Burning Issues for the NPP Economic Team

Darshanie Ratnawalli, in The Island, October 2024 ... where the title reads ”The recent IMF visit and the new ‘economic team’

A new economic team, representing SL has gone into a meeting with the IMF. A President Media Division release dated October 2, 2024, says that the IMF visit was to hold discussions on the progress of the IMF programme and the release of the fourth tranche and that the following “economic team” has been appointed by the new government for discussions with the IMF.

This is the team –Anil Jayantha, Chair of the NPP Economic Policy Council & Senior Advisor to the President on Economic Affairs & Finance, Duminda Hulangamuwa, Senior Advisor to the President, Sunil Handunnetti, JVP Politician, Seetha Bandara Ranathunga, Sunil Gamage, Nandasiri Keembiyahetti, O. G. Dayaratne Banda and Amarasena Athukorala.

I spoke about this new team and their possible role in discussions with the IMF, with a prominent SL economist, who had, since 2015, been educating the Sri Lankan people about economics, that fabled subject, about which the majority of not only the Sri Lankan people but also Sri Lankan politicians, know little.

“Did you see the NPP team that met the IMF? Much like a Gota Viyathmaga team”, I told this US economics professor and ex Central Banker from Sri Lanka, Vdhura Tennekoon, Assistant Professor of Economics at Indiana University, USA. He is also known more widely as economatta (ඉකොනොමැට්ටා), his popular blog and facebook page ID. )

” Yes. But who else do they have? These are the economists they have,” Professor Tennekoon replied philosophically.

“Where is Mahinda Siriwardene (the Treasury Secretary) and Nandalal (Governor Central Bank)?”, I responded.

“They will be in the team anyway. The issue I see is, how helpless two of them will be.”, Professor Tennekoon replied.

“You said these people will stay on course,” I reminded Professor Tennekoon of what he had consistently claimed in his articles. “With people like Dr. Keembiyahetti on the team, wouldn’t that be challenging?”

(A bit of context, Dr. Nandasiri Keembiyahetti is a teacher of economics at Sri Lanka’s University of Ruhuna. He does not have much truck with wholesome, liberal, capitalist concepts of the economy such as market forces determining the price of goods. Recently, when the price of eggs went down, immediately after the ascension of the new regime, he posted a single line on his Facebook page- “So now you see into whose pocket that extra Rs 10 went!” meaning that the old lot had pocketed Rs 10 per egg and when the new lot assumed power, they had stopped, leading to the immediate egg price drop. However, when the egg price started going up again, Dr. Keembiyahetti prudently refrained from saying that the new lot too had now started pocketing their share!)

“If they [Nandalal and Siriwardene] stay silent and allow the NPP team to talk, it is like endorsing those views. That will make them fools. If they talk against the team, it will be portrayed as a betrayal of people’s mandate,” Professor Tennekoon went on, referring to the dilemma that the liberal economists, Nandalal and Siriwardene will face in those meetings.

This “Mandate Fright” is actually what forced the Central Bank to disregard the best interests of the SL economy and obey the unsound directives of the government during the unfortunate Gota years, and even during the more fortunate (but just as unsound) Mahinda years. It was exactly to prevent politicians, waving the people’s mandate card, from frightening the Central Bank into compliance with political agendas against their better judgement, that the Central Bank Independence Act was enacted.

Ominously, the NPP economic expert Harshana Sooriyapperuma, asked if they accept an independent Central Bank, only hemmed and hawed at the Ceylon Chamber of Commerce economic forum, held to determine which party catered to the best interests of the Sri Lankan economy during its current knife edge recovery phase.

“They [Nandalal and Siriwardene] have to participate because of their official roles,” Professor Tennekoon went on.

“Did you foresee this? You didn’t did you? You thought those people who expect the NPP to make a mess of IMF negotiations will be surprised and disappointed,” I asked pointedly, for in Prof Tennekoon’s economatta articles he had always painted a fairly optimistic picture of the IMF program under an NPP government.

“This team was expected to represent the government. Who else could have? So, that is not a surprise.”

“So what could happen?” I asked hoping for a soothing answer, instead of which I got this,

“At the meeting they will realize that they do not have much room to negotiate,” adding “but the team is ’stronger’ than I thought. It looks like they are determined to negotiate with the IMF.”

“I always felt you were too optimistic about these people carrying on as usual.”, I said referring to economatta’s unwillingness to renounce the NPP in his articles as economic bad news.

Professor Tennekoon responded, “The IMF team is not in a “negotiation mode” as they think. They are professionals, not politicians, and not prepared for or skilled in negotiations.

“I am optimistic because either way it is good for the country.”

Not trusting this optimism, I ventured, “Could the same thing that happened when Basil and Cabraal were at helm and came out with their own analysis contrary to the IMF assessment happen? “Either way, good for the country!”

“What do you mean?”

Professor Tennekoon replied, “There are two possibilities; (a) They will come to an agreement with IMF and things will proceed as should be; (b) No agreement and the programme will not continue. The government will have to face the consequences quickly. They will not have a voice anymore among the people. That is good from a long term perspective.”

Professor Tennekoon also admits that he was pessimistic when Ranil Wickremesinghe became president and claims he has been proved right.

I asked, “Why were you pessimistic when RW became president?”

Professor Tennekoon gave me a ‘you have to lose to win and win to lose’ type of answer;

“RW has been doing the right thing but without a clear mandate from people. I think the assumption of his and the people around him was that he will have the people’s mandate when they could see results. He has clearly shown results that people have seen but his actions were not endorsed by the people. No policy action is successful without people’s mandate. If RW won this election, he could have been successful in implementing the required reforms.”

“Perhaps, people haven’t seen this,’ I protested, “maybe, more time was needed.”

“People had two issues,” Prof. Tennakoon answered, “the economic crisis was just one issue. People had an issue with the political culture and many of them thought if the latter is fixed the economy will thrive. They have to learn by trial and error. No other way. That can only happen (under the circumstances) if NPP can rule for several years.”

“Another trial, another error. It’s so tiring” I responded.

“I think the Yahapalana government was a mistake. So many groups were together simply to defeat MR but MR was still popular. If he had another chance, the economy would have collapsed earlier. Somewhere in 2016 or 2017,” Professor Tennekoon surmised, delving into the backstory before delivering his prediction on the current situation, “People will realize that the political culture is not everything. Then the economy will be their focus.’

“You said none of this before elections”, said I, “You said whoever comes will have to follow the IMF program, no choice.”

“Yes. I still say that,” insists Professor Tennekoon, “If the government deviates, the economy can’t survive long.”

“I think all those people in the “economic team” are unorthodox economists, right?,” I asked, voicing bewilderment at the new government’s want of economists (Neither Anil Jayantha nor Harshana Rajakaruna are professional economists). Only Duminda Hulangamuwa is liberal. But he is not an economist,” I went on.

Agreeing with me that as far as he knows, the new economic team does seem to be afflicted with an overdose of unorthodoxy, Professor Tennekoon raised a red flag: “The more serious issue is who do they represent? Anil Jayantha and Hulangamuwa, as I know, have been appointed as advisors and therefore they may represent the President and through the President the government and people of Sri Lanka.

“But what about others? They are an economic council of a political party, not of Sri Lanka. I don’t think they have any power to negotiate with the IMF on behalf of Sri Lanka. Maybe the President has delegated that power to the economic council of his party.”

This brought up important question. What exactly was the purpose of this IMF visit and what was the “economic team” doing in these discussions? “Did this IMF team come here for the review (the third review) prior to releasing the fourth tranche?” I asked Professor Tennekoon.

He replied,”I saw somewhere that this is a courtesy visit. That usually happens after a government change when a country is in an IMF program. I saw nowhere that they came for the review. They will make a public statement soon.’

It turns out that they did not really come for the review. According to the press release issued by the IMF after the visit, “The IMF team will continue its close engagement with Sri Lanka’s economic team to set a date for the third review of the IMF-supported program.”

According to Harsha de Silva, ex-MP, too, the third review which has to precede the fourth tranche will only happen once the new government has presented the new Budget. He said this at an interview with Neth News.

I then asked Vidhura Tennekoon the most burning question on everyone’s mind; “Now, about AKD saying we want to go to IMF targets through alternative ways, while giving tax relief to people, is there any meaning to this ? Are they planning to use Ranil’s over performed primary surplus to give tax relief or are they planning to use income obtained from plugging major tax leaks in places such as Customs and Excise? (This is what they said before elections)”

“I don’t know,” Professor Tennekoon admitted, “Probably the first way.”

I asked him then, “Chathuranga Abeysinghe said, in an interview before elections, that they were going to plug a massive leakage and that was how they plan to cover losses incurred through VAT and other cuts. Is that a viable route?”

“I have no idea what that leak is,” said the professor.

“I suppose unpaid duties/taxes?,” I hazarded.

“Collecting unpaid taxes is a part of the usual process,” said Tennekoon matter of factly.

“Yes, hardly a groundbreaking revenue booster,” I agreed.

“The faces of the team who met with the IMF team gives an idea about what happened there,” he said.

I asked, “‘Maybe they are going to cut VAT and shift the burden to the better-off via income tax.”

“Possible” came the answer.

“Also perhaps increase spending on aswesuma, health and education?” I asked, for these are ways of “relieving people” too.

“Let’s wait and see. Whatever it is, it should be within the IMF parameters,” concluded Professor Vidhura Tennekoon sensibly.

I will end with a final fact. The NPP, as stated by them before the election, aims to increase government revenue above the 15.3% (of GDP) benchmark set by the IMF. The NPP wants to increase revenue, because their economic and political agenda demands a higher primary expenditure by the government than the 13% (of GDP) limit set by the Public Finance Management Act No. 44 of 2024.

In order to increase government expenditure and still maintain the primary surplus of 2.3% (of GDP) target set by the IMF as essential for debt sustainability, the new government must increase revenue. It has no other choice. How will they do this while cutting taxes? This is the million dollar question. This is the question the voters should have asked ourselves when Gota promised tax cuts. We didn’t ask them. Calamity followed. Here’s another looming tax cut. We have to question and question. Our survival depends on it.

…. ADDENDUM = A Thuppahiyaaaaaaa Type of QUERY