How Can We Use Risk-to-Return Ratio in Cricket?

Can we adjust the average to reflect lean patches and unusually big scores using concepts in portfolio theory?

Cricketing community has relied on test average to benchmark players’ performances for decades. Its simplicity and convenience has become the cornerstones of its popularity. Although it gives us a perfect picture of the mean runs scored per inning, the results are easily distorted by some basic concepts in statistics. A mean score is distorted by outliers. In other words sporadic big scores inflate the average while obscuring the low scores. An average tricks us to believe the player delivers the arithmetic mean  on a consistent basis. A team planner would prefer an alternative measurement which accounts for these “big surprises” and low scores and gives a better picture of a players consistency.

There are more traditional measurements of player performances which we can clearly get out of the way. The total number of runs only keeps ballooning no matter how much a player scores. The number of centuries and man of the match awards too suffer from the same problem. While I acknowledge that there is a lot to admire of a player who has labored a 100 plus test career, in a statistical standpoint they render useless.

The measurement I suggest is inspired by the Sharpe Ratio which is widely used in portfolio theory and was developed by William F. Sharpe.  It is calculated by adjusting the excess return on the portfolio to the risk of the asset.  It follows a simple notion that a rational investor desires more return with a low risk. And if an asset comes with more risk, the investor requires better compensation. Therefore any return the asset carries should be adjusted to the variability of return. The same theory could be applied to benchmark test cricket players.

Unlike the other forms of cricket, test cricket places much emphasis on consistency. A batsmen’s ability to deliver good scores steadily and absorb pressure is a trait of a dependable player. We need to factor in the volatility that comes with the surprisingly good scores that a mere average fails to demonstrate. If a player has great averages the team manager would want to know how much he can depend on the player’s ability to produce the impressive numbers that the average suggests. The results produced are interesting and can be used to benchmark players. The following table shows the reward to variability (risk-return) ratio of some notable players.

Player Risk-Return ratio Average
Allen Border 1.11 50.56
Jacques Kallis 1.06 55.37
Don Bradman 1.06 99.94
Rahul Dravid 1.02 52.43
Sachin Tendulkar 0.99 53.96
Garfield Sorbers 0.98 57.74
Ricky Ponting 0.98 52.5
Viv Richards 0.98 50.23
Jawed Miandad 0.97 54.65
Kumar Sangakkara 0.92 57.4
Mahela Jayawardena 0.87 49.84
Brian Lara 0.84 52.89

(Table 1:risk-return ratio of notable players )

Having the risk-return ratios and averages make very good comparison as to the dependability on a player on producing good scores consistently. Brian Lara is considered as an all-time great having cracked the long-elusive 400 mark and with an impressive average. However, my calculations suggest that his big scores have come at a cost of comparatively high rate of low scores and his high scores masquerades the lean patches he has gone through. The record of Don Bradman too is insightful. While his jaw-dropping average certainly speaks for his caliber, the risk to variability ratio suggests the runs have come at a rate almost equal to the variability. An average of 100 may trick you to think that the great scored almost a century in every match and makes you feel bad about the English bowlers who used to bowl at him. The new ratio makes you realize Bradman also has gone through lean patches like anyone else but also scored big scores.

The table also makes you appreciate the record of some players who deserve better recognition. Jacques Kallis is more known as an all rounder and his batting prowess is often overlooked. His great average and a reward-to-variability ratio goes on to show how formidable he was in the middle order delivering good scores reliably. Coupled with his exceptional skills with the ball, he deserved to be spoken in the same breath as some of the all-time greats.


The Case of Mahela and Thilan

Player Risk-Return ratio Average
Thilan Samaraweera 0.99 49.13
Kumar Sangakkara 0.92 57.4
Mahela Jayawardena 0.87 49.84

(Table 2: risk-to-return ratio of 3 Sri Lankan players)

A perfect example can be drawn from Sri Lanka where the ratio can be put to use to better identify a worth of a player.  The table 2 shows the average and the risk-to-return ratio of three Sri Lankan contemporaries. The two persons in comparison here are Mahela Jayawardena and Thilan Smaraweera. While Mahela Jayawardena needs no introduction, Thilan Samaraweera does. Thilan played for Sri Lanka in 80 tests for approximately 11 years. He was a consistent middle-order player with a robust technique and a resilient mindset. The selection committee is largely to blame for his inconsistent selection and finally resulting in an abrupt ending of the career. The average of 49 itself speaks for the consistency of the player and his ability to absorb pressure. His worth is showcased by his remarkable risk-to-return ratio of 0.99. Having a very similar average, Mahela Jayawardena has a considerably lower risk-to-return ratio while Thilan touches the score of 1 showing his ability to deliver consistently and suggesting that he should have been better utilized by Sri Lanka cricket. Such juxtaposition using the reward-to-variability ratio gives a clear view of the capacity of a player that the average says nothing about.


What the ratio cannot do

In cricket it is absolutely impossible to create a perfect indicator to mirror the ability of a player. It is notable that the risk-to-return ratio should be used alongside the average in order to get a clearer idea of a player profile. It also says nothing about the strike-rate the player possesses although in test cricket it matters less. The part of the world the match is played invariably plays a part in player performance. If a heavy majority of tests were scored in familiar pitches, then a player tends to have a better average. It overlooks the quality of the opposition too.

Despite all the weaknesses the ratio helps the team planner to select the best players, assign positions of the players in the side and manage them. The worth of a player will be better recognized and will help to manage them. Cricket is still in pursuit of the best indicator of player performance and it would be silly on my part to say this is the best predictor. But it is no denying that the return-to-variability ratio is a one step ahead.

ආර්ථික කම්පන සහ විදේශ විනිමයේ කාර්යභාරය

විදේශ ශ්‍රමිකයන් හා ඔවුන්ගේ බලපෑම

පසුගිය ජනපතිවරණයේදී එවක ජනාදිපති වූ මහින්ද රාජපක්ෂ එක්තරා රැලියකදී එතෙර වෙසෙන ශ්‍රී ලාංකීය ශ්‍රමිකයන්ගෙන් ඉල්ලීමක් කර සිටියේය. එනම් 2015 ජනවාරි 8 වන දින තමන්ට චන්දය ලබා දීම සඳහා එතෙරින් ලංකාවට පැමිණෙන ලෙසයි. බැලු බැල්මට මෙය එතරම් ප්‍රයෝගික කියමනක් නොවේ යයි මුලින් දැනුනත් සංඛ්‍යාත්මකව ගත් කල එහි තාර්කික බව ඉතා පැහැදිලිය.ජනලේඛන හා සංඛ්‍යාලේඛන දෙපාර්තමේන්තුවට අනුව ශ්‍රම බලකායේ හතරෙන් එකක්ම විදේශ ශ්‍රමිකයන් ලෙස විදේශගතව ඇත. මෙය සංඛ්‍යා දත්ත අනූව ගත් කළ ලංකාවේ සමහර ප්‍රධාන ජන වර්ග වල ජනගහනය පවා අභිබවා යන්නකි. එවන් විශාල ශ්‍රී ලාංකිකයන් පිරිසකගෙන් ඉතා සුළු ප්‍රතිශතයක් ඡන්දය පාවිච්චි කලද එය සමස්ථ ප්‍රතිඵලයට කරන බලපෑම ඉතා විශාලයි. මෙය විදේශගත ශ්‍රමිකයන් ලංකාවේ දේශපාලනික දිශානතියට සිදු කළ හැකි බලපෑම පෙන්නුම් කළ කදිම උදාහරණයකි.

ආර්ථික වශයෙන් ගත් කළ විදේශ ශ්‍රමිකයන්ගේ බලපෑම දෘශ්‍යමාන වන්නාවූ ප්‍රධානතම මාධ්‍ය වන්නේ විදේශ විනිමය නැතහොත් ප්‍රේෂණයි. විදේශ විනිමය යනු විදේශයන්හි සේවය කරන ශ්‍රී ලාංකිකයන් ලංකාවට එවනු ලබන භාණ්ඩ හා මුදල් යයි අපි පුළුල්ව හඳුන්වමු. පසුගිය දශක 3 තුලදී ලංකාවේ විදේශ විනිමය ඉපැයීම් ශීග්‍ර ලෙස වර්ධනය වීමක් දක්නට ලැබේ. ලෝකයේම වැඩියෙන්ම විදේශ විනිමය උපයන රටක් ලෙස ලංකාව පිළිගනු ලබයි. දකුණු ආසියාතික රටවල් සමග සංසන්දනය කර බැලූ කළ ලංකාවේ විදේශ විනිමය ඉපයීම ඉතාම ඉහල අගයක් ගනියි. මුදල් හා ක්‍රම සම්පාදන අමාත්‍යංශයට අනූව 2009 දී ලංකාවේ ඒක පුද්ගල විදේශ විනිමය ඉපයීම ඇ.ඩො. 164 ක් වූ අතර ඊට සාපේක්ෂව දකුණු ආසියාවේ විදේශ විනිමය ඉපයීම සාමන්යය ඇ.ඩො. 35 කි. ලංකාවේ මුළු අපනයන ආදායමේ ප්‍රතිශතයක් ලෙස ගත් කළ එය 25% ක් පමණ වේ. මේ තොරතුරු වලින් පෙනී යන්නේ විදේශ විනිමය ලංකාවේ ආර්ථිකයේ දිශානතිය තීරණය කරන සාධකයක් බවට දැන් පත්ව තිබෙන බවයි.
ආර්ථික කම්පන යනු මොනවද?

ආර්ථික කම්පන ලෙස අපි හඳුන්වනු ලබන්නේ රටක භාණ්ඩ නිෂ්පාදනය, බෙදාහැරීම සහ පරිභෝජනය සඳහා පිටස්තර පාර්ශවයන්ගෙන් එල්ල වන බලපෑම් වේ. බොහෝවිට මේවා සෘනාත්මක බලපෑම් ලෙස අපි සලකමු. උදාහරණයකට ගත් කල ලංකාවේ නිමි ඇඳුම් කර්මාන්තයට හිමිවුණු GSP + සහනය අහිමි වීම පෙන්වා දිය හැක. ආර්ථික කම්පනයක් සඳහා පුලුල්වම භාවිතා වන උදාහරණය වන්නේ බොර තෙල් මිල ඉහල යාමෙන් දේශීය කර්මාන්ත සඳහා සිදුවන අවාසිදායක බලපෑම් වේ. මීට අමතරව පරිභෝජන බදු ඉහල දැමීම්, විනිමය අනුපාත වෙනස් වීම් ද පෙන්වා දිය හැක. බොහෝ අවස්ථා හිදී මෙවන් ආර්ථික කම්පන කල්තියා පුරෝකථනය කළ නොහැක. ආර්ථික විද්‍යාවේදී ව්‍යාපාර චක්‍ර න්‍යාය සහ සෝලෝව් වර්ධන න්‍යාය හරහා මේ පිලිබඳ ගැඹුරින් කතා කරයි. එම න්‍යායන් තුලින් ආර්ථික ඒකකයන් තමුන්ගේ පරිභෝජන රටා විවිධ කම්පන වලට මුහුණ දීම සඳහා වෙනස් කර දිගු කාලීනව තම පරිභෝජනය සුමට කර ගන්නා ආකාරය අපූරුවට විශ්ලේෂණය කරයි.

ආර්ථිකයේ තීරණ ගැනීම් බොහොමයක්ම සිදු වන්නේ අවිනිශ්චිතතාව මතයි. කුටුම්භ, ව්‍යාපාර ආයතන හා රජයන් කම්පන අවිනිශ්චිතතා වලින් සිදුවන උච්චාවචනයන් අවම කර තමන්ගේ ආදායම් ප්‍රවාහය සුමට කර ගැනීම සඳහා නිතැතින් කටයුතු කරති. විශේෂයෙන් දියුණු වෙමින් පවතින රටකට සංවර්ධිත රටකට වඩා වැඩි අවදානමකට මුහුණ දීමට සිදුවේ. එවන් අවදානම් දැරීමෙන් සිදුවන බලපෑම් අවම කර ගැනීම සඳහා විදේශ විනිමය උපයෝගී කර ගැනීමට පුළුවන් නම් එය ලංකාව වැනි රටකට ආශීර්වාදයකි.
සුක්ෂම ආර්ථික කම්පන හා ප්‍රේෂණ ධාරා

කුටුම්භ වල සිදු වන ආදායම් උච්චාවචන බලපෑම් වලින් මිදීම සඳහා විදේශ විනිමය ඉපයීම් භාවිතා වන බව ආර්ථික පර්යේෂකයන් විසින් සොයා ගෙන ඇත. මෙම සංසිද්ධිය ලංකාවේ පමණක් නොව පිලීපීනය වැනි රටවල් වලද විද්‍යමාන වන්නකි. ආර්ථික පර්යේෂකයින් සොයා ගෙන ඇති ආකාරයට විදේශ විනිමය ලැබෙන කුටුම්භ වල අහිමි වූ ආදායමෙන් 60% ක් පමණ ප්‍රමාණයක් විදේශ විනිමය විසින් ප්‍රතිස්ථාපනය කරනු ලබයි. එමෙන්ම ලැබෙන්නාවූ විදේශ විනිමය ප්‍රමාණය කුටුම්භ අදායම වැඩි වීමත් සමගම හීන වී යන ප්‍රවනතාවයක් දක්නට ලැබේ. එමගින් තම පවුලේ පරිභෝජන රටාවට සිදුවන සෘණාත්මක ප්‍රතිවිපාකය අවම කර තබා ගැනීමට විදේශ විනිමය ලැබෙන්නාවූ කුටුම්භ සමත්වී ඇත. කෙසේනමුත් මීට සමගාමීව පැන නගින ගැටළුවක් ලෙස පර්යේෂකයන් දකින්නේ මෙය ලංකාවේ දැඩි යැපුම් සංස්කෘතියක් බිහි කිරීමට වග කිව යුතු බවයි. තමන්ගේ අහිමි වූ ආදායමෙන් විශාල ප්‍රමාණයක් ප්‍රේෂණ මාර්ගයෙන් ප්‍රතිස්ථාපනය කරන හෙයින් වෙනත් අදායම් මාර්ගයක් සොයා ගැනීම සඳහා ඇති අභිප්‍රාය හීන වේ. මේ හේතුවෙන් දිගුකාලීනව, විදේශ ප්‍රේෂණ ස්වාරක්ෂණ ආදායමක් නොව යැපුම් ආදායමක් පමණක් බවට පත්වේ. එමගින් කුටුම්භයකට දිගු කාලීනව තම අදායම් ප්‍රවාහය ඉහල දමා ගැනීම සඳහා විදේශ ප්‍රේෂණ ආයෝජනය කිරීමට ඇති අවස්ථාව මගහැරී යයි. ප්‍රේෂණ වලට පමණක් සීමා නොවූ මෙම යැපුම් සංස්කෘතිය ලංකාවේ වෙනත් සහන දීමනා සඳහාද එකලෙසම බලපාන බව නිරීක්ෂණය කර ඇත.

මීට සමාන තවත් පර්යේෂණයකින් කාලගුණ කම්පනයකදී විදේශ ප්‍රේෂණ වල හැසිරීම ගවේෂණයට ලක් කරයි. මෙම පර්යේෂණයේ නියැදිය ලෙස තෝරා ගෙන තිබෙන්නේ පිලිපීනයේ ග්‍රාමීය ප්‍රදේශයක්. මෙහිදී නිරීක්ෂණය කර ඇත්තේ වර්ෂාව ඉතා අඩු සමයන්හිදී එයින් සිදු විය හැකි අනිටු ප්‍රතිඵල අඩු කිරීම සඳහා වැඩි වශයෙන් විදේශ විනිමය ලැබෙන බවයි. කාලගුණ කම්පනයක විශේෂත්වය වනුයේ එය එක ප්‍රදේශයක ජීවත්වන පවුල් විශාල සංඛ්‍යාවකට එකලෙස හා එක් අවස්ථාවේදීම බලපෑමයි. කෘෂිකර්මයෙන් ජීවත් වන ජනතාවක් ජීවත් වන මෙම ප්‍රදේශයේ ජනතාව හට ණය හා හදිස්සි මුදල් පහසුකම් ලබා ගැනීම ඉතා දුෂ්කර වේ. ඊට එක හේතුවක් වනුයේ ඔවුනට ඇපයට තැබීම සඳහා වටිනාකමෙන් ඉහල වත්කම් නොමැති වීම. එමෙන්ම දැනට තිබෙන්නාවූ ඉඩම් කඩම් යනාදී වත්කම් විකුණා දැමීමට එම ප්‍රදේශයේ බොහොමයක් දෙනා ඉදිරිපත් වීමෙන් ඒවායේ මිල ගණන් ඉතා පහල මට්ටමක පැවතීමයි.අනෙන් හේතුව වනුයේ කාලගුණයෙන් බැටකෑ එම ප්‍රදේශයේ සියලුම දෙනා ණය ඉල්ලුම් කිරීම හේතුවෙන් බැංකු ණය පොලී අනුපාත ඉතා ඉහල අගයක් ගැනීමයි. මීට සමාන කාලගුණ හා ආර්ථික තත්වයක ජීවත් වන ශ්‍රී ලාංකීය ග්‍රාමීය ප්‍රදේශ සඳහාද මෙම පර්යේෂණයේ ප්‍රතිපල බොහෝ දුරට වලංගු වේ. කෙසේවෙතත් ශ්‍රී ලංකාව අදාල කර ගෙන කරන ලද අධ්‍යනයක් තුලින් මීට වඩා නිශ්චිත ප්‍රතිපල ලබා ගෙන මීට අදාල ප්‍රතිපත්ති සම්පාදනයට රුකුලක් විය හැක.
සාර්ව ආර්ථික කම්පන හා ප්‍රේෂණ ධාරා

සාර්ව ආර්ථික කම්පන දරා ගැනීම සඳහා ප්‍රේෂණ වලින් අපේ රටට දෙනු ලබන දායකත්වය අල්ප මට්ටමක පවතියි. 2007 වසරේ කල පර්යේෂණයකින් හෙළි වුනේ ලංකාවට ලැබෙන්නාවූ ප්‍රේෂණ ප්‍රවාහයන් ලංකාවේ ආර්ථික තත්වයත් සමග ධනාත්මක සම්බන්ධතාවයක් ඇති බවයි. මෙයින් ගම්‍ය වන්නේ ලංකාවේ ආර්ථික තත්වය දුර්වල කාල සමයන් වලදී අඩු ප්‍රේෂණ ප්‍රමාණයක් ලැබෙන බවයි. එවන් සමයන් වලදී ගෙවුම් ශේෂ ගැටළුව ප්‍රේෂණ අඩු වීම නිසා වෙනදාට වඩා ලංකාවට දැනීමට ඉඩ ඇත.

සමස්තයක් ලෙස විදේශ විනිමය ප්‍රවාහයන් ලංකාවේ සාර්ව ආර්ථිකයට කරනු ලබන සේවය අඩු මට්ටමක පැවතුනත් එය බොර තෙල් මිල හා සංසන්දනය කිරීමේදී ඒ හා ධන සම්බන්ධතාවයක් ගනියි. එනම් බොරතෙල් මිල ඉහල යාමත් සමගම ප්‍රේෂණද ඉහල යයි. මෙමගින් තෙල් මිල ඉහල යාමෙන් ගෙවුම් ශේෂයට වන්නාවූ සෘණාත්මක ප්‍රතිවිපාකය අවම කර ගැනීමට දායක වේ. එමගින් වර්තන ගිණුමේ ශේෂය ස්ථාවරව පවත්වා ගැනීමටත් විදේශ සංචිත වර්ධනය කර ගැනීමටත් රුකුලක් වේ. ලංකාවේ විදේශ ශ්‍රමිකයන් බහුතරයක් වෙසෙන්නේ මැදපෙරදිග රටවල් වලය. මේ රටවල ආර්ථිකයන් බොරතෙල් මත රඳා පවතින අතර බොරතෙල් මිල ඉහල ගිය විගස එම රට වලින් ලංකාවට එන ප්‍රේෂණ ධාරාවන්ද ශක්තිමත් වේ. එක් අතකින් ලංකාවට බොරතෙල් මිල පීඩනය වැඩි වෙද්දී අනෙක් අතෙන් රට වෙත ගලා එන විනිමය ප්‍රවාහයන්ද වැඩි වේ. බොරතෙල් ලංකාවේ මුළු ආනයනයන්ගෙන් 20% පමණ වන නිසා විදේශ විනිමය වැඩි වීමෙන් කරනු ලබන සේවය ඉතා වැදගත් වේ.
ඇමෙරිකාව වැනි රට වල අනාගතයේදී ඇතිවිය හැකි බොරතෙල් හිඟ සහ වෙනත් හිඟ සඳහා මුහුණ දීමට මාස ගණනාවකටම සරිලන තොගයන් ඒ රටවල් පවත්වාගෙන යයි. එනමුත් සංවර්ධනය වෙමින් පවතින රටවලට එවන් දැවැන්ත ආරක්‍ෂිත තොග පවත්වාගෙන යාම සඳහා හැකියාව නැත. එනිසා සාමාන්‍යයෙන් සංවර්ධනය වෙමින් පවතින රටකට ආර්ථික කම්පන වලින් සිදු වන හානිය සංවර්ධනය වූ රටකට වන හානියට වඩා දරුණු වේ. ජාත්‍යන්තරව ගතහොත් ප්‍රාදේශීය සංවර්ධනය සඳහා ප්‍රේෂණ ප්‍රවාහයන්ගේ කම්පන ආරක්ෂණ හැකියාව ඉතා ප්‍රයෝජනවත් වන්නේය. එනමුත් රජයක් වඩාත්ම සැලකිලිමත් විය යුත්තේ දේශීය ආර්ථිකය සහ රටේ මූල්‍යමය පරිසරය දියුණු කර ඒවා කම්පන වලට ඔරොත්තු දෙන තරමට ශක්තිමත් කිරීමයි. කිසි විටෙකත් රජයක් ප්‍රේෂණ ධාරාවන් වැඩිදියුණු කිරීම දේශීය ආර්ථිකය ශක්තිමත් කිරීම සඳහා ආදේශකයක් ලෙස භාවිතා නොකළ යුතුයි.

EPF in the Hands of the Central Bank

When the government used the funds of Employment Provident Fund (EPF) to invest in publicly traded financial companies in 2011, civil groups and the opposition party vehemently protested against government’s move to exercise control. It became known in 2014, the government has indeed incurred losses from the ventures and the losses have to be transferred to the beneficiaries. Ironically, the new government, the very people who voiced their opinion against the moves continue to maintain shares and attempt to increase their influence over private banks. As of now, the government owns shares of 6 different privately owned banks, with stakes varying from 16.3 percent to 33.98 percent. The Central Bank’s (CB) failure to publish annual reports of the EPF since 2012 makes the whole affair of EPF and CB’s decision to invest in private financial companies increasingly dubious.


What Is EPF?

If you have been an employee in Sri Lanka you are aware  that a certain amount of your monthly paycheck is deducted for the EPF. The Employment Provident Fund was set-up under the Act No. 15 of 1958 as a social security scheme. The Central bank is entrusted to maintain the fund. It has grown to become the largest social security scheme in Sri Lanka amounting to 1664 billion rupees as at December 2015. The employee has to contribute 8 per cent and the employer 12 percent of the monthly salary. Therefore the entire fund comprises of the hard-earned money of Sri Lanka’s labor force. The large public outcry was initially due to jeopardizing this fund by risky investment which in-turn endangers the social security of Sri Lankans. It Appears that there are even more serious implications of CB owned shares and influencing bank decisions through government-appointed directors.


The Conflicts of Interest

According to the CB website, one of its objectives is to achieve financial system stability. The Central Bank oversees the financial institutions and makes sure the banks make “safe and efficient” financial decisions. Having to manage its portfolio, the CB is now playing the dual roles of the regulator and the financial institution it is supposed to regulate.  It is questionable how the CB intends to strike a balance between the drive to profit while  regulating the country’s financial environment. The CB is essentially regulating the companies owned by itself.

The CB also has to set the interest rates which directly affect the financial institutions’ daily transactions. In a situation where the CB owns banks, it is essentially setting interest rates of companies owned by itself. This does not only give rise to a conflict of interest. The financial institutions can clearly exploit the inside information and get undue advantage. In a fiercely competitive banking environment where the players are striving to gain an edge, inside information will be detrimental to the industry competition. In other words, the CB could be directly involved in creating monopolies in the banking system.

CB has already tainted its name by allegedly getting involved in a bond scam in 2015. Its stakes in private financial companies could potentially embroil the CB in yet another misuse of information. When the CB issues bonds and debentures in order to raise finances on behalf of the government, it has to act in the best interest of the people in the country. In other words, the treasury bills or bonds should be issued to the bidder that offers the lowest rate of interest. These transactions are in billions and therefore a fraction of an interest rate means a lot. The Central Bank’s portfolio comprises the stakes of the very companies that wishes to profit from the deals.


Unclear Rationale

The governments have had a history of not publicizing important economic reforms affecting the citizens. In defense of the claims regarding EPF, government’s response has been that the purchase of shares is a reaction to “news items alleging fraud and market manipulations in share transactions”(The Island June 23, 2012). The claim itself is vague and it appears as if the government is finding faults of other institutions in order to execute a hidden agenda. On the other hand it raises effectiveness of the Securities and Exchange commission which is in place to detect and investigate share price manipulations.

The government and the CB has gone to unprecedented lengths to tackle a market imperfection by creating a web of more serious complications. Coupled with the failure to produce annual reports of EPF for four consecutive years,  the entire affair has created an aura of extreme ambiguity. Thus, people believe the move is an attempt of some invisible hand to steal the hard earned money of workers.

Hands-Off Private Companies

When John Exter, the founder of the central bank released his reports, he forbid the CB from engaging from any profit making activities. Although the financial and the economic climate has transformed so much since then, his reasoning has only grown in its significance. Therefore the CB is now in violation of the Exter Report as well.

Regardless of any foul play, CB managing a portfolio itself is a red flag to a potential investor. The investors would not want the government to directly meddle with their decisions through government-appointed directors sitting in their board meetings. It undermines private ownership and free-market policies. It also discourages private investment and foreign direct investment. It is ironic that a party which is known for its pro-market policies has, in a way, nationalized privately owned companies by owning shares. Therefore this is a serious dampener on the government’s aim to encourage entrepreneurship and investment.


Possible Solution

Provident funds are widely found all around the world. One solution is to transfer the fund to an independently specialized and separate body. The body should be completely independent of the CB and independent of political influences. It resolves two problems. Firstly it relieves CB from the conflicts of interest which is the major part of the problem. This way the CB will have no barrier to hold shares of financial institutions(FI). Yet I would strongly suggest not holding shares of FI. The independent body will likely comprise of officers who have strong ties to the CB who are already experienced in managing the EPF. Thus it will not give rise to a problem like Food And Drug Administration Authority directors coming from Tyson.

Secondly this specialized team will be well versed in investment decisions thus capable of actually growing the fund and not dwindling the fund. The government has not had a very good track record of investment over the years and there are ample examples of disastrous ventures. The fund has already lost 11.7 billion of rupees due to inept and politically motivated investment decisions (Daily Mirror).The special team will comprise of investment analysts and market researchers who are geared to make strategic investment decisions. It is of utmost importance that the body is free of any political motivations. This will enable the fund to provide the beneficiaries with a healthy interest rate that would be well over the inflation rate.

While I agree that the solutions are easier said than done, given the magnitude of the problem the changes should be made to for the betterment of the economy. The governments seems to be pushing any solution to a distant horizon by adopting the same unhealthy policies the previous governments carried out. The solution will not only benefit the economy as a whole, but also would establish “good governance” that the present government pledged to uphold once they rise to power.

(* the writer Praveen Ekanayake is a graduate student of Miami University )

Will More Male Migration Produce Better Economic Gains?


How Vital are Remittances to the Country?

The importance of remittances has grown over the years in Sri Lanka and now it has become a determining factor of the economy. Over a quarter of the country’s labor force is abroad. The remittance statistics in 2015 show that foreign currency earned from remittances surpasses the highest earning export good which is garments.  Since remittance flows are positively correlated with the oil prices it also acts as a buffer for the oil price shocks (Lueth et al. 2007). Sri Lanka is also the highest remittance receiving country in the South Asia region. In 2009 average per capita remittance to Sri Lanka amounted to 164 US$ compared to South Asia’s average of 35$ (Ministry of Finance and Planning). In response to this significant situation, policies to make the remittance flow more economically productive are not in place.intro-remittance-blog


The Tragedy

In 2000 female migrant workers accounted for 75 percent of the total migrant workers abroad (Lueth et al. 2007).  This is due to the high demand for household female workers from the Middle Eastern region. The housemaids are largely unskilled and come from low income families having low marketable skills. The underprivileged and vulnerable nature of housemaids has paved the way for the violation of their rights both in the remittance receiving countries and in sending countries. There are many reported instances where the female migrant workers were physically abused by the employer and were not compensated properly. On the other hand back in their home countries their absence makes a devastating impact on the family. Their spouses lose their female counterparts and the children lose maternal love and care which is vital for early childhood growth. Thus, many migrant workers tragically end up in an even more miserable situation than they were before.


Policies and the Dilemma

As the public voiced their opinion against the social problems created by female migration, the government was in a dilemma, whether to curtail female foreign employment or not. Curtailing female foreign employment would hurt the economy badly. On the other hand any restriction on female migration would mean a discrimination against women’s economic freedom. The regulations came in the form of “recommendations” such as not recommending females with children under 5 years of age for foreign employment. Owing to various regulations imposed by  the Sri Lanka Bureau of Foreign Employment, the gender composition of migration is transforming.

More male migration would mean more women would be in control of income remitted to home countries. These expenditure dynamics of males and females are to play a big role in how household expenditure patterns are decided. This poses a good research question: whether the sex of the remitter makes an impact on the household budget allocations. Studies on the transformation of household expenditure pattern should be conducted in order to predict the economic impact. The research also intends to cast more light to how the remittance receiving families spend their income.



(Image Courtesy:

Methodology and Challenges of the Research

This research intends to compare the expenditure patterns of remittance receiving families and non-remittance receiving families. Then it compares families receiving remittance from males and females. This would mean a non-random selection of the treatment and non-treated groups. In addition, the two groups involved in analysis differ in observable and unobservable characteristics. This gives rise to non-random sample selection and endogeneity problems. The most popular way of treating the possible biases is through instrumental variables (IV). But the use of IV had to be ruled out as a good IV was not found. Therefore, the preferred functional form is the Working-Lesser model. We model this as a fractional-logit model. Propensity-score matching with nearest neighbor matching is also carried out.


Learnings from the Research and the Way Forward

The following are the highlights of results generated from the study. Compared to non-remittance receiving families, the expenditure on housing stands out which captures expenditure for building, renovation and renting houses. The remittance receiving families tend to have a 36 percent higher budget allocation for housing category. This is a clear indication of the main financial motive of migration. It is also interesting to note that expenditure for health and education in remittance receiving families is not significantly different from non-remittance receiving families. These outcomes also confirm the finding of (IPS 2014) where only 21 percent of returnee migrants responded that they had improved their economic status. It is clear that the intentions of migrating families in general are more consumption based rather than investment based.

More interesting outcomes are seen in the gender comparison section. The male remitter houses tend to have 66 percent less budget allocation for liquor and intoxicants. Budget allocation for education rises by 35 percent in houses receiving remittances from males. Impact on both these categories help improve the quality of life and would be an investment in human capital in particular. However, the budget allocation for clothing and ceremonial expenditure is to rise by 20 percent in male remitter households.



The contribution by the migrant workers is unmistakable in the country’s economy. However, the institutional framework to maximize and prudently utilize their hard-earned income is not in place. The focus of the migrant workers should be to invest and create a stream of sustainable income rather than spending on consumption goods.  As the results suggest, the trend of more male migration will produce better economic results especially in terms of human capital development. It also indicates that higher bargaining power for women in household expenditure decisions do produce better outcomes. The government may not witness immediate results from the shift of gender composition of migration. Yet the long term effects of better access to education through higher household expenditure on education can be experienced at national and household levels.



Lueth, E., Ruiz-Arranze, M. (2007). ‘Are Workers’ Remittances a Hedge Against Shocks? The Case of Sri Lanka’ International Monetary Fund

Frankel, Jefferey A., “Are Bilateral Remittances Countercyclical?,” (October 2009). NBER Working Paper No. w15419

Equity in Sri Lankan Tax System


What Is Equity in Taxation?

One of the most influential writings in our history- Wealth of Nations by Adam Smith outlines four principles that should feature in a citizen-friendly tax system which are equity, certainty, efficiency, and economy. Although it has been centuries since these concepts were introduced, the principles prove to be even more relevant now. Looking at Sri Lankan tax system and laws governing it, there are multiple occasions where the equity principle is violated. As the government relies on indirect taxes to raise tax revenues, which violates the equity principle, Sri Lanka’s direct tax level has dipped to an abysmal low, sitting at 17%. The experts say that it is so low even by the standards of developing countries.


The Status-Quo

A tax system is said to adhere to the equity principle if the tax burden is distributed fairly among the citizens. It is the first principle of taxation laid down by Adam Smith. More recent writers such as Amrtya Sen warns that less pragmatic approach to taxation could potentially lead to social injustice. Equity entails vertical and horizontal equity. It follows that the wealthy should pay more than the poor and the equally well-off should pay equal amounts. The indirect taxes such as the value added tax (VAT) is considered regressive since the amount of tax paid does not take into account the individual’s income level. Income taxes where the wealthy pay a higher percentage of taxes is a good example for a progressive tax system. With the administrative ease the indirect taxes have become the more attractive option for the successive  governments to exploit in order to bridge the ballooning fiscal deficit. Having introduced different ad-hoc taxes from time-to-time, the Sri Lankan tax system now has 25 different taxes which not only make it very complex, but also increasingly regressive. Therefore, the tax system favors the rich and further expands the income inequality.

As the citizens earn more, the governments need to provide more and better public services. This rationalizes the wealthier paying a higher tax rate than the less privileged. However, according to the Central Bank of Sri Lanka, tax to GDP ratio is on a downward spiral since 1990. Direct tax to the total tax ratio also has not been able to keep pace with the growing personal income. Coupled with the historic-high Gini Coefficient of 0.49, indicates widespread tax evasions and the inability of the tax system to capture growing sections of the economy.


Economies have higher direct tax ratios for higher per-capita GDP levels. The tax system should be geared to encompass novel economic activities and impose direct taxes appropriately. Especially the services sector of an economy which typically experiences the biggest growth at periods of economic growth has to contribute more to the tax revenue. The government has failed to include the growing parts of the services sector in the country into the tax base. As an example, branches of tourism industry, which experiences dividend after the civil war, has been gifted with generous tax exemptions that the rest of the industries do not enjoy. The private medical services are still operating in ways that are difficult to be monitored. Policy makers are also blind to certain private education services that sprung up recently and are enjoying a good 10 to 15 years of tax avoidance. This gives rise to the problem of undeclared economic activities at large. It is of utmost importance that the government taxes the industries appropriately without relying on indirect taxes alone. I find this tendency increasingly regressive since the thriving industries are allowed to operate tax free while the struggling industries are being taxed exorbitantly. The excessive tax avoidances hurt the economy while creating a regressive tax system.

The corporate laws are hotbeds of inequity. It is not uncommon to frequently hear cases where companies avoiding taxes or company executives receiving lucrative benefits during  economic recessions. Sri Lankan corporate law is yet to be made sophisticated to detect inequitable benefits received by top executives. In Sri Lanka corporate law has made it compulsory for the listed companies to report the salaries of directors. Yet it is not required to report the benefits, bonuses and long-term incentives while the rest of the South Asian countries are required to do so in their countries. This has created a major loophole in our tax system where they can avoid taxes by disclosing a smaller remuneration and receiving millions in bonuses and benefits.

A recent inclusion to the corporate law became a topic of widespread discussion. Imposing an annual tax of 60,000 rupees and a closing tax of 250,000 rupees is another example for ad-hoc taxes which undermine equity in the tax system. This is clearly a regressive tax where a bigger company could easily bear the tax while it could be a big burden on a smaller company. The impact on economic efficiency of this law is unmistakable. The biggest impact will be on Small and Medium Enterprises (SME). According to the Central Bank, SMEs constitute 35 percent of total employment and 50 percent of GDP. Therefore, such laws are also to make an alarming impact on GDP, unemployment rate and private investment.

The successive  governments are guilty of employing the tax exemptions as a tool to entice Foreign Direct Investment (FDI) for decades. Sri Lanka has been engrossed in attracting FDI that they are losing the basic principles of taxation. It is calculated that the loss of tax revenue due to Board of Investment’s (BOI) tax incentives is around 1% of GDP. Whereas the country is able to attract only around 1.5% worth of FDI. While a tax incentive for a short period is justifiable, having such incentives for over 40 years poses a serious equity problem in taxation. Several companies are enjoying free rides at the expense of taxpayer money. The governments have failed to exploit  diverse avenues to attract FDI. According to the World Bank, political stability, consistency in economic policies, better institutional trust and infrastructure attract more FDI than tax holidays. It is also noted that having had the same tax holidays for FDI for decades, it has allowed companies to operate in competition-free environment which makes them extremely inefficient. This has become a boon for few companies and a bane for the rest of the firms who have to pay a higher tax rate.


While raising taxes and increasing government revenue are matters of imminent attention, there are more equitable ways of generating wealth. The government should not lose focus on equity or any other tax principle since the impact on the society could be detrimental. As Amrtya Sen puts