This article was compiled by Professor Mick Moore.
Professor Mick Moore is a political economist and Professorial Fellow at the Institute of Development Studies. He is a non-resident academic fellow at Verité Research and member of Verité’s Sri Lanka Economic Policy Group. Professor Mick’s broad research interests are in the domestic and international dimensions of good and bad governance in developing countries.
Congratulations to the Supreme Court for finding three Rajapaksa brothers, two former Central Bank Governors and two former Treasury Secretaries guilty of the sustained economic mismanagement that led to the 2022 economic-cum-debt crisis. The judgement is at the frontier of jurisprudence. There is no precedent for this kind of ruling about such a broad and complex policy question. But the incompetence was so gross and visible that the court could rule with confidence. Some of the policies – notably the giveaways of potential tax revenue in 2019 and the insistence in 2020-2022 on continuing to repay foreign debts when the Treasury was clearly about to go broke – were not just contentious.
They were inane!
But what about the deeper causes? What about Sri Lanka’s constitution, law or governing institutions that have enabled successive governments to implement pernicious fiscal and economic policies so obviously contrary to national interests? There seems to be a consensus that corruption is a major problem. The country’s rulers have been more focused on enrichment than on the essential challenges of financial and economic management. Corruption and the blatant abuse of power have rightly been the central concerns – refer to the recent Civil Society Governance Diagnostic Report on Sri Lanka by the Civil Society Initiative on Anti-Corruption Reform for Economic Recovery and the IMF’s Sri Lanka: Technical Assistance Report – Governance Diagnostic Assessment.
Not all economic mismanagement or misuse of public money stem directly from visible corruption or from blatant abuse of power. Some of the harmful policies that rulers use to advantage themselves are quite legal. The problems lie in inadequate constitutional or institutional restraints on how government power is used. That is exactly the kind of problem that the new Central Bank Act is designed to solve. Previously, it was quite legal for governments to use various tools to ‘persuade’ the Central Bank to permit the government to spend significantly more money than it raised. That persuasion was practiced almost every year. Governments benefitted from greater popularity; citizens suffered from high inflation, without understanding the reasons. Future governments will not cease trying to persuade the Central Bank to print money for them. But the Bank now has more latitude to say “no”.
More of these kinds of reforms are needed to cut the government down to size and make it accountable. One issue has not yet received the attention it deserves: the fact that for the past three and a half decades, since April 1989, Sri Lanka has not had a proper Finance Minister. Someone has always held that title. Exceptionally, from 2017-2019, Mangala Samaraweera held the title and did the job. He enjoyed personal political authority and the backing of the Prime Minister. He at least tried to coordinate government revenue raising and spending, and to rein in the pressures from other Ministers to spend without constraint. He was the first Finance Minister in a long time to pay serious attention to tax policy and tax administration. He even masterminded some limited, positive tax reforms.
Other than Samaraweera, a couple of the people who have briefly held the post of Finance Minister since 1988 have been figureheads. For most of that period, the post has been held by the incumbent President. It follows that the President/Minister of Finance could not exercise any independent influence over economic and fiscal policy, or query or check government financial decisions. Not only were Presidents too busy to be effective Ministers of Finance, they also entrusted the post of Secretary to close confidants who had almost unchallenged authority and wide, unofficial, political responsibilities. Between 1989 and 2022, four people held the post of Secretary to the Minister of Finance for significant periods of time: R. Paskaralingam, R. H. S. Samaratunga, P.B. Jayasundera and S. R. Attygalle. The last two were among the seven people [CC1] recently found guilty of economic mismanagement by the Supreme Court. P.B. Jayasundera was Finance Secretary for a total of 13 years, under Presidents Kumaratunga and Mahinda Rajapaksa. He was also Secretary to President Gotabaya Rajapaksa from 2019 to 2022.
This arrangement prioritised the political authority of the President over economic and fiscal management, which has been neglected. This is very evident in relation to the revenue collection machinery. Before Mangala Samaraweera, Ronnie de Mel was the last Finance Minister to pay this serious attention back in the 1980s. One reason that we face the current paradox of acutely inadequate tax collection and highly dissatisfied taxpayers is that the Inland Revenue Department is still organised and equipped for the twentieth century rather than the twenty first. A Minister Of Finance With Political Authority And No Second Job Urgently Wanted.