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Saturday, December 9, 2023

Sri Lanka should cut ego boosting state expenses: legislator

Sri Lanka should cut ego boosting wasteful expenses and close down a loss-making state airline, instead of simply asking people to tighten their belts to battle a balance of payments crisis, a legislator has said. “We call upon the government to close down Mihin Lanka immediately,” Harsha de Silva, an economist and legislator representing Sri Lanka’s main opposition United National Party said.

“It has already lost 14 billion rupees. This is not counting losses in 2011. We call upon the government to close this airline which is eating up people’s money.”

Mihin Air, set up over three years ago has become a symbol of state excesses.

It was started despite state-run SriLankan Airlines, a full-service carrier being partially privatized and given to Emirates to manage after running a string of losses.

Since Emirates management ended SriLankan also has made even bigger losses than running into around 10 billion rupees year.

De Silva said a 13 billion rupee (110 million dollar) tower project should also be halted.

“We are asking the government not to spend money this 13 billion rupees. Stop these unnecessary expenses and allow people to live.”

He said the current crisis was a result of ‘ego-centric and unintelligent’ economic management, though several corrective steps had now been taken.
The opposition has also criticized a state sponsored festival which cost over 630 million rupees. If corrective steps had been taken earlier, when the problems were first brought to the notice of the public, the shock to the people and economy would have been much less, de Silva said.

Sri Lanka has a soft-pegged exchange rate regime, originally set up as a part of the failed Bretton Woods system of unstable peg, which is inherently unstable as authorities try to control both the interest rate and exchange rate at the same time.

Sri Lanka dollar peg came under pressure from high credit growth partly due to massive borrowings taken to cover state enterprise losses in an environment where private sector borrowings were stronger than in 2010.

The rupee has fallen from 110 to around 119 to the US dollar, in the current balance of payments crisis. A steep fall in the currency impoverishes the entire nation imposing a forced ‘belt tightening’.

Energy prices have also been raised.

A cut in state expenses and borrowings can help strengthen the currency and improve the lot of everyone, including the poorest.

Unlike the private businesses and citizens, who borrow the savings of other private citizens, the state is a net spender, which simply ratchets up overall consumption without saving.

The current account of the budget is in deficit and state-enterprises, some of which are used to deceive citizens about the real price levels and generate make-work jobs make large losses.

It has been revealed that state-run Ceylon Petroleum Corporation lost 89.879 billion rupees and the Ceylon Electricity Board 12.3 billion rupees in 2011.

Even without counting losses at state airlines, the losses amount to about 1.5 percent of gross domestic product.

In an out-run table in parliament in November, the finance ministry projected a 7.0 percent of GDP or 460 billion rupee deficit in the central government for 2011.

But the overall public sector deficit goes up to 8.5 percent of gross domestic product or 572 billion rupees for 2011 not counting losses in other non-financial state-enterprises including airlines, which some estimates have put around 10 billion rupees.

Sri Lanka’s bus and rail utilities and a series of other state entities also make losses. But losses of some entities, which get direct cash transfers from the Treasury are included in the central government deficit.


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