Opposition intensifies anti-govt. campaign on economic front

By Vishvanath

The Opposition has begun to sally forth, taking on the government, sooner than expected. The ruling JVP-led NPP may have thought its political rivals would take a month of Sundays to recover from crippling electoral blow they suffered last November. But it failed to have a blazing start mainly due to its leaders’ lack of experience in handling governance issues. Its failure to tackle the shortages of rice and coconuts, its numerous about-turns on vital issues such as the IMF programme, imports, taxes, the Economic Transformation Act (ETA) , and, above all, the revelation that some of its key members had flaunted fake educational qualifications, especially doctorates, during electioncampaigns have provided the Opposition with a rallying point. 

The Opposition has gone on the offensive, and the government is doing its utmost to launch a counterattack and turn the tables on its rivals, but without much success. The focus of the Opposition’s anti-government campaign was initially on the political front, where the NPP is strong. But the last few weeks have seen an intensification of the Opposition’s attacks against the government on the economic front. 

The Opposition has been able to shift its anti-government battle to the economic front where the NPP is struggling owing to a sustained campaign by two leading political figures—former SJB MP Patali Champika Ranawaka, and SJB MP and Chairman of the Committee on Public Finance Dr. Harsha de Silva.

Ranawaka has targeted the NPP government’s tax policy, and his approach is effective albeit somewhat populist. He has, at a recent press briefing, accused the NPP of serving the interests of the IMF rather than those of the public. The IMF has said Sri Lanka needs to increase its state revenue to 15% of GDP in 2025. Ranawaka is of the view that the government will have to achieve a revenue target of about Rs. 4,300 to 4,400 billion. He has blamed the government for having adopted the same approach as Ranil Wickremesinghe in trying to raise its tax revenue at the expense of the public. Sri Lanka’s tax revenue rose by 25% from 2023 to Rs. 1,958 billion in 2024, but it fellshort of the government’s target of Rs. 2,024 billion, according to media report, quoting Inland Revenue estimates.

Ranawaka’s prognosis is that the people will have to cough up more money by way of taxes in time to come. He has gone on record as saying that the government will have to rake in as much as an additional Rs. 136,000 from every citizen this year to meet the revenue target set by the IMF. The NPP came to power, promising to change the IMF programme, but it has chosen to maintain the status quo, he has said, noting that besides increasing tax revenue, the government will have to curtail its expenditure drastically. 

Dr. de Silva’s critique of the NPP’s economic policy is more comprehensive maybe because he is an economist by training. He is contemplating a radical move that has the potential to wrongfoot the government. He has said in an interview with Derana TV that he will present a private member’s motion in the parliament, calling upon the government to grant the Employees’ Provident Fund (EPF) some relief in keeping with what is has offered to the International Sovereign Bond (ISB) holders in keeping with Sri Lanka’s GDP growth. 

Dr. de Silva has pointed out that although the NPP promised to upend Wickremesinghe’s economic strategy, before the presidential elections in September and November 2024, respectively, it has agreed to the same Debt Sustainability Analysis (DSA) prescribed by the IMF, and is following the ETA which it opposed tooth and nail while in opposition. 

The ETA is a crucial piece of legislation, which according to Public Finance.lk, has set out five targets related to the fiscal management of the government to be achieved in the coming years. These targets, mentioned below, are aimed at ensuring fiscal discipline and preventing the recurrence of an economic crisis: 

• A Primary Balance Target: Section 4(g) of the ETA mentions the Primary Balance is to be maintained at 2.3% of GDP until 2032 and 2% of GDP after 2032. (The primary balance is the difference between a government’s revenues and its non-interest expenditures). 

• Government Revenue Target: Section 4(h) states that Government revenue should reach at least 15% of GDP beyond the year 2027. 

• Government Debt Restructuring Targets: Section 3(1)(a)(i), (ii), and (iii) specify that the Public Debt to GDP ratio should be below 95% by the year 2032 and thereafter. The Central Government Annual Gross Financing Needs to GDP ratio shall be below 13% by 2032. The Central Government Annual Debt Service in Foreign Currency to GDP ratio shall be below 4.5% by 2027 and thereafter. 

• Starting from 2025, the Minister assigned the subject of Economic Policy shall present a policy framework and strategies to implement these targets. 

• Additionally, an annual report must be presented to Parliament by 31 March each year detailing the measures being taken towards achieving the targets. If targets are not met, the report must include remedial measures and a timeline for achieving the targets. 

Another important point Dr. de Silva has raised to bolster his arguments against the NPP’s economic strategy is that although Fitch Ratings and Moody’s have upgraded Sr Lanka’s long-term foreign currency Issuer Default Rate to ‘CCC+ from Restricted Default, Standard and Poor’s (S&P) has refrained from doing so. He has attributed the S&P decision to the fact that SriLankan Airlines has defaulted on its debt to the tune ofUSD 175 million. 

Meanwhile, the government is flaunting the proposed personal income tax revisions as the fulfilment of one of its main election promises. It has raised the Pay as You Earn (PAYE) tax threshold from Rs. 100,000 to Rs. 150,000 and proposed relief for those in higher tax brackets. At the same time, it has increased the withholding tax from 5% to 10% much to the resentment of depositors, especially those who are dependent on interest income for survival. It has said those whose interest income is lower than Rs. 150,000 a month need not worry and they can have themselves exempted with the help of Inland Revenue, but the practicability of such a course of action is in doubt. That process will require the opening of millions of more tax files even for those with non-taxable income earners, the Opposition has warned. 

Dr. de Silva has argued that the NPP’s election pledge was to increase the PAYE threshold to Rs. 200,000 whereas the SJB promised to raise it to only Rs. 150,000. Many people had voted for the NPP, seeking such tax relief, but the NPP had done exactly what the SJB had promised, he has said, accusing the NPP of having played a trick on the public. 

A prerequisite for a government’s stability is its ability to perform well on both political and economic fronts simultaneously. The Gotabaya Rajapaksa government had a two-thirds majority in the parliament, but it failed miserably because it could not manage the economy properly. The NPP has rightly chosen not to derail the ongoing IMF programme and ensure its continuity albeit for want of a better alternative, but its policy U-turns and failure to grant promised relief to the public is bound to entail a considerable political cost and take a heavy toll on the NPP’s credibility. 

The Opposition has gone on the offensive, and the government is doing its utmost to launch a counterattack and turn the tables on its rivals, but without much success. The focus of the Opposition’s anti-government campaign was initially on the political front, where the NPP is strong. But the last few weeks have seen an intensification of the Opposition’s attacks against the government on the economic front. 

The Opposition has been able to shift its anti-government battle to the economic front where the NPP is struggling owing to a sustained campaign by two leading political figures—former SJB MP Patali Champika Ranawaka, and SJB MP and Chairman of the Committee on Public Finance Dr. Harsha de Silva.

Ranawaka has targeted the NPP government’s tax policy, and his approach is effective albeit somewhat populist. He has, at a recent press briefing, accused the NPP of serving the interests of the IMF rather than those of the public. The IMF has said Sri Lanka needs to increase its state revenue to 15% of GDP in 2025. Ranawaka is of the view that the government will have to achieve a revenue target of about Rs. 4,300 to 4,400 billion. He has blamed the government for having adopted the same approach as Ranil Wickremesinghe in trying to raise its tax revenue at the expense of the public. Sri Lanka’s tax revenue has risen by about 39% from last year to about Rs. 3,000 billion. 

Ranawaka’s prognosis is that the people will have to cough up more money by way of taxes in time to come. He has gone on record as saying that the government will have to rake in as much as an additional Rs. 136,000 from every citizen this year to meet the revenue target set by the IMF. The NPP came to power, promising to change the IMF programme, but it has chosen to maintain the status quo, he has said, noting that besides increasing tax revenue, the government will have to curtail its expenditure drastically. 

Dr. de Silva’s critique of the NPP’s economic policy is more comprehensive maybe because he is an economist by training. He is contemplating a radical move that has the potential to wrongfoot the government. He has said in an interview with Derana TV that he will present a private member’s motion in the parliament, calling upon the government to grant the Employees’ Provident Fund (EPF) some relief in keeping with what is has offered to the International Sovereign Bond (ISB) holders in keeping with Sri Lanka’s GDP growth. 

Dr. de Silva has pointed out that although the NPP promised to upend Wickremesinghe’s economic strategy, before the presidential elections in September and November 2024, respectively, it has agreed to the same Debt Sustainability Analysis (DSA) prescribed by the IMF, and is following the ETA which it opposed tooth and nail while in opposition. 

The ETA is a crucial piece of legislation, which according to Public Finance.lk, has set out five targets related to the fiscal management of the government to be achieved in the coming years. These targets, mentioned below, are aimed at ensuring fiscal discipline and preventing the recurrence of an economic crisis: 

• A Primary Balance Target: Section 4(g) of the ETA mentions the Primary Balance is to be maintained at 2.3% of GDP until 2032 and 2% of GDP after 2032. (The primary balance is the difference between a government’s revenues and its non-interest expenditures). 

• Government Revenue Target: Section 4(h) states that Government revenue should reach at least 15% of GDP beyond the year 2027. 

• Government Debt Restructuring Targets: Section 3(1)(a)(i), (ii), and (iii) specify that the Public Debt to GDP ratio should be below 95% by the year 2032 and thereafter. The Central Government Annual Gross Financing Needs to GDP ratio shall be below 13% by 2032. The Central Government Annual Debt Service in Foreign Currency to GDP ratio shall be below 4.5% by 2027 and thereafter. 

• Starting from 2025, the Minister assigned the subject of Economic Policy shall present a policy framework and strategies to implement these targets. 

• Additionally, an annual report must be presented to Parliament by 31 March each year detailing the measures being taken towards achieving the targets. If targets are not met, the report must include remedial measures and a timeline for achieving the targets. 

Another important point Dr. de Silva has raised to bolster his arguments against the NPP’s economic strategy is that although Fitch Ratings and Moody’s have upgraded Sr Lanka’s long-term foreign currency Issuer Default Rate to ‘CCC+ from Restricted Default, Standard and Poor’s (S&P) has refrained from doing so. He has attributed the S&P decision to the fact that SriLankan Airlines has defaulted on its debt to the tune ofUSD 175 million. 

Meanwhile, the government is flaunting the proposed personal income tax revisions as the fulfilment of one of its main election promises. It has raised the Pay as You Earn (PAYE) tax threshold from Rs. 100,000 to Rs. 150,000 and proposed relief for those in higher tax brackets. At the same time, it has increased the withholding tax from 5% to 10% much to the resentment of depositors, especially those who are dependent on interest income for survival. It has said those whose interest income is lower than Rs. 150,000 a month need not worry and they can have themselves exempted with the help of Inland Revenue, but the practicability of such a course of action is in doubt. That process will require the opening of millions of more tax files even for those with non-taxable income earners, the Opposition has warned. 

Dr. de Silva has argued that the NPP’s election pledge was to increase the PAYE threshold to Rs. 200,000 whereas the SJB promised to raise it to only Rs. 150,000. Many people had voted for the NPP, seeking such tax relief, but the NPP had done exactly what the SJB had promised, he has said, accusing the NPP of having played a trick on the public. 

A prerequisite for a government’s stability is its ability to perform well on both political and economic fronts simultaneously. The Gotabaya Rajapaksa government had a two-thirds majority in the parliament, but it failed miserably because it could not manage the economy properly. The NPP has rightly chosen not to derail the ongoing IMF programme and ensure its continuity albeit for want of a better alternative, but its policy U-turns and failure to grant promised relief to the public is bound to entail a considerable political cost and take a heavy toll on the NPP’s credibility.