April 16, Manila – “Sri Lanka is currently in its worst economic and financial crisis yet, which has triggered lack of fuel, cooking gas and power cuts, runaway inflation and deepened hunger and deprivation. But peoples’ voices are being silenced with teargas, water cannons, arrests, increased military surveillance and questioning of civil society leaders,” said Lidy Nacpil, coordinator of the regional alliance Asian Peoples’ Movement on Debt and Development who called for international solidarity and support for the Sri Lankan people and denounced the reprisals against protesters demanding accountability from the Gotabaya Rajapaksa government.
She added that the Sri Lankan government’s recent decision to suspend all foreign debt payments, pending negotiations for a bailout with the International Monetary Fund, “should immediately lead to allocating funds freed from debt service to address the worsening humanitarian crisis”.
The acute shortages of food, fuel and other essentials have fueled the mass outpouring of protest and rising people power. But even as the economic crisis intensified and the risk of starvation grew more severe , the Sri Lankan government prioritized bondholders by paying $500 million for a maturing international sovereign bond in January 2022.
Sri Lanka’s debt-to-GDP ratio has been skyrocketing even before the pandemic, rising from 42% in 2019 to 104% in 2021. Borrowings went heavily into large scale infrastructure projects which have gone bust under the pandemic. Up to $8.6 billion in debt payments fall due this year, but the country has less than $1.94 billion in its reserves. Interest payments of $78.2 million are also supposed to be collected on April 18, followed by payment for a $1 billion maturing sovereign bond on July 25. The bond have since fallen below the face value at $0.54 to the dollar.
“This is an opportune time to start examining debt service payments being claimed from the Sri Lankan people through a participatory and transparent debt audit that will shine a light on debts whose legitimacy should be questioned,” Nacpil said. “Such debts should be immediately and unconditionally canceled.”
She cited loan-funded projects which eroded local livelihoods, caused massive environmental destruction and contributed to worsening climate threats. The Norochcholai Lakvijaya Coal Power Plant 300 MW expansion project funded by US$300 - $400 million from China, was found using outdated technology and threatened the agricultural livelihoods and marine life in the area. The project was scrapped in line with government’s pronouncements supporting renewable energy, but there is still no clarity on the public debt incurred which will eventually add to the Sri Lankan people’s fiscal burdens, unless canceled as well.
Hambantota Port Project is another example of contentious debts, said Nacpil. US$ $809.35 million was sunk in Phase 2 of this project mostly from China EXIM Bank loans. Then failing to meet high debt servicing costs, the previous Sri Lankan administration practically ceded the port to China for 99 years. Although this reduced loans to China by roughly $1 billion, loans have piled up since and borrowing costs are now higher.
The Sri Lankan government has been incurring more debt, and shown no transparency on debt repayments. It has also lacked transparency in entering into bilateral agreements, including the Colombo Port City which is financed through a $1.4 billion loan issued by the state-owned China Communications Construction Company. Reports of corrupt practices and public suspicion over financial transactions, as well as threats to the livelihoods of fishing communities, are also fueling the growing civil unrest.
“No one should be forced to trade off the right to food and health for debt service payments,” stated Nacpil, stressing solidarity with the Sri Lankan people, and cautioning how IMF bailouts are “laden with austerity conditions, and are short-term and rigid. They’re often a cure worse than the disease.”
Debt Justice Program Manager
Asian Peoples' Movement on Debt and Development
ADB's Asia Pacific Tax Hub a Trojan Horse
by Pooja Rangaprasad and Jeannie Manipon
April 6, 2022
The Asian Development Bank (ADB) launched the Asia Pacific Tax Hub on domestic resource mobilization and international tax cooperation in 2021. The stated objective under “international tax cooperation” is to promote tax initiatives of the Organization for Economic Cooperation and Development (OECD), a club of mostly high-income countries.
This explicit design and rationale of the Asia Pacific Tax Hub is extremely concerning considering the long history of criticism by developing countries, including in Asia, of OECD tax standards being biased and unfair.
Several Asian countries are not part of these OECD forums. For instance, the ADB notes that 26 of the 46 ADB developing members are not part of the OECD BEPS Inclusive Framework. (BEPS stands for “base erosion and profit shifting.”)
Asian civil-society organizations have criticized this ADB tax hub for being created without broad public consultation in the region and expressed concerns that it will reinforce the gross power imbalances in decision-making around global tax rules.
Rather than address the global constraints to domestic resource mobilization, the ADB tax hub will only reinforce the current problematic power dynamics in the international tax architecture dominated by OECD countries’ interests. It also raises important questions on how regional cooperation gets defined in Asia, and in whose interest.
Criticism of OECD tax standards
Developing countries have for years criticized OECD tax standards as biased and ineffective. During the recent negotiations of the OECD BEPS tax deal, the African Tax Administration Forum noted that Africa risked being “collateral damage” in the process.
Argentina’s finance minister has also complained that the BEPS deal is bad for developing countries, with their concerns largely ignored in the process and being forced to choose between “something bad and something worse.”
Pakistan, Sri Lanka, Nigeria and Kenya have already rejected this recent OECD tax deal. Pakistan’s finance minister said his country did not join the deal as it has “nothing for developing countries.”
Nigeria’s finance minister explained that many developing countries would experience reduced revenue collection by implementing the OECD deal.
A recent United Nations report noted that the 2021 tax deal of the OECD Inclusive Framework would only benefit a small number of developed countries and that developing countries stand to lose out.
Civil-society organizations globally are calling on developing countries to reject this tax deal and not sign on to any OECD multilateral, legally binding agreements that will implement these decisions.
Currently, it is only a political statement and not a binding agreement. The question arises as to why the ADB is promoting such OECD decisions, and in whose interest.
The Group of 77 and China (a grouping of more than 130 developing countries in the UN) have instead been calling for a universal, intergovernmental negotiation process at the United Nations to address the international tax system where all developing countries can participate on equal footing.
However, OECD countries continue to block that call in the United Nations and instead are now finding “regional” entry points to promote these decisions with developing countries.
Redefining ‘regional cooperation’
The recent G20 Finance Ministers and Central Bank Governors Meeting communiqué mandated the OECD to identify areas where domestic resource mobilization efforts can be supported in the Asia-Pacific region in collaboration with the ADB Asia Tax Hub as a “top priority.”
It is deeply problematic that bodies such as the Group of Twenty and OECD are dictating regional priorities despite having no mandate from Asia-Pacific countries that are not members of G20 and OECD to do so.
This is further compounded by the fact that membership of some of these Asia-Pacific bodies already includes non-regional members. Of the ADB’s 68 members, 19 are outside of Asia and the Pacific. Similarly, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) also includes members such as the US, the UK, France and the Netherlands.
For an issue as politically sensitive as taxation, the presence of non-regional members in such bodies risks undermining regional priorities, especially of developing countries in the region.
Indonesia as current G20 chair and India as the upcoming G20 chair should be upholding interests of developing countries in Asia instead of rubber-stamping the interests of OECD countries. Asian developing countries should reject this international tax cooperation agenda of the ADB tax hub, which is nothing more than a Trojan horse to promote biased OECD tax initiatives in the region.
APMDD members in India poised to launch campaigns calling for tax and fiscal policies that benefit women and children
Members of the Asian Peoples’ Movement on Debt and Development in India are set to launch campaigns to call for increased government subsidies for health care, press for a portion of taxes to be used for the welfare of women and children, and demand fewer taxes on fishing gear. They will also launch a social media campaign against the rise in fuel prices and LPG.
These tax and fiscal justice campaign plans were discussed on March 30, 2022, in a country consultation on tax and fiscal justice in New Delhi, India organized by the Asian Peoples' Movement on Debt and Development. Representatives of APMDD member organizations participated, including 30 leaders coming from the National Hawker Federation, Indian Social Action Forum, All India Women Hawker Federation, Samata, Mines Minerals & People, and Environics Trust. There were also some attending online.
APMDD members and resource persons from the Centre for Budget and Governance Accountability (CBGA) tackled global, regional, and national tax policy developments and other related issues that impact inequalities. Participants also planned out key steps in advancing a national campaign for tax and fiscal justice.
Jeannie Manipon, APMDD’s Development Finance (DevFin) Program Manager, outlined critical regional and global trends in the tax policy landscape. She noted that even in the pre-pandemic situation, governments had been relying on indirect taxes such as VAT and GST in many countries in the region, including India, and on other regressive tax policies. This undermines the redistributive function of taxation, thus, public services end up being funded by the same people that were meant to benefit from them, according to research.
This flawed tax system and the long-standing inequalities both on the domestic and global fronts were revealed and exacerbated by the pandemic, feeding what Manipon referred to as, “the virus of inequalities within and among countries.” During the pandemic, big companies and wealthy individuals benefited from generous tax incentives from governments under the guise of economic recovery, even as they continued tax avoidance and evasion practices, and exploited loopholes in tax systems.
To counter this flawed global tax system, civil society organizations have pushed for progressive taxation and called for a UN Tax Convention, Manipon said. She stressed the need for civil society to muster its collective voice calling on governments to not sign away taxing rights under unfair tax deals, peddled by G7 and the OECD countries.
Manipon said civil society groups should seize global advocacy moments such as the G20 summit taking place in Indonesia in November this year, and in India next year, to advance the call for tax justice.
Looking at the Context in India: Key Issues in Tax and Fiscal Policy
Sarah Farooqui, CBGA Senior Policy Analyst, said that India has one of the lowest tax-to-GDP ratios in the world which is expected to decline next year. She said that the higher the tax-to-GDP ratio, the greater the fiscal space the country has to finance various public services.
“Historically, India has always been more dependent on indirect taxes,” she said. “During the pandemic, this trend has worsened.”
She said that the Indian government already imposes high taxes on fuels such as diesel and petrol, which ordinary citizens use on a daily basis.
Government policies reducing corporate tax rate in 2019, and increasing excise duty in 2020 have led to a decline in the total share of direct taxes to total revenues from 54.6% in 2019 to 46.6% in 2021.
Farooqui said regressive tax policies worsen gender inequalities as women tend to spend more on household items, the cost of which includes consumption taxes. “As the costs of living rise, the socio-economic conditions within patriarchal structures hit women even harder, as they have to choose unpaid care work over education, formal employment, and access to healthcare,” she said.
A People’s Manifesto: Tax the Rich, Not the Poor; Make Taxes Work for People and The Planet
Rey Abella, also from the DevFin program, gave an overview of APMDD’s tax and fiscal justice campaigns and the “Seven Demands” outlined in A People’s Manifesto: Tax the Rich, Not the Poor, Make Taxes Work for people and the Planet1. He said the People’s Assembly for Tax Justice held in October 2021 led to the consolidation of a comprehensive regional campaign agenda aimed at responding to emerging challenges.
“We really felt the effects of inadequate funding of public services,” he said. It was also around this time that the OECD was pushing for their “tax deal of the rich,” lowering minimum corporate tax rates to 15%, among others. “This would result in decreased revenues for developing countries,” he said.
The OECD tax deal, undemocratically decided by the world’s richest countries, proposes a “two-pillar solution.” One pillar provides a tax arrangement benefitting only the Global North. It proposes for corporations to be taxed only in countries where sales and consumption are made and not in countries, such as India, where goods are produced through the extraction of natural resources and exploitation of cheap labor. The second pillar aims to lower the minimum global corporate tax rate down to 15%.
Key issues which surfaced in roundtable discussions that followed included the massive rise in fuel taxes over the last two years. The high fuel costs inevitably impacted the price of essential commodities burdening low and middle-income Indian households with a steady increase in their daily costs.
Adding to this are the impacts of the Goods & Services Tax system. Micro and small businesses are forced to spend additional money and effort to meet the additional paperwork and bureaucracy required by the GST system.
Essential fishing gear is now taxed under the GST system, affecting the livelihood of fish workers. Under the earlier tax regime, fishing gear was exempt from tax.
On top of this, the GST Council, the body that decides tax slabs, lacked transparency and proper representation of marginalized people in the country.
APMDD members also spoke about the controversial Metro construction in the city of Kochi. People in the entire state of Kerala are being taxed for the Metro despite the project only serving a small population, particularly in the city of Kerala.
As austerity conditions are imposed on governments in exchange for loans, and fiscal space narrows further, we are forced to trade off people’s well-being for creditworthiness, by continuing debt service payments. These come with harsh gendered spillovers, borne even more heavily by women who already face discrimination, oppression and violence in their daily lives.
Women carry a much heavier share of unvalued, unrecognized and unpaid, but socially and economically vital care work. They are also usually tracked into the lower rungs of the services sector which are deemed unskilled labor and thus, poorly paid. Debt conditionalities such as privatization of health and water stand in the way of budgeting for adequate, affordable and quality public services which can make a big difference in helping women.
Debt cancellation, starting with illegitimate debts, is a decisive step towards a just recovery, and a gender-just and sustainable economic rebuilding.
#DebtJustice for #GenderJustice and #ClimateJustice now.
READ MORE: APMDD's Message for #IWD2022
Finance at the heart of major challenges to just, equitable, and inclusive development
This March, 20 years ago, the first International Conference on Financing for Development was convened under the auspices of the UN in Monterrey, Mexico. It was significant for several reasons.
The Conference was an initiative of the Group of 77 (G77), the coalition of more than a hundred developing countries, which shared growing discontent over the systemic failures of the international financial architecture. It was the first gathering of its kind spotlighting the deep cracks of this global economic and financial system through which countries of the South often fell through, and the need to mobilize financial resources to resolve persistent conditions of inequality, deprivation and impoverishment. It also sought to bring debates on the global economic and financial system back to the UN where countries are more assured of equal footing, rather than in narrow decision-making processes of international financial institutions and North governments where the richest countries hold sway.
Today, several promises of the 2002 outcome document, the Monterrey Consensus, remain not only unfulfilled but rolled back, starting with the main goal “to eradicate poverty, achieve sustained economic growth and promote sustainable development as we advance to a fully inclusive and equitable global economic system”. Many of the financing for development issues remain unresolved and cracks have all the more deepened. There is no clearer indictment of systemic failure than the multiple crises intensified and exposed by COVID-19 that continues unabated especially in South countries.
Speaking last March 17 at the annual conference of the group of open-minded states called the “Friends of Monterrey”, APMDD Coordinator Lidy Nacpil, underscored the key role of development finance in addressing the multiple crises of economic recessions, public health and climate.
“Finance is at the heart of every major challenge to just, equitable and inclusive development that is compatible with the health of the planet, most especially now at this time of multiple crises….The multiple crises should be taken as an opportunity to take decisive steps in transforming the global economic and financial system” but recommendations laid out in the draft Financing for Sustainable Development Report (FSDR) “fall short of taking the multiple crises as an opportunity to take decisive steps to transform the global financial system and begin constructing a new one that serves the needs and interests of people and the safety of the planet.”
She reiterated key and urgent issues that civil society organizations* have consistently been raising, in light of serious gaps in the draft FSDR which will be adopted during the 2022 session of the UN Economic and Social Council (ECOSOC) Forum on Financing for Development Follow-up (FfD Forum) in April 2022.
a. The establishment of a Sovereign Debt Workout Mechanism under the auspices of the UN that would comprehensively address unsustainable and illegitimate debt, including through extensive debt cancellation for all countries in need.
b. The establishment of a universal, UN intergovernmental tax body and a UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit financial flows through a truly universal, intergovernmental process at the UN, with broad rights holders’ participation.
c. The delivery by Global North countries of their full climate finance obligations.
d. Agreement on a moratorium on Investor-State-Dispute-Settlement (ISDS) cases, removal of all ISDS provisions in all bilateral investment treaties and trade and investment agreements and the urgency for members of the World Trade Organization to adopt without delay a waiver from the obligations under the TRIPS agreement for health technologies and products related to COVID-19 countermeasures.
e. The regulation of Credit Rating Agencies (CRAs).
f. Review development outcomes of public-private-partnerships, blended finance and other financing mechanisms that promote a ‘private finance first’ approach to infrastructure and public services.
g. The acceleration of the implementation of the official development assistance (ODA) commitments to fulfill and exceed the 0.7% target for ODA in the form of unconditional grants.
h. The Assessment of systemic risks posed by unregulated or inadequately regulated financial sector instruments and actors.
i. A Global technology assessment mechanism at the United Nations.
j. Ensuring fiscal space and scaling up international cooperation for decent jobs creation and universal social protection in line with SDGs and ILO standards.
*Lidy Nacpil spoke on behalf of the CSO Financing for Development Group, an open civil society platform involving more than 800 organizations (with more than 950 individual members), and the Women’s Working Group on FfD.
For the full text of her input, see Civil Society Perspectives on the Thematic Chapter of the 2022 Financing for Development Report.