Had the decision been thought out and
strategic like that of Mahathir in Malaysia during the Asian Financial crisis,
I would have backed the Sri Lanka government’s lack of interest in going to the
IMF for bridging finance. After all, the
Fund’s reputation has not always been positive when it comes to helping governments
protect the economic and social rights of citizens, and achieving environmental
justice or addressing climate change.
Many would agree that staying away from the IMF’s conditionalities is
not in itself a bad thing. We know for instance that early this year Pakistan
introduced a controversial set of fiscal reforms so that they could revive the
IMF’s Extended Fund Facility that had been approved in 2019. The reforms included a regime of new taxes on
solar panels, wind turbines, electric vehicles that are likely to derail the
country’s energy transition.[1] We also know that the extreme vulnerability
of countries to the COVID 19 pandemic, Ecuador is an example, was the result of
weakened public health systems that resulted from IMF strictures to address
fiscal deficits by reducing public spending including in the health sector.[2]
Reading about Argentina’s debt story for instance[3]
one also wonders how much of the decision not to go for restructuring debt
earlier this year despite the advice of several economic thinkers[4] is a
result of the existence in Sri Lanka of a creditor class that profits from
sovereign debt.
But today our country is between a rock and
a hard place, the government has declared bankruptcy and has reached out to
the IMF as the inevitable lender of last
resort. From what I understand, including from listening to Shanta Devarajan on CNBC
International a few weeks back, and more recently on Face the Nation programme,
we need to propose an acceptable programme of fiscal adjustment to the IMF which will then release some
bridge financing from other friendly countries that will enable us to purchase
the much needed fuel, food and medicines in the short run, and make the
restructured debt sustainable in the long term. It is no secret that the IMF
supports fiscal adjustment programmes that involve ‘belt-tightening’ and
austerity measures, and that these exacerbate inequalities and make living even a greater
challenge for the poor, the daily worker, women and other vulnerable groups. Sri Lankans who fall into these categories
have taken a huge beating in the covid
and post covid period and even more so in the last few months. Devarajan
talked about increases in taxation, cuts in expenditures including
restructuring state owned enterprises, decreasing the subsidies on fuel and
electricity coupled with a cash transfer programme to those who will be
adversely affected by the removal of the subsidies.
In this
context it is important to flag that Sri
Lanka’s policies including our proposals to the IMF must intentionally include measures that can, in the short term, alleviate the hardships that those suffering
most from this economic and political crisis face AND in the long term, ensure
that the stabilisation of the economy will not lead ‘to their being negatively
affected.
The implicit social implications of #GotaGoHome and
#GotaGoGama underscore the importance of
ensuring that whatever policy changes are implemented address peoples’
concerns. We are seeing the protests cut
across all the faultlines in our society that have been exploited by
majoritarian politics since Independence and which reached their worst
manifestation with the Rajapakses. And
even though the slogan itself is about asking the Rajapakses to go away (which
they don’t seem to be heeding at all) the underlying call is about changing a
system that has progressively eroded the political, economic and social rights
of the majority of Sri Lankans. This call for a systems change is getting
progressively louder. The people are
calling for constitutional change, for the abolishment of the executive
presidency, for removal of draconian laws such as the PTA, for an end to
corruption, and even if it is not as well articulated, a change to an economic
system that has increased inequality and marginalised some while at the same
time permitting rent seeking and accumulation of wealth for others. The moment
for making a transformative change is with us, it is now or never.
Addressing economic
and social rights of the most vulnerable
Many eminent Sri Lankans, including my lifelong friends Dr Anila Dias
Bandaranaike and Professor Sharya Scharenguivel, have called for
renewed attention to the duty of the Sri Lankan state to respect, protect and
fulfil the economic and social rights of all Sri Lankans. What this means in
essence is ensuring that all citizens enjoy the minimum essential levels of
each right and that the rights of marginalised populations are especially
protected. This duty has been significantly abrogated by the Rajapakse
government and to different degrees by other governments before them. Given that the human rights framework states
categorically that the state has a duty use their maximum available resources
for the progressive realisation of these rights, we must ensure that the payout
from the IMF and the benefit of the restructured debt prohibits retrogression
and discrimination and leads to the realisation of economic and social rights
for all.
I am flagging here three policy approaches that I believe
are worth considering if the government sincerely wishes to protect the
economic and social rights of all Sri Lankans, and especially address the needs
of disadvantaged and marginalised groups. They may require some overturning of
the conventional wisdom that has governed our approach to the economy. The first is to make available nationally
defined basic social security guarantees[5].
Sri Lanka currently does not have a minimally acceptable cash transfer
programme to protect its poorest citizens[6].
Globally the discourse on social protection of the most vulnerable has
resurfaced with even greater clarity post-COVID and has indicated that there is
a difference between the palliative, safety net type of social protection that
is often advocated by the World Bank and the IMF and the more comprehensive
social protection policies that aim to be redistributive and lead to reductions
in inequality.
There were several
innovative programmes for social protection in the Global South in the 1990s[7] that led to greater
acceptance for government-funded social protection floors and ultimately to the
ILO Recommendation 202[8] that provides states with
the guidance required to establish a social protection floor that include at
least four essential guarantees: (a) Access to at least essential health care,
including maternity care; (b) Basic income security for children, providing
access to nutrition, education, care and any other necessary goods and
services; (c) Basic income security for persons of working age who are unable
to earn sufficient income, in particular in cases of sickness, unemployment,
maternity and disability; (d) Basic income security for older persons. If expanded
to include the concept of universal basic income (UBI) social protection
guarantees can better address the disadvantages that women face as a result of
their disproportionate involvement in unpaid care work[9].
Unlike the safety net approaches that tend to consist of insulated programmes
often fragmented and insufficiently coordinated with gaps in coverage and exclusion errors, social
protection floors aim to approach social policy comprehensively through the establishment of integrated
strategies for essential social services and income security for all. At this moment of developing a plan not only
for immediate relief but for the long term wellbeing of Sri Lankan citizens,
decision makers would do well to review existing social protection mechanisms
and develop a strategy in alignment with ILO Recommendation 202 that can include a mix of measures,
contributory and non-contributory, targeted and universal, public and private.
Taxing those with
wealth and assets
Often when issues of social protection floors or universal
basic incomes are brought up as a means to protect the economic and social
rights of the most vulnerable, the question is asked about how governments can
finance such social justice measures. Increasing taxation is one way that this
can be done. The traditional approach to
and the dominant narrative on tax,
recognises only its value for economic growth and sees it merely as a means to raise revenue. Feminist
economists have challenged this traditional approach. Given that the issue of tax is likely to
feature significantly in the proposals to the IMF, this could be the moment
where Sri Lanka also transforms the
narrative and looks at using tax as a means not just for generating much needed
government revenue, but also as a way of responding to the civil society
demands to redistribute wealth and achieve a greater measure of equality and
social justice.
We have done this before. In the immediate three decades
after independence Sri Lankan governments collected a high proportion of Gross
Domestic Product (GDP) in taxes. They spent most of that money on mass
provision of health and education services, and subsidised food. Sri Lanka was
considered a model welfare state, with
unusually high human development indicators.
However from the 1990s the proportion of
GDP collected in tax revenue steadily declined, and was just 11.6% in
2019. The decline is a result of a continuous series of policy decisions that
exempted wealthier people, businesses, incomes and assets from taxes. The
emergence of foreign aid and loans as an alternative to domestic revenue
mobilisation, the pressure to exempt the private sector from taxes, the power
of the Executive President and the high dependence on imports for tax revenue
have bolstered this decline, and exacerbated the current bankruptcy of the Sri
Lankan government.
Tax reform can be a strong element of that transformative
change that Sri Lankans are calling for. Reform needs to address the very wide range of deficiencies
in both tax policy and tax administration in contemporary Sri Lanka. But equally if not more important is for Sri
Lankan decision makers to make the political commitment to shift from a
regressive system of consumption taxes to one that taxes not just the incomes,
but also the accumulated wealth of the rich. Historically Sri Lanka has shown a
growing preference for safeguarding private companies and for attracting
foreign direct investment through tax exemptions for investors in particular
sectors. As a result the wealthy
currently pay relatively little in tax, but do rather well out of public
spending. Sri Lanka’s current
regressive tax system generates tax
revenue largely from indirect consumption taxes, and we all know that this
places a huge burden on those at the bottom of the wage pyramid, on informal sector workers and others in
precarious jobs and on women. In Sri
Lanka this regressive tax revenue
accounts for about 82 percent of total tax revenue used for financing public
expenditures.[10] The poorest 20 percent of
Sri Lankans pays as much as 13 percent and the poorest 10 percent 23 percent of
their income in the form of indirect taxes while the richest 10 percent pays
less than 1 percent of their income as indirect taxes.
However, as we have mentioned before, international human
rights obligations mandate the Sri Lankan government to protect people's
economic and social rights using the
maximum of available resources. This
obligation should influence the way the government generates revenue (i.e.
collects taxes) and allocates and spends it. To protect the rights of the most
vulnerable it is imperative that the government moves away from indirect
taxation to a more progressive and direct system of taxing. This is probably
the most opportune time to do this, when there seems to be a coming together of
citizens across class lines. We have
already seen several blue chip Sri
Lankan companies and industry leaders come out in support of the peoples’
protests and the IMF bail out. If they are committed to putting their money where their mouth this, they should stand with the government to support a progressive tax scheme that would
stabilise Sri Lanka’s economy and reduce inequality in the long run.
Cutting public
expenditures in the right places
It is more than likely that the IMF advice will also
include a call to reduce government expenditure, and in particular, the
government wage bill. Sri Lankan
parliamentarians have habitually created government jobs as a means of
gathering votes, and it is no secret that Sri Lanka has an inflated public sector wage bill. However, we have seen many countries follow
the IMF strictures based on
contractionary neo-liberal economics and reduce expenditure on public services,
resulting in significantly negative
consequences for citizens. The inability
to cope with the COVID pandemic because of an underfunded health system has
been one such consequence. We have also
seen that when governments cut or fail to adequately finance public services,
it is women who are left to take on a larger proportion of time-consuming and
unremunerated responsibilities such as caring for their families, young
children, the sick and the elderly. Sri
Lanka needs to recognise these potential pitfalls and ringfence the resources
spent on public services, particularly health and education. The kind of reduction in state expenditure
that is compatible with the demands for a more equitable and just society is to
safeguard public services (and some would argue, increase them) and to reduce
the military budget and the subsidies to non-performing state enterprises, Sri
Lankan Airlines included.
After Gota goes home
- the need for political courage
As the #GotaGoHome protests have indicated the freedom
from authoritarian and unaccountable governance ultimately depends on the
people’s ability to liberate themselves. Sri Lankans, especially young Sri
Lankans have embarked on a strong non-violent struggle towards this end. However while strengthening this resistance is critical, if we are reading the
slogan as a call for a transformative change, then it is insufficient to boot
the Rajapakse’s out of office. Whoever
it is that will take their place will need to ensure that there is new thinking
that will help develop a more equitable economic system as well as implementing
constitutional reforms that will have the checks and balances that guard
against dictatorship.
Yesterday I had some colleagues discuss how the belt
tightening measures that would be the inevitable outcome of engagement with the
IMF would lead to unpopular measures for
citizens which could in turn result in continued political instability
and dissatisfaction with the next government,
The three approaches I have highlighted in this blog provides alternatives for transformative change that
would put the majority of Sri Lankans and the most vulnerable at the centre of
the reforms. They would benefit from a
people centred care economy. In such a
system, resentment and disgruntledness would lie with the privileged. Hopefully whoever takes over when the
Rajapakses go away will have the courage
to implement such a transformation.
[1]
https://www.brettonwoodsproject.org/2022/04/imf-programme-in-pakistan-undermines-renewable-energy-roll-out/https://www.brettonwoodsproject.org/2022/04/imf-programme-in-pakistan-undermines-renewable-energy-roll-out/
[2] https://www.theguardian.com/commentisfree/2020/aug/29/ecuador-austerity-imf-disaster
[3]
https://progressive.international/blueprint/29300e60-89dd-4dbb-aabb-2dfa53f4154b-our-debt-is-not-your-profit/en
[4]
https://southasianmonitor.net/en/reports/sri-lanka-economists-tell-government-to-default-on-bond-buy-food
[5] UNHCR Social Protection Floors and
Economic and social Rights report
A/HRC/28/35, submitted in accordance with resolution 25/11 of the Human
Rights Council,
[6] Mick Moore (2017) The Political Economy of
Long-Term Revenue Decline in Sri Lanka
ICTD Working Paper 65 First published by the Institute
of Development Studies in February 2017
[7] E.g. Bolsa Familia and Brasil Sem Miséria
in Brazil; Oportunidades in Mexico; Asignación Universal por Hijo para
Protección Social in Argentina; a social transfer scheme in Zambia; the
National Rural Employment Guarantee Scheme in India; the Productive Safety Nets
programme in Ethiopia; a universal pension scheme in Namibia; and the provision
of universal health services in Thailand.
[8]
https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:R202
[9]Patricia Schulz (2017) Universal basic
income in a feminist perspective and gender analysis CEDEF/CEDAW, Switzerland,
Global Social Policy 2017, Vol. 17(1) 89 –92
[10] H R A C Thilanka J G S Ranjith (2021) The
effect iof tax composition on income inequality: the Sri Lankan experience Sri Lanka Journal of Economic Research Volume
8(2) March 2021 SLJER 08.02.01: pp. 03-20 Sri Lanka Forum of University Economists
DOI: http://doi.org/10.4038/sljer.v8i2.134
.jpg)
Comments
Post a Comment