Mangala in Retreat: Budget 2019
Posted on March 14th, 2019

By sumanasiri liyanage Courtesy Ceylon Today

Presenting his first budget in November 2017, Mangala Samaraweera behaved like a bull in a china shop informing that he would amend the laws that were enacted by the previous governments in order to protect the lower rung of the society for the satisfaction of the greed and needs of the local and foreign bourgeoisie. When the Budget 2018 was presented to Parliament, academics trained in conventional economics appeared to have found their saviour in Mangala Samaraweera, well-known for his anti-populist thinking.

They praised him as someone who could complete without any reservation the neo-liberal mission first introduced in 1977 and implemented by different regimes since then although with some hesitation. I am certain that he has disappointed these conventional economic gurus when the Budget 2019 was delivered. Samaraweera was even forced to put some of the IMF conditionalities like restructuring State-owned enterprises (SOEs), under the carpet. IMF appears to have thought that as far as its politics is concerned, one step back” from its economic logic and general loan conditions is imperative at this conjuncture in order to keep the present regime in power.

A day before the budget, almost all the newspapers published a photograph showing Minister Samaraweera with the Treasury Secretary in his Gorakana retreat. How do we explain Mangala’s retreat from his first budget? This may be attributed to three factors. First, his budget proposals that included an amendment of laws that affect peasants and workers, restructuring in the form of sales of shares of the State banks, tax reforms met so much opposition from the trade unions and peasant organisations.

The measures that were taken in association with the budget like mila sutra” (price formula) for gas price and the Singapore-Sri Lanka Free Trade Agreement were also subjected to constant resistance. Secondly, Samaraweera has failed miserably as the Minister of Finance. The rate of growth of the economy for 2018 was 3 per cent and that was the lowest after the Katunayaka debacle. Sri Lanka rupee has depreciated against all the major currencies. Rate of inflation in spite of Central Bank’s emphasis on inflation control has risen, though marginally. Although the blame should go to the entire Cabinet, the responsibility of the Finance Minister cannot be forgotten. Thirdly, 2019 and 2020 are election years. The pressure may have come from his colleagues of United National Front that the budget should offer some goodies to delude the masses.

Ignorance in Budget-making

Minister Samaraweera is not only in full retreat, he has shown his ignorance about public finance. The Government i.e., Ministries and Departments prepare their annual estimates for the Ministry of Finance and the Ministry gets the revenue estimates on the basis of existing taxes and other revenues. Hence, we knew in advance that the total revenue is Rs 2,390 billion while the total estimated expenditure was Rs 4,550 billion.

So the pre-budget budget deficit was Rs 2160 billion. The task of the Finance Minister is to announce her or his proposals how this deficit be financed. The way in which she or he proposes to finance the deficit will reflect the policies of the Government. It is necessary to pinpoint two issues. First, there is an issue of correctness of the data issued by government agencies. MP Sumanthiran, the chairperson of the Government Finance Committee of Parliament has revealed that at different times different data was submitted by the Treasury. He also informed that usually expenditure was underestimated and the revenue overestimated.

Although the revenue target was 15.6 of GDP in 2018 the actual revenue was 14 per cent of GDP. Similarly, we can see a difference in data given by the IMF and the World Bank. So we can see clearly, data has been manipulated in order to show a positive outcome. Secondly, take the new proposals that were painted as with radical welfare implications. Rs 4 billion is allocated to provide sanitary facilities for one million people. This type of expenditure should be included not in the budget speech but in the expenditure estimates of the relevant ministry. The non-inclusion of such expenditure in the budgetary estimate shows poor planning at Ministry level. Another example is so-called Home Sweet Home loan to young people at a 6 per cent interest. What is the objective of this loan? What does the Government try to achieve? To encourage young people to marry?

Or is there an issue of population growth so that young people should be encouraged to marry and have a home? None of them is needed as such issues have not reached a problem level. What are the fiscal or economic implications? One may also ask a question as to how much these young couples have to pay at the end of the month as loan instalment and interest. My back of the envelope calculation says it is close to Rs 75,000 per month. That may explain why only two young MPs of the Opposition have so far expressed their interest in this loan facility.

 For a Debt Economy

Mangala’s Budget if approved by Parliament would have two serious repercussions on the economy. First, it is a budget that forces people of all walks of life depend more and more on various types of debt. So far indebtedness has forced 170 people to commit suicide. At the International women’s day in three places in the country women have campaigned against so-called micro credit which was once painted as the panacea for all the ailments of the poor people. It has eventually turned into a debt trap foreclosing the future of indebted families. The Budget 2019 proposed to continue this dangerous trend covering almost the entire population from young business people to students seeking education in higher educational institutions.

Secondly, it may be incorrect and unrealistic for people to think that Minister Samaraweera has dropped his proposals included in budget 2018.

In extending EFF, the IMF expressed the need of privatising SOEs in multiple forms. The trade unions in the State banks must realise that the proposal was put in the back burner. Similarly, price formulas will surface once again. Depicting as a measure that would liberate women, the budget went back to its previous theme of flexibilisation of the labour market by proposing amendment of labour laws allowing part-time, flexi hours etc.

Hence, Budget 2019 is still a dangerous document.


One Response to “Mangala in Retreat: Budget 2019”

  1. Dilrook Says:

    Poor logic.

    Aggressive sanitary facilities development benefitting 1 million people is a good thing. It is far better than loss making airports, highways and ports. Sri Lanka had an excellent comparative sanitation record which slipped lately. It is a shame 5% of the population doesn’t have proper toilet facilities. Including it in the budget or expenditure estimates is a mere trivial procedural matter.

    6% home loans is another excellent move. Obviously there is a huge need for it. At present only state bank staff are entitiled to these facilities. Others have to pay very high interest for a low risk loan. It makes business sense too as property prices keep rising. This is a better way to stimulate privately funded construction industry.

    Reducing the deficit or not is a government decision. Many countries opt to carry a deficit.

    Other than these, the budget is an election sweetener. It will further indebt the country – an unfortunate trend since we won the war.

    On the charge “neo-liberal economic order since 1977”, all political parties in parliament support it. So it is an irrelevent matter.

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