So far little evidence is presented to connect them to a genuine ISIS threat but the reporting creates the misleading impression of a widespread ISIS presence that instills a general fear of Muslims. These reports seemingly confirm the false narratives on social media and are equally dangerous.   

Formal action needs to be taken against media for false or misleading reporting, even censorship may be necessary given the blatant rabble rousing by certain media houses.

The strength of a nation lies in how well you treat all your people. It’s a mark of strength when you celebrate everyone who lives alongside you. We move forward when everyone has the freedom to live their lives as they wish, to contribute to their society as they see fit, and to be the people they want to be
— Osama Bhutta, Amnesty International's Communications Director

The leadership must quickly resume normal activities and encourage people to maintain daily routines which help shift focus away from factors that maintain fear and uncertainty.

These collective strategies are needed to calm people, preventing fear and panic spreading in the population.

The second part of the strategy is to rebuild bridges between communities.

Islamophobia doesn’t just affect Muslims. It affects the entire city because it breaks social cohesion
— Jaume Asens, Deputy Mayor

Barcelona suffered an attack by ISIS in 2017 but the municipal government put in place a shock plan to combat rejection and discrimination towards the Muslim community.

We need to do the same because it affects us all.

How many committees does it take to fix an airline?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Dilshani Ranawaka

On 1 March, the International Monetary Fund (IMF) approved $ 164.1 million under the Extended Fund Facility after successfully completing the fifth review for the country. According to the IMF, restructuring and enhancing the governance of SriLankan Airlines and other state-owned enterprises (SOEs) and the implementation of price formula are key issues that should be addressed.

SriLankan Airlines has a new CCO and CFO as a result of the numerous numbers of commissions formed to assess and come up with a restructuring process. Presently, the losses alone had accumulated up to Rs. 40 billion in a time frame of 2016-2018.

The solution is pretty straightforward – find the root cause and then come up with recommendations. However, restructuring in the case of SriLankan Airlines appears to be a rather daunting process for the Government, with endless committees and subcommittees working on a strategy. The Government started off by appointing Cabinet members and state officials in the first commission. It took them three years to realise that it is crucial to appoint experts to look into this matter. Even after appointing four committees plus consulting the best in the aviation industry, Nyras, what they have achieved so far is the appointment of a new board and a new management along with the CCO and CFO. Given the climbing amount of debt from operating the airline and also knowing the intensity of the losses, why have they taken such a long time to plan a way out of this?

The first such committee was formed back in May 2017, focusing on privatising the airline. The council was headed by Prime Minister Ranil Wickremesinghe and consisted of officials from the Cabinet and other state officials. Following up on the process, it was reported that the Prime Minister was to take the decision on restructuring the airline in July 2017.

“By 31 July, we have to give an internal restructuring plan to the Prime Minister, basically looking at what we have to do internally with SriLankan – irrespective of whether we are getting a partner or not, we need to move forward,” a statement given by then Minister of Public Enterprise Development Kabir Hashim.

However, implementation did not materialise, and on 8 December 2017, the President appointed another special ministerial committee and a committee of officials to assist them to decide the fate of SriLankan Airlines with a deadline of two weeks, with a report due to be submitted on 20 December 2017. The actions regarding the airline were to be implemented on or before 31 July 2018. Why does the Government take such a long time – almost half a year – to implement these recommendations? The role of any government in an economy is to adjust market failures, not to cause more.

By 2018, Nyras, one of the leading aviation consultancy firms, was hired after the initial round of recommendations, and it presented a comprehensive report. However, the consultancy group has now filed a lawsuit against the Government because of delayed consultancy payments. While these measures were taken and international consultants were hired, SriLankan Airlines was still piling up losses at an exponential rate.

By 7 January 2019, the President formed yet another commission to conduct a comprehensive study – review the present vision and mission objectives, strategies, corporate plan, and action plan of the airline – and come up with recommendations for restructuring, which does not consist of any member of the previous committees formed by the President. Does this mean that the previous four committees appointed (two committees in 2017, one in 2018, and another in 2019) are redundant?

Exercising our rights as citizens, we need to push for fast reforms as this is a black hole sucking out tax-payer money. It has taken five committees, including consultancy from Nyras, to address various issues of SriLankan Airlines for the past three and a half years. With these five committees, what the Government has achieved so far is inducting the board of the airlines.

What we can take from this is:

  1. The commissions have submitted recommendations that wouldn’t work


  2. The Government is incapable of implementing these recommendations


  3. The Government is being willfully negligent by not taking action and implementing recommendations.

Given past experiences, these failures indicate a combination of the second and third conclusions.

SriLankan Airlines, which is operated under Emirates – a renowned carrier of United Arab of Emirates, enjoyed Rs. 4.4 billion in 2008 only except for three years during the time period of 2000-2008. The next 10 years, once the airline was taken over by the Government, suffered heavy losses due to the decline in performance and poor governance. The national airline had been climbing down in terms of performance as well as losses.

How many committees would it take for the Government to really execute any of these plans? When the good governance regime started their office in mid-2015, the losses of SriLankan Airlines were Rs. 16.4 million. The losses of the airline had more than doubled up to a cumulative loss of Rs. 40 billion for the time period between 2016 and 2018. It took Rs. 40 billion and three years’ worth of planning to appoint two vital roles, the Chief Commercial Officer and the Chief Financial Officer, to the airline. How enormous should the losses be for the governance to implement restructuring procedures? What would be at stake by then? This is indefinitely an answer Sri Lankans would not like to find out.

Keeping track of our state enterprises

Originally appeared on the Daily News

By Aneetha Warusavitarana

The Sri Lankan government is currently in a rather confused state of having lost track of the number of state enterprises it runs.

While the Ministry of Finance tracks the financials of 55 key SOEs, the government does not have an official number for the enterprises it runs. The Annual Report of the Ministry of Finance states that there are 400 and this is true to a certain extent. In the Advocata Institute’s 2019 report on the state of state enterprises, it has identified 424 principal SOEs, 84 subsidiary SOEs and 19 sub-subsidiary SOEs; bringing the total to a shocking 527 entities.

While it is bewildering that the government runs a minimum of 527 entities, the losses sustained by these enterprises are a greater cause for concern. When looking at the financials of the 55 strategic SOEs (which account for only 10.4% of the 527), the cumulative losses for the period of 2006 – 2017 amount to a massive Rs. 795 billion.

Reform promises

Apparently, the government has taken note of this. Reform has been promised by a variety of politicians at pivotal political moments. The election manifesto of President Maithripala Sirisena stated,

“I will implement a plan corresponding to Singapore’s Thamasek model to regularise the Management of State owned strategic institutions and sectors such as state banks, the harbour, energy, water supply, airports and transport.”

This is essentially a good starting point. Under the Singaporean Temasek model, one holding company is responsible for countries’ public enterprises. This is a model that has worked, with variations being adopted in other countries.

The Indonesian variation of the model has one holding company for each sector – given that Sri Lanka is a much smaller country it is possible that we could manage with one holding company.

The benefits of adopting this model lie in the accountability it creates. Having a holding company creates distance from the government and its SOEs, reducing chances for political intervention. It’s important to note that the Prime Minister has also expressed his support for this model, which meant the policy had buy-in from both sides of then unity government. While the Temasek model is a step in the right direction, if we want our SOEs to be efficient, privatisation is where the final solution lies.

On that note, the ‘privatisation of state-owned enterprises’ was mentioned early in the 2016 budget speech. The speech highlighted the loss-making nature of SOEs and the negative impact this it had on the budget. The solution mentioned was the use of ‘corrective measures’ to transform SOEs into commercially viable enterprises.

The methods recommended were selective, market-based pricing mechanisms for public utilities, rationalising of recruitment and exploring public-private-partnership opportunities.

The budget speech of 2017 also stated that steps would be taken to make SOEs viable business entities through cost reflective pricing structures and operational autonomy.

It went further, committing to the listing of non-strategic enterprises such as the Hyatt, Grand Oriental Hotel, Waters Edge, West Coast, Manthai Salt, Hambantota Salt and Hilton. The rationale was that the money raised could be used for debt repayment. Notably, both the budget speech of 2018 and 2019 were silent on the topic of SOE reform.

Working under the assumption that these promises were made in good faith, there is the question of why reform never materialises. It is possible that we have been trying to run before we can walk. While SOE losses have to stemmed, it may be better to have smaller, digestible phases of reform than a large reform agenda which will never move beyond a statement or speech.

Reform is vital, but should realistic

A key point highlighted in the recent IMF staff report was the losses sustained by state owned enterprises. Three main SOEs; the Ceylon Petroleum Corporation (CPC), the Ceylon Electricity Board (CEB) and SriLankan Airlines have recorded a combined loss of 1.3 per cent of GDP in 2018, compared to 0.5 per cent of GDP in 2017. The report also puts the financial obligations of non-financial SOEs at 11.8% of GDP.

Given rising losses and the urgent requirement for some level of action to be taken, it may be that the government should focus on smaller, more achievable reform that lies within the realm of political possibility. In Advocata’s 2019 report on the state of state enterprises, a few key reforms were identified.

These reforms were chosen because they are politically feasible and because they will have a targeted impact on the root causes behind SOE losses. Two of the main reforms are detailed below.

  1. Conduct a survey of all state-owned enterprises: it is impossible for the government to regulate or monitor these entities, when the government is uncertain of the scope of its responsibility. Once the survey is completed, the government can institute basic reporting procedures.

  2. Strengthen COPE, COPA and the Auditor General’s Department: these institutions are the main source of accountability for state-owned enterprises and as such should be given a mandate which allows them to take sufficient action.

Once these steps are taken, the government could expand its reform agenda to encompass the OECD principles of corporate governance, which include clearly defining the state’s role as an owner, establishing an effective legal and regulatory framework for SOEs, ensuring transparency and disclosure, while emphasizing the state’s responsibility to stakeholders. In short, the OECD guidelines will nudge SOEs towards a path of transparency and efficiency.

However, in the short term, the first two reforms mentioned above remain crucial.

SL SOE Count

It’s bloody unfair!

Originally appeared on Daily FT, Ceylon Today and Daily Mirror

By Anuki Premachandra

Today (28) is Menstrual Hygiene Day. Most of you might not be aware of it because in Sri Lanka, we pretend that women don’t bleed. 

Poor menstrual hygiene is caused by a lack of education on the issue, persisting taboos and stigma, limited access to hygienic menstrual products and poor sanitation infrastructure that undermines the educational opportunities, health and overall social status of women and girls around the world. As a result, millions of women and girls are kept from reaching their full potential. 

In Sri Lanka, we treat access to menstrual products as both a luxury and a black market good. Steeped in social stigma, the negative characterization of these necessities have overwhelmingly resulted in a growing prevalence of ‘Period Poverty’. 

Period Poverty isn’t just another term 

Period Poverty refers to having a lack of access to sanitary products due to financial constraints. This problem is quite serious in the case of Sri Lanka. Commercially produced sanitary towels typically sell between Rs. 120-175. Imported brands can go up to Rs. 350, putting them out of reach for most women, thereby making it a luxury for some. 

The heavy tax on sanitary napkins is a key contributor to these disproportionately high prices. 

In September 2018, the Minister of Finance reduced the tax on sanitary napkins to 62% from 102%, following the removal of the CESS tax. The Minister for Finance Mangala Samaraweera recently mentioned in a Reuters article that he was looking at ways to reduce the tax further as he recognises the effect of period poverty on girl’s school attendance and the participation of women in the economy. 

The average woman has her period for 2,535 days of her life. That’s nearly seven years of depending on unhygienic cloth rags and makeshift solutions if sanitary napkins are beyond your financial reach. 

This is a classic characteristic of a luxury good. Expensive watches or perfumes are only within the purchasing power of some, because only they are rich enough to afford it. 

Unfortunately sanitary napkins have fallen to the same misfortune. Is it justifiable that something so essential as a pad is something that only those with financial capacity can afford? 

This year’s tagline is ‘Menstruation Matters’ and could not be more relevant to Sri Lanka. A few weeks ago, a Sunday newspaper ran an article on urbanisation that expressed views on how the ‘modern’ woman buys sanitary napkins in this country – indeed, a round peg in a square hole. Nonetheless, it is interesting to analyse the thinking behind this narrative. 

The writer explains how women in modern society now purchase their sanitary napkins in broad daylight over supermarket counters, instead of the sanitary napkins being sold wrapped in newspaper or brown bags in efforts to hide the identity of the product. There is clear disapproval of purchasing sanitary napkins out in open! 

Unfortunately, the ideal transaction etiquette the writer holds dear is more common in Sri Lanka than we’d like to accept. A few weeks ago, when I purchased a packet of sanitary napkins in Kandy, the grocery uncle went to great lengths to wrap my purchase up in newspaper, because god forbid if someone finds out I’m on my period, right? Some blame culture, some blame our values – but the result of this stigma is the imminence of ‘Period Poverty,’ which 10.5 million women in our country are burdened with. 

How does stigmatising our periods aggravate Period Poverty?

This little charade of hiding your pads and the norms which reinforce this act makes it almost seem like you’re buying a boxful of heroin, and not pads. 

Treating a product this essential like you would a good sold in the black market means that the social stigma around periods extends to the purchase of sanitary napkins. 

The stigma is so strong that stores don’t sell the product without masking its identity, women don’t openly discuss the purchase of this product, leading us to accept the product as it is, without questioning its price or quality merely due to the lack of open conversation. We’re made to accept whatever that is sold to us – at a higher price and with little variety. 

The local sanitary napkin market is dominated in Sri Lanka by a few brands. The protection of these brands is also why there is such a huge tax on the imports. When compared to supermarket aisles in India, Sri Lankan aisles carry very limited variances of the product. 

The demand for specific types of sanitary napkins differ from woman to woman – our physiologies are different. We barely see pads that are for example, organic cotton, washable and reusable, etc. in our aisles because when we treat pads as a black market product, we’ve put ourselves in a situation where we’ve just got to accept whatever that is available in our reach!

No, your pads are not a packet of drugs whose identity needs to be masked and sealed. No, it is not fair that pads are made expensive (through taxes and very minimal competition) to the point that only a selected few can afford them. 

This Menstrual Hygiene Day, I urge you to start having open conversations about issues of this nature. We need to change this narrative. Pads should not be a luxury. Period. 

The COPE reports

Originally appeared on Echelon

By Ravi Ratnasabapathy

The Parliamentary Committee on Public Accounts (COPE) reports on state enterprises

The COPE, a key oversight committee, is by its own admission under-resourced. It lacks staff, particularly for audit and legal support. They also lack IT systems and, apparently, even a proper office. Despite these limitations and the fact that the reports are not comprehensive, they have examined a limited number of issues in a few institutions. These reports are a devastating critique of the state of governance, underlining the need for a re-think in the role of the government.

Excerpts from the reports are as follows:


As per the Auditor General’s report on the SLPA (2016):
“The Authority had conducted the architectural and construction activities of the international cricket stadium in Suriyawewa on behalf of the institute of Sri Lanka Cricket. According to the contract agreement entered into between the contractor and the Authority on the said construction, a sum totalling Rs5,838 million, inclusive of the interest amounting to Rs2,881 million, had remained payable to the contractor by the Authority up to 31 December 2016 in respect of the said constructions made under the variation order (emphasis added) of the contract for construction of the Hambanthota Harbour.”

Note: A variation order is an alteration to the scope of works in a construction contract in the form of an addition, substitution or omission from the original scope of works. While these are not unusual in large projects, it is bizarre to treat work on an entirely new and unrelated project as a variation in a port construction contract.

“Despite the non-availability of any verification that the said sum would be borne either by the Treasury or the institute of Sri Lanka Cricket, the sum had been accounted in the financial statements of the Authority as being receivable from a Government institution, but the receipt of that sum remained doubtful”(ibid).

Separately, the third COPE report observes that Sri Lanka Cricket owes the State Engineering Corporationan amount of Rs818 million on 7 projects as at 31.12.2015.


An overdraft facility of Rs245 million and a long-term loan facility of Rs150 million were granted to a customer for a construction named Kandy City Centre on 30 January 2009 and 27 January 2009, respectively. However, these loans were classified as non-performing loans after 3 months. Though the customer agreed to pay the loan in installments of Rs1 million per month, it was decided to offset the loan against the monthly rent to be paid on behalf of the People’s Bank branch housed at Kandy City Center.

However, even if the customer repaid the loan in monthly installments of Rs1 million each, the bank would have to wait for 62 years to recover the outstanding amount. The chairman stated that several such unsystematic transactions had been done.

Note: As per CBSL guidelines, ‘Credit facilities repayable in monthly installments: when 3 consecutive installments, principal and/or interest, have not been paid’ are to be classified as non-performing loans.

The loan granted in January 2009 was classified as non-performing within three months of disbursement, which indicates that there was no attempt at repayment. Subsequent to COPE recommendations, Rs20 million had been recovered. Legal action had been instituted, but the defendants did not appear in courts when the case was called on 1 December 2016.

Credit approval in a bank should go through multiple levels of authority – the branch manager, credit officer, credit committees, board committees and risk management committees – depending on the size of the loan. A loan in excess of Rs100 million would typically require approval at the highest levels. The chairman’s comment of ‘unsystematic transactions’ seems to indicate serious control weaknesses, further examples follow.

The Ja-ela Bank branch had granted three loan facilities and three overdraft facilities to a customer, his spouse and an enterprise; and subsequently, these loans were categorized as non-performing.

I. At the date of 12.11.2013, the outstanding balance of Rs619,867,345 of the three overdraft facilities and one loan facility could not be recovered.

II. The chairman stated that legal action has been taken to recover more than 60% of the loans that had been granted in an unsystematic manner and discussions are being held with regard to the remaining portion of the loans.

Note: Subsequent follow-up by COPE indicates that the husband and wife were directors in a company engaged in property development. Loans had been obtained in the names of the individual directors and the company. The unsettled balance of these loans was Rs197 million and the interest to be collected was Rs503 million, making the sum total due to the bank Rs700 million by September 2016.


Rs7 million had been paid to a private party in 2002 to purchase land to construct this holiday resort. Thereafter, the Kataragama Divisional Secretariat informed that the land belongs to the government and that it had been obtained on a 30-year lease from January 2008 for an annual lease of Rs460,000. However, the sum of Rs7 million paid to a private party had not been recovered.

Note: Following the COPE report, legal action had been instituted in the Gampaha District court for recovery of the Rs7 million. The question as to why the title was not properly checked prior to purchase remains unanswered.

The contract had been awarded to a private company for Rs27,464,632 (without VAT) in June 2012 for the implementation of the project within 8 months. The company had paid a sum of Rs248,600,000 (without VAT) to the contractor and the period of the contract had been extended on four occasions. Though over four years have lapsed since the awarding of the contract, the contractor had failed to carry out the contract properly. The work of this institution has currently been suspended and it has submitted an appeal.


A sum of Rs11 million out of Rs29 million had been received for renovating 30 rooms of a holiday bungalow belonging to the Authority had been for work not done and overpaid taxes. According to the report obtained by the Authority from ICTAD, a loss of nearly Rs5 million has been incurred. Steps had not been taken to recover that amount from the contractor or the officer who approved the payment.

A sum of Rs3.2 million had been paid to suppliers based on three letters, which the suppliers had produced stating that they had provided dozers to construct the Kalpitiya Mohottuwasama Jetty. This payment had been made without a certificate of fixing work hours according to the daily meter reading by an officer of the authority.

Even though the Kalpitiya integrated Tourism project commenced in 2008 on an estimated cost of Rs5.5 billion in order to construct holiday resorts with 4,000 rooms and infrastructures facilities to be completed within 5 years, not a single room had been constructed despite an expenditure of Rs88.7 million at December 2014.

Four hotels had been selected close to the Hambantota International Cricket Stadium (which was selected to host cricket matches for the 2011 Cricket World Cup), to develop accommodation facilities.

It was revealed that this sum of Rs7.3 million, a portion of the 4% interest of a loan obtained by the Peacock Beach Hotel from the Bank of Ceylon, had been paid out of the Tourism Development Fund on a number of occasions. According to the documents furnished to this committee, the approval of the minister in charge had not been obtained to make the payments.

Note: A letter appended to the COPE report provides some explanation of the circumstances of this payment. It indicates that the four hotels had to be upgraded to four-star status in order to host the 2011 World Cup matches. The hotels had apparently informed the SLTDA that there was no commercial viability to the exercise and requested that the government subsidise the interest cost on the loans required to finance the upgrade.

The cost of upgrade for three hotels is indicated as being “Rs414 million”. The upgrade cost of the fourth hotel was apparently not available. The letter was written by the Director General of the SLTDA and addressed to the Secretary of the Ministry of Tourism had been copied to the Bank of Ceylon, People’s Bank and Hatton National Bank. The interest rates on the loans were supposed to be 12% and the SLTDA was supposed to pay 4% as a subsidy. Based on these figures, the subsidy for the three hotels would amount to Rs16.5 million annually, assuming loans to the values indicated were granted. It is not known if this was the case and if further liabilities exist.


There was a cost escalation of 338% in 11 water supply projects that were funded by a bank loan of Rs54 billion. The board has received an unsolicited foreign-funded project, and work has commenced without a contract. Strangely, the NWSDB has been appointed as a sub-contractor on the project by the main contractor, to the value of $64 million (it appears that the unsolicited proposal was accepted by the NWSDB and the work has later been sub-contracted to the NWSDB itself).

Lanka Mineral Sands Ltd. spends money on tasks that are contrary to the objectives of the company – Beach Park The company’s welfare funds have been utilized for the construction of roads and buildings in various other areas in contravention to the objectives of the institution. Information pertaining to spending Rs40 million for the construction of the Hambantota Beach Park and spending money for making improvements to the Devinuwara Maha Devale have come to light.

All eggs in the tourism basket?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Aneetha Warusavitarana

The Easter Sunday attacks devastated Sri Lanka. As much as the attacks shattered lives, the economy too has taken a hard hit. According to Reuters, full-year median growth could drop as low as 2.5%, with analysts concerned that second-quarter growth could be zero or even drop to negative. To give these numbers context, these growth numbers are the worst the country has seen since 2001, when Bandaranaike International Airport (BIA) was attacked. The economic hit to the tourism sector is the most visible, due to the nature of the attacks, with occupancy dropping drastically from 75% to a paltry 5%.

Officially, the tourism sector accounts for 5% of GDP, but in reality, the industry adds a lot more to the economy. The growth we see in the formal tourism sector is also an indication of the growth created in the informal sector. If one gets off the train at Ella or walks around Sigiriya, it is clear that a large number of tourists backpack throughout the country; staying at low-budget homestays and eating at local eateries. The result is a boom in local industries as people work as tour guides, make cheese kottu, drive a trishaw, and take a loan to build a homestay on their property.

This addition to the economy is notoriously difficult to enumerate, and it is virtually impossible to include all economic activity created by tourism into national figures. However, one can conclude with certainty that tourism is an important sector on which the livelihoods of thousands of people are dependent.

While this seems positive, the downside is that this means that the lull in tourism has an impact that goes far beyond what’s calculated. The economic losses and instability brought to thousands of livelihoods is difficult to comprehend. The Government put forward a relief package for the industry, and while this is timely, it is also important to look at the rest of the economy.

Before the attacks, the industry was optimistic – Lonely Planet ranked us the number one destination for 2019, and the Government launched the “So Sri Lanka” brand. It is clear that growth in this sector was and continues to be a priority. However, if we want to create long-term, sustainable growth for the country, more needs to be done.

Resilience beyond the comfort zone

While tourism is important and we do need to focus on this, we cannot neglect the rest of the economy. Ideally, our economy should be resilient, with other sectors of the economy able to absorb a shock, reducing the time taken for the country to recover. While we have a comfortable comparative advantage in tourism, we need to move into other areas.

For all intents and purposes, Sri Lanka opened its economy in 1977. While we were one of the first countries in the region to open up, our export sector failed to keep pace with our comparator countries. Nationalist sentiment drove mainstream discourse, and free trade is perceived as a threat to local industries and local jobs. Successive governments were swayed by or actively promoted this perception, resulting in a country which is in practice, not very open.

The Government’s role

Export diversification has been a buzzword over the last few years. GDP growth in countries such as Vietnam and Indonesia was driven by strategic export diversification. As is visualised in the chart, these countries are miles ahead of Sri Lanka in the contribution their exports make to GDP. Sri Lanka has recognised the importance of export growth, and key areas have been targeted through the National Export Strategy. However, export diversification will not happen overnight, and it will not happen in isolation. There needs to be a legal and regulatory environment that is conducive to this growth, creating the right incentives for businesses to take the initiative and diversify. As such, the Government should push a much wider reform programme.

The Singapore-Sri Lanka Free Trade Agreement, signed in 2018, was the first trade agreement we signed in a decade. This is only a partial victory – the trade agreement faced significant opposition, even after it was signed. The Government needs to take the initiative, not only to sign free trade agreements, but also to make sure the local businesses are in a position to take advantage of these agreements.
A vital part of creating buy-in on a national scale is the effective and timely dissemination of information. Open, transparent discussions should be held before signing free trade agreements; these would go a long way in countering anti-free trade mentality.

In addition, regulations should be eased for export-oriented businesses; making it easier and not more difficult for an entrepreneur to sell their product abroad. Finally, the Government should speed up its current programme of tariff removal. Restricting imports to the country via tariff barriers actually suppresses the growth capacity of our export industries. Free trade works best when borders are truly open and intervention is limited, and our export industries often depend on imported inputs which are cheaper than local alternatives. By removing tariffs on these imported inputs, the Government will allow export industries to produce goods at lower prices, and price their final goods on par with global competition, creating opportunity for our export industry to grow and diversify.

While it is important that focus is given in the short term to industries that have been hit the hardest, a responsible government would take this opportunity to assess the health of other key sectors of the economy, and take steps to facilitate their growth, as opposed to hindering it.

A veil of incorporation or a shroud of secrecy?

Originally appeared on Echelon

By Ravi Ratnasabapathy

SOEs incorporates under the companies act

State-owned Enterprises (SOEs) in Sri Lanka come in a bewildering variety of forms, ranging from departments, authorities, boards and state corporations, to limited companies. The traditional forms are the first four, which are usually created by a special act of parliament. The advantage of this is that it creates direct accountability of the SOE to the parliament.

When SOEs are formed through acts of parliament, they are subject to the stringent financial and administrative regulations of the state and are obligated to report to the parliament.

The Companies Act is intended for use by private businesses and the principal accountability is to shareholders. There is no obligation under the Act to comply with the regulatory and accountability mechanisms that govern state entities.

The Auditor General reports that, unless the majority of shares are owned by the government, even the audit of limited companies is beyond their purview. Therefore, the recent trend for increasing numbers of SOEs to be incorporated under the Companies Act instead of by an act of parliament is unusual. A list of 452 state entities includes 149 incorporated as limited companies, a fact that the Auditor General (AG) has drawn attention to in his Annual Report of 2016:
“In recent years, it was observed that a considerable number of limited liability companies have been incorporated under the Companies Act by certain Public Enterprises and the universities even sometimes without the approval of the Cabinet of Ministers.”

Another trend is the evolution of complex corporate structures within SOEs, some having multiple subsidiaries and associate companies. The list includes 100 subsidiaries and 19 sub-subsidiaries. Is there a rationale for this? A perusal of the COPE and Auditor General’s reports reveals some systemic problems (examples are highlighted in the boxed sections).

Even within the private sector, complex corporate structures present governance challenges as risks can lie undetected within subsidiaries/associates. These risks, if left unchecked, can expose the group to significant liabilities, and the same is true for SOEs. Vigilance of subsidiary activity is essential for risk management and compliance, but as the AG notes:
“However, it was observed that most of the Public Corporations do not exercise their controlling power over the subsidiaries although their members constitute the majority of the Board of Directors” (Auditor General, Annual Report, 2016)

A classic example is the Ceylon Electricity Board, which has some 22 associate companies, subsidiaries and sub-subsidiaries. Such structures are difficult to penetrate, obscure transparency and leave room for corruption.

The subsidiaries may provide goods and services to other companies within the group via transfer pricing arrangements instead of open tendering. When the directors or key management of these companies are also employees or associates of the parent body, it gives rise to serious conflicts of interests that are difficult to avoid; a point highlighted by the first COPE report.

The failure to disclose details of related party transactions (with subsidiaries) was one of the reasons that compelled the AG to qualify the audit opinion on the financial statements of Ceylon Electricity Board for 2013.

The Ceylon Electricity Board had eight contracts with LTL Project (Pvt) Ltd , a related party to build transmission lines and strengthen infrastructure. The value of four contracts amounted to Rs5.9 billion; the values of the others were not disclosed in the report. Contrast this with the governance of listed companies. Local listed companies are now required to have a Related Party Transactions Review Committee made up of independent directors who must review and report on related party transactions to the Board. The CEB has failed to disclose details even to its auditors! In some cases, it appears that complex group structures have evolved to conceal transactions, hide assets, divert revenue streams or simply enrich connected parties; the very reason such structures are also encountered in instances of money laundering. Some selected examples appear below.

If we leave aside for the moment the government accountability mechanisms and simply view SOEs as businesses, how good is their governance record? The critical tests for a private company are the auditors’ report and timely publication of reports. An analysis in the COPE report of 2014 showed that, of 46 institutions that were reviewed, only 15% had unqualified or clean audit reports. A full 75% of reports were qualified, while 4% were disclaimers of opinion and 6% failed to submit accounts. Things were not much better in 2017. The AG notes that, of 218 entities reviewed, only 80 (36%) received ‘clean’ audit opinions.

These are shocking revelations and the problems appear to be systemic. The complex structures created under the Companies Act seem to provide a shroud of secrecy that hampers oversight and enables systematic corruption. A select list of examples is listed here. The government should shine some light on the dark corners of these SOEs, first by compiling a full list of entities and second by implementing basic regular reporting structures to establish a minimum degree of control.

Electricity Piracy


The Committee on Public Enterprises undertook a study on the members of the Boards of Directors of 20 subsidiary companies operating under the Ceylon Electricity Board and observed that the same person represents the Boards of Directors of many of those companies.

For example, the Committee observed that the chairman of the Ceylon Electricity Board is a member of Boards of Directors of 6 subsidiary companies, which enables him to take different positions in regard to the same issue, thus jeopardizing the main aim of the Board to provide electricity to the consumers at an affordable price. The following traits of the subsidiary companies operating under the Ceylon Electricity Board were identified: Taking steps to retain a majority of dividends in those companies The Ceylon Electricity Board has no control over those companies. It was observed that the meetings of the Board of Directors of those companies are not represented by an official of the ministry or the Treasury. Those institutions are informed only of matters of specific importance Even though the Ceylon Electricity Board holds a majority of shares of these companies, they are reluctant to be responsible to the Board.

At Arm’s Length?


The People’s Leasing Property Development Company, a sub-subsidiary company of People’s Bank that was established through the People’s Leasing Finance Company, has made 13 construction works worth Rs1.96 billion.

An unusual payment of Rs11,000 per square foot, exceeding the ordinary payment of Rs6,000 per square feet, was made in the case of these construction works. Further procurement processes have not been followed, and a Bill of Quantities has not been prepared.

The chairman has stated that a decision has been taken not to award construction contracts to this company at the moment and to carry out construction work by People’s Bank itself.

Unauthorised Formation Of Subsidiaries To Perform Services For The Group?


1. Maganeguma Emulsion Production Company (Pvt.) Limited
2. Maganeguma Consultancy and Project Management Services Company (Pvt.) Limited
3. Maganeguma Road Construction Equipment Company (Pvt.) Limited
4. Expressway Transport (Pvt.) Company

“It was discovered that neither the ministry nor the authority possessed any information regarding the methodology that had been adopted in establishing the aforesaid companies as per the decision taken by the Cabinet. It was further discovered that share certificates and records of minutes were not available, and that annual general meetings had not been conducted.”

COPE requested a report from the Attorney General around all matters related to the ownership of these four companies, on the matters that should be examined at ministry level and on the significant matters that should be examined in a criminal investigation. (COPE Report, 2014)

Dud Number


“Even though Sri Lanka Telecom had purchased 75% of shares of Sky network Ltd. for Rs108 million to obtain the frequency required for the continuation of service related to WiMax technology, the company had been closed down after a couple of years with no adequate business activities done on the ground that the technology had become obsolete. The transaction looks suspicious as the said company, which had been formed in 2006, had carried out no business activities other than retaining a frequency until it was purchased by SLT in 2008. It was also revealed that Rs10,468,000 had been paid as director fees during the period in which the company did not function and the person who had been paid as such had happened to be a director at Sky network Ltd”. (Page ix) (COPE Report 2014)

Wholesale No Transparency


“It was revealed that account details of C.W.E. Construction and C.W.E. Securities had not been submitted to the Auditor General despite reminders being sent and replies to only 13 out of the 26 audits queries had been submitted to the Auditor General.” (3rd COPE report p7). COPE also notes an instance of selected employees drawing two sets of salaries, from CWE and its subsidiaries (p10).

Stopping Islamophobia

Originally appeared in the Daily News

By Ravi Ratnasabapathy

The senseless attacks on Easter Sunday shook the nation and sparked a wave of anti-Muslim hysteria that is in danger of going out of control. There is a tangled jumble of emotions and causes that need to be sifted through to understand the problem. The fears arise from:

  • The entirely unexpected nature of the attack (there being previously no Muslim-Christian animosity).

  • The unknown nature of the threat. Since ISIS is involved apprehension that local Muslims are enmeshed in a shadowy, global terror network, with unknown objectives. The alarm that further attacks could take place – but for which no local causes or solutions can be found. Unlike the LTTE which had clear objectives and targets, there seem to be so many unknowns with this threat that people don’t know how to deal with it.

  • Inability to distinguish between the terrorist and an ordinary Muslim. Anyone with a long beard or with their head covered is seen as an extremist and therefore either a terrorist or a potential terrorist. Although Tamils faced similar suspicions they were less visible; with the Muslim’s panicky people are seeing “terrorists” on every street corner.

In addition, a lack of political leadership has lead to a breakdown in confidence in the government. There is the obvious bungling; failing to act on warnings that could have prevented the attacks. Then the absence of coherent, consistent and clear messages from the government that the situation is under control has left a vacuum which has become the perfect breeding ground for rumours and mischief.

Interested parties who seek to gain political advantage have cleverly exploited the situation by adding to the fears, spreading rumours of possible attacks, unfounded allegations against the Muslims and general messages of hate.   

Irresponsible and sensationalist media reports on discoveries of knives or swords reinforce these suspicions, never mind that these are hardly the weapons of choice for mass murder.  

The centre of the problem is therefore one of trust. People feel unable to trust the Muslim community who they view as a collective threat, neither can they trust the government to protect them from this threat.

These fears are completely unfounded but remain real in the popular imagination.

The Muslim community themselves have to deal with a different but equally complex set of emotions. The overwhelming majority of the Muslim community were as shocked and as horrified by the bombings as everyone else. Many are also filled with a lingering sense of guilt and shame that the terrorists came from their community. The innocent also find it very hard to deal with the fact that they have come to be held responsible for something that they did not do and do not support. This complexity and the lack of government leadership has left the community uncertain of how to respond. They are also fearful, unable to trust the government to protect them or their property.

Naturally a tragedy on this scale will lead to a confused outpouring of passions. The government should be marshalling all these complex, sometimes conflicting emotions into one coherent response, drawing all citizens together against the common enemy.

In the absence, the mutual misunderstanding and fears are feeding into panicky response and counter-response that is breeding a spiral of mutual mistrust and hatred.

Much of Sri Lanka’s post-independence era has been marred by cyclical violence that has followed the classic pattern of escalation described by theorists.

“Conflicts have a definite tendency to escalate, i.e., to become more intense and hostile, and to develop more issues, i.e., what the parties say the conflict is about. Therefore, escalating conflicts become more difficult to manage. The process of escalation feeds on fear and defensiveness. Threat leads to counterthreat, usually with higher stakes at each go-round. Selective and distorted perception justifies a competitive and cautious approach as opposed to a trusting and cooperative one….

...competition breeds competition….Each party believes in the evil intentions of the other and the inevitability of disagreement, and therefore takes precautionary actions which signal mistrust and competitiveness (Blake, Shepard & Mouton, 1964). When the other party then responds with a counteraction, this is perceived as justifying the initial precautionary measure”(Dr Ronald Fisher)

Unless arrested forthwith, which demands firm leadership, we may be about to embark on yet another cycle. To prevent this, the first step is to reassure the public and second is to restore law and order.

Independent experts seem confident that the security forces have dismantled the IS network but the government needs to send a clear message that it has done so. This needs to come jointly from the government, the security establishment and supported by independent experts, since the government is short on credibility. People need to be reassured that there is no further immediate threat. It is only then that tensions can be defused.

Second, the public need to be able to draw the distinction between the few hundred terrorists who were involved (with a couple of thousand supporters at most) from the millions who have done nothing and don’t want to be involved with it.

The Government, the security establishment and the Muslim community need to be seen to be working together to identify and isolate the rogue elements within the community. The Muslim community leaders are already cooperating but the effort must be visible and consistent. It must be seen as a joint effort by all communities to counter rogue elements. The fight is, and needs to visibly between citizens and terrorists, not Sinhalese against Muslims. Given the tensions, in the short term avoiding the distinctions in dress (which the community leadership has endorsed) will be helpful.

The wider public needs to understand that the Muslims who follow the austere form of Islam are not any different from the evangelical Christians. Both place more emphasis on their respective holy books than the rituals and forms that characterise their mainstream cousins. Neither is inherently more dangerous than the other. It is just that the Muslim’s adopt a distinct style of dress that makes them easily identified. Fundamentalist churches have come under attack because they proselytize but their followers are indistinguishable from the rest of the population.  The fundamentalist Muslims look odd, but they are not necessarily dangerous.

Common sense alone should tell us this. In over a quarter of a century that this form of Islam has been prevalent, we had a single attack, carried out by a handful of individuals who seem to have been radicalised overseas.    

The Muslim community in needs to redouble efforts to send a clear message that want none of this. Cool heads need to bring community leaders together and work out practical programmes to rebuild trust.

There have been sporadic outbursts of violence in several areas. Reports of vigilantes who have taken it upon themselves to check identities and police localities point to breakdown in law and order that must be immediately arrested. A message of zero tolerance of vigilantism and mob rule must go forth. At the first sign of violence, curfews need to be swiftly imposed with riot police deployed if necessary. Police must be ordered to detain and if necessary, shoot anyone disturbing the peace.

In the long term, we need to bridge the social and cultural distance between the communities which must take place through education.

An income for all – Yay or Nay?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Dilshani N Ranawaka

“The time for change has come. I will launch the final assault on poverty”  says Rahul Gandhi, a political candidate competing against Prime Minister Narendra Modi in the ongoing Indian elections. Poverty in India is high, with nearly 354 million people classified as ‘poor’. The final assault suggested, is a monthly income for the 20% of people with the lowest income in the country. This monthly income would amount to 6,000 INR which is around 15,000 in Sri Lankan rupees per month.

This “final assault” has roots in the concept of a Universal Basic Income (UBI), an income which is not restricted only to the poor. In 2017 UBI was experimented in Finland through a limited pilot study. Their goal was to understand if there was an impact on lives when UBI is implemented. These findings indicate that levels of life satisfaction increased from 6.7 to 7.3.

Keeping in mind that this was only a pilot, the increase in life satisfaction have been linked to the demographic profile of Finland, and its economic stability. Given the ageing population in Finland, the retirement age has been extended to 65-68 years of age. As working extensively for long hours influences the aged in a negative way, relieving them from work worries and anxieties improves their standard of living. However, the Scandinavian country can afford to be generous to its citizens because of a solid structure of taxation and achieving a GDP per capita of USD 47,558 as for 2017. Based on these factors, either a guaranteed or a basic income had a level of success when piloted.

More on the Western hemisphere, Brazil has gained attention for their “conditional” basic income guarantee, an income granted as a positive reinforcement for actions the government deems a priority such as sending children to school.

Now that India - in this part of the world - wants to adopt a similar concept, it is interesting to explore if our existing welfare state should implement a similar strategy?

Samurdhi - our current social welfare scheme

In Sri Lanka, two of the main welfare schemes, Samurdhi and the fertilizer subsidy (pohora sahanadhara) accounts for 0.5% of the GDP as of 2017 (CBSL, 2017). Samurdhi gives a maximum amount of Rs. 3500 for a household with 3 or more family members. Samurdhi, initiated in 1994, is continued to date with the welfare benefit is offered for households with a monthly income less than Rs.4000 - the official poverty line for the country.  

The targeting process for selecting Samurdhi beneficiaries has been hijacked by politicians - it has now been reduced to a vote buying scheme. This is supported by the World Bank, which states that 50% of Samurdhi beneficiaries are non-poor. If targeting was focused on individuals with the greatest need, intuitively, there should be more Samurdhi beneficiaries in districts with high levels of poverty. The graph below represents the number of individuals who fall below the national poverty line and as such are classified as ‘poor’, highlighting the number of Samurdhi beneficiaries per district. It is clear that the poorest districts, aren’t always the ones with the most number of beneficiaries.

Samurdhi chart revised with units.jpg

Given this backdrop, will it be a feasible option to substitute Samurdhi with a basic income guarantee in Sri Lanka?

The Advocata Institute recently sponsored a discussion on the topic of ‘universal basic income’ through the Nightwatchman Society. At this event, Professor Rohan Samarajiva presented 3 arguments questioning the efficiency of such a scheme in the context of Sri Lanka:

  1. Do we have the fiscal capacity?

  2. Will this be another political instrument?

  3. What should be the process of identifying the beneficiaries?

Do we have the fiscal capacity?

As of 2016, our budget deficit is a staggering Rs. 683 million. Sri Lanka does not have the fiscal capacity to provide a stipend for 5.1 million households. If we follow Rahul Gandhi’s scheme, and implement Rs. 15,000 cash transfers per month for 20% of households it would cost us Rs. 180 billion per year. As this is not feasible at all, winding down to 5% of the poorest will account to Rs. 45 billion per annum. To put this expense in context, a cash transfer for 5% of the poorest households would be equivalent to 0.5% of the GDP, 2.7% of the government revenue and 1.9% of the government expenditure.

Adding another welfare program given this backdrop would clearly burden government spending and our tax payer commitments in the years to come. To add to the mess of these existing issues are the weak methods of revenue collection we have in the country. Given the arguments presented as to why our fiscal position cannot accommodate UBI, should we even discuss the implementation of such a policy in this country?

Will this be another political instrument?

The welfarism that has taken a front seat in political arenas since independence, has meant that citizens lean towards increases in subsidies and other government handouts. Subsidies are still an effective political tool that catch voters’ attention. Do past experiences work in favour of the basic income guarantee? Could we afford to rely on weak governance as a trade-off for positive subsidies? Would this be another instrument used by scheming politicians only for the sake of popularity?

It is with no doubt that the Samurdhi welfare scheme has contributed towards eradicating poverty. However, given the fact that there lacks an assessment process to monitor progress and abusing Samurdhi by using it as a tool to increase political support and grow voter bases gives a signal that Samurdhi either needs to be restructured or perhaps replaced. Lessons learnt from the past offer valuable insights to the future. Given the politicised nature of Samurdhi, and the fact that the welfare benefit is not actually reaching those who are eligible for it, one has to question the efficacy of such schemes. Serious restructuring of our current welfare scheme is long overdue, and the utility created by such schemes needs to be interrogated before moving forward.

Tariffs and the law of unintended consequences

Originally appeared on Sunday Times

By Aneetha Warusavitarana

The law of unintended consequences is a theory that dates back to Adam Smith, but was popularised by the sociologist Robert K. Merton. In short, the law explains the reality that when governments intervene to create a set of outcomes, as the theory of cetris paribus (holding other factors constant) cannot be achieved in a market situation - the result is a series of unintended consequences.

Colonial India and Cobras

This law is also known as the ‘Cobra Effect’, dating all the way back to when the British first colonised India. The British were understandably concerned about poisonous snakes in India, Cobras apparently being a source of some worry. The solution they presented was to provide a reward for every Cobra that was killed, creating a clear incentive for locals to capture and kill any Cobras in the vicinity. While this worked well in the short term, the British slowly realised that enterprising individuals were actively breeding Cobras; creating a very profitable business out of collecting bounties. Once this was clear, the British removed the bounty, and now as this was no longer a profitable venture, the breeders released all their Cobras. The final outcome of this was an increase in the general Cobra population, completely the opposite of what the intervention set out to achieve.

While this makes for a good anecdote, the economic realities of the law of unintended consequences are often more dire. Interventions into the market are often well-intended, but have the potential to backfire. A shining example of this is the case of tariffs. Forbes recently published an article which detailed the unintended consequences of a washing machine tariff imposed in the US. This well-meaning tariff was introduced to protect domestic producers in the US, and boost employment in that industry. If one evaluates the effectiveness of the tariff simply on those two criteria, then the tariff has been a resounding success; US washer and dryer industry created around 1,800 new jobs. This could easily be written off as a success story.

The Cobra effect on washing machines

However, the focus here is only on the producer, and the consumer has been removed from the narrative. The first unintended consequence was that as imported machines were now more expensive, domestic manufacturers could safely raise their prices, without fear of losing out on sales. The second unintended consequence was that dryers also became more expensive. As a complementary good to washing machines in the US, manufacturers of dryers saw this as the perfect window in which to raise their prices and increase their profits (clotheslines would save Sri Lanka from this unintended consequence).

Taking all this into account, according to Forbes, this has cost American consumers around USD 1.5 billion. One could argue that this increase in prices and resultant cost to consumers can be justified by the 1,800 jobs that were created. The reality is that each job is equivalent to USD 815,000 in increased consumer costs. This tariff policy effectively protects the local industry at the cost of their own consumers.

Why should Sri Lankans care about washing machine prices in the US?

While we can agree that this does appear to be an unfortunate example of unintended consequences, and that it is pretty clear that domestic consumers got a bad deal here, why should the average Sri Lankan care? After all, we have sunlight soap and clotheslines.

Sri Lankan consumers should care because the same unintended consequences that took place oceans away in the United States is happening here, in our little island nation. Tariffs have long been the favoured tool of successive governments. Tariffs sound really good on paper, and better if said paper is an election manifesto. ‘We will protect our domestic producers’ is a statement that tugs at the heartstrings of too many voters. The fine print ‘at the cost of domestic consumers’ is not something that is publicised, but it should be.

Tariffs have been imposed on goods ranging from household care, personal care and food. The price of items as diverse as school shoes and construction material are affected by this. The entire country complains about how the cost of living is too high, and unreasonably high tariffs are one of the drivers behind this. Unfortunately for us, the imposition of these tariffs create exactly the same series of unintended consequences that American consumers have to face. The price of the weekly shop an average Sri Lankan does whether it is from the delkanda pola, the closest supermarket or the handiye kade is affected by tariffs. A potato, even if it is locally produced is more expensive than it needs to be, because tariffs push the price of imported tomatoes up, allowing domestic producers to raise prices with the consumer losing out.

Tariffs on essential goods in Sri Lanka can range from 45% to 107.6%. There needs to be a serious re-evaluation of the role of tariffs in our economy – the rationale behind imposing them, the consequences of the tariff (which are well understood and cannot be discounted or ignored), and ideally a faster regime for phasing them out.