Every year, on the 31st of May, the World Health Organisation (WHO) and partners mark World No Tobacco Day. This day is set apart to highlight the health risks associated with tobacco use and to advocate for effective policies to reduce tobacco consumption. According to WHO “Tobacco kills nearly six million people each year, of which more than 600,000 are non-smokers dying from breathing second-hand smoke”. This is not just a global problem but also a problem for Sri Lanka. Due to poor management of taxation not only have cigarettes become more affordable, but the tax share of the under-priced cigarettes has also declined. Two things have resulted from that: first, consumption of cigarettes have begun to increase (it went up by almost 10% in 2015). Second, potential tax revenues are being lost to government and transferred as income to the producer. This is both a health issue and an issue of public finance for Sri Lanka. Therefore, the Sri Lankan parliament has a responsibility to oversee the taxation measures and address the bureaucratic discretion that is eroding the benefits of public health and public finance.
Elected officials and selected bureaucrats are given a huge amount of power to act on behalf of the public – modern democracies function on this basis: that citizens hand over their power to elected representatives. But how can citizens then protect themselves against those individuals misusing that power? This is the perennial problem of governance. The simple answer that is given to this question of governance, is “elections” – that elections ensure the displacement of politicians who violate the public trust, and thus create political incentives for better behaviour. This Insight provides an example, which explains why the answer cannot be that simple – the behaviour of officials during elections can both abuse public trust, as well as benefit these officials politically. As such, other governance solutions are needed.
Most people in a country don’t understand the intricacies of exchange rate management. Nevertheless, actions in this regard have significant implications for the economic stability, growth and overall success of the economy, on which human development is fostered. This Insight explains how a professional approach to the management of the exchange rate seems to have been trumped by political considerations for much of 2015. The losses suffered by a lack of professionalism are not too different to the losses suffered due to corruption, and the lack of professionalism and corruption tend to be parasitic on each other. Therefore, this Insight also points to an important focus that has not yet been adopted by the agenda for good-governance.
Sri Lanka has been driving post-war growth in boom and bust cycles on the trade deficit; and fiscal measures have been used, especially spending on construction, to offset the bust cycles. This strategy is now being squeezed to pulp and it is not sustainable going forward.
In February 2015 the Central Bank of Sri Lanka called an auction for one billion rupees on a 30 year bond. It then accepted 10 fold – 10 billion rupees – after the bids were in. This Insight identifies three errors in the published calculation of the monetary loss, and recalculates it at 0.9 billion rupees. It also highlights two other issues: conflict of interest, and confidence in institutions, which add to the negative consequences of the Central Bank decision.
The government first raised international debt through bonds in October 2007. Since then several international bonds have been issued to feed the government’s twin demands: financing its spending and propping up foreign reserves. While this trend of foreign borrowing is on the rise, what is happening to the cost of borrowing? And what is the prognosis for the future?
The government estimates that by 2015 per capita GDP will quadruple from what it was in 2004. But this is a mirage: real incomes will not even double in that period. The mirage is created by counting in US dollars and effectively presenting nominal growth in GDP (increased prices) as real GDP growth (increased incomes).
In this Research Bulletin, we provide a detailed analysis of Sri Lanka’s trade performance during 2013 and the first quarter of 2014. The review highlights the external and internal driversthat shaped Sri Lanka’s external trade developments. The key challenges the country faces in terms of tweaking trade policy to meet the twin objectives of reducing trade deficit and increasing government revenue is discussed in detail. The analysis shows that reducing the trade deficit by curtailing imports may be feasible in the short run, but it will adversely affect government revenue and economic growth.
Variations in the tobacco excise tax affects Rs. 10s of billions in government revenue. Taxation and pricing has been inconsistent. The lack of a consistent method allows wide discretion to officials in determining the tax. Parliament should adopt a formula to keep taxation in line with national policy, treat stakeholders fairly, and prevent discretion from being abused.
The working paper was presented at the CEPA Annual Poverty Symposium held in September 2013. The education sector had witnessed an overall decline in terms of budgetary allocations, and was also subject to inequality in distribution of educational opportunities within the country. Education inequality has implications for addressing poverty alleviation and equitable development through education.