Risks ruining Economy to win votes
Posted on March 26th, 2019
By Prof. Tissa Vitarana Courtesy Ceylon Today
The 2019 Budget comes as the last one of this Government. The people have experienced four years of an ‘open market economy’ and practically everyone in different walks of life complain that they feel dissatisfied, find it difficult to work and live the way they did before and want a change. Before 2015 the economy grew by 7% now it is down to 3%.
This Budget seeks not only to continue the downward path but with greater intensity, when it has failed both here and abroad. Even the USA that started the drive for a free market economy is now forced to resort to regulation by the Government to control market forces. But this UNF Government is marching on to economic and political suicide for the whole country unless it is rejected by the people.
The 2019 Budget presented by the Finance Minister, Mangala Samaraweera (FM), is based on false premises and promises, and will hasten the deepening of the economic crisis facing Sri Lanka, leading to bankruptcy, in the attempt to win votes for the UNF at the forthcoming elections. The LSSP appeals to the people, not to be misled by the FM’s marketing skills, but understand the grave outcome of this budget for the country and the people, both present and future generations. Mangala Samaraweera is the most irresponsible FM in Sri Lanka’s history.
Policy is ‘More Debt, Burden People Not Rich’
The income required to fulfil his promises is not going to be realised. When the income rose by a mere 5% in 2018 can his prediction of an increase of 22% in 2019, be achieved? The obvious shortfall will have to come via more loans. Thus the Budget deficit of Rs 685 billion will be much greater and the foreign borrowing will have to far exceed the Rs 450 billion stated by him. The Government debt-to-GDP ratio that has risen to 83.6% at the end of 2018, from the 2017 level of 77.6%, will sky-rocket to well over 90%. His claim that the Government hopes to bring the load of debt down to 72% of GDP by 2022 is a dream, an ‘Ahas Maligawa’ to quote him.
Election Budget
The third highest contributor to income is going to be Rs 45 billion through the vehicle tax on imports. FM hopes to increase vehicle imports by removal of the advance payment of 200% which is now levied. But this will require more forex (US Dollars etc.) and worsen the adverse balance of trade. This means more depreciation of the value of the Rupee, increasing the cost of living further, and more USD loans. Resorting to printing of more money by Government would also have similar consequences. The increase of tax revenue is not by extending the tax burden to the rich and super-rich ( the 1%, of the population), whose maximum tax slab remains at 24%, but by broadening the indirect tax (VAT etc.) burden on the ordinary people (the 99%). The cost of living will soar making living impossible for the people.
While we welcome some features of the Budget, like the increase in Excise duty on cigarettes and liquor to realise Rs 370 billion, and also the benefits to the people – drinking water, toilets, rural roads, free milk for school children, student training programmes, steps for women’s welfare, increased allowances for public servants and the handicapped, and correction of pension anomalies, the million dollar question is how much of this will be implemented. There are various figures on how much of the promises have been implemented by the UNF Government during these last four years, and some say that it may be as low as 30%. Will that be the ultimate outcome of this Budget, as well? The fact that there is no mention of the Rs 50 daily allowance promised to Plantation workers in the Budget is a pointer (MP Digambaran, when do you quit?).
Crony Capitalism with IMF Conditions
There is no doubt that the bulk of the expenditure will be used for vote catching purposes. For example we all accept that many who really need Samurdhi assistance, under this pretext the deserving Opposition supporters who are getting benefits may lose out to even undeserving UNP supporters.
The rate of economic growth which was 6 to 7 % of GDP under the previous Mahinda Rajapaksa regime, despite the cost of the war, to restore peace and the extensive infrastructure development, has dropped to just 3% with this UNF Government. The FM expects to increase growth to at least 4% with the expectation that Gamperaliya and Enterprise Sri Lanka, together with an increase of industrial development would achieve this. But indications are that these two programmes are merely benefitting the UNF crony capitalists and not the country. And in in this Election year the trend is likely to be aggravated. Amidst much talk of increasing export income, when markets for traditional exports are collapsing, there is no serious attempt to develop industries here, even based on value addition to local raw materials that are capable of competing with foreign goods.
The need to have modern (Hi-tech) Science, Technology and Innovation developed locally is not really appreciated, though lip-service is paid. The expectation that Foreign Direct Investment (FDI) will make up for this is doomed to failure. Since 2015 the FDI outflow has exceeded the inflow. The corrupt, unstable political and economic situation in the country is not going to encourage investment.
The UNF Government commitments to the IMF are being stringently fulfilled – dismantling of the Social Welfare State and the sale of national assets to foreign Multinational Corporations, with draining abroad of our forex (USD etc.). The people and the economy will be badly hit. The running down of State banks and other institutions, in favour of the private sector will cause a rise in interest rates, increased exploitation leading to the sale of farmers’ land and the assets of SMEs.
The high running cost and interest rates have led to closure of many enterprises. The unrestricted open market policies are enabling foreign goods to capture our markets and dictate prices. With local middlemen raking in profits both local producers and consumers suffer. In such a context the Budget rather than improving the life of the people will make it much worse. Election bribes through the Budget will not make up for this.
March 27th, 2019 at 7:09 am
This has been done by all governments for the last 3 decades at least, if not more. Don’t forget the stupid “Rice from the moon” election slogan back in the late 1960s/70s.
The country needs proper fiscal management, policymakers with a brain who carry out genuine capitalism with fairness, not crony capitalism, or crony socialism.
Major FDI is needed. A monetary authority would be better so none of these buggers can print money in the first place for an auction of non existent resources. All politicians from BOTH sides of the Parliamentary chamber are responsible for the mess this country is in.
The GDP growth of both administrations over the last 10 years is pitiful when this country has vastly more potential to develop into a first world country within 15 years at most. Instead they have dragged us down to the rest of South Asia through their selfishness. One way to not ruin the economy would be that all citizens are equal – so no more perks for politicians such as duty free cars, provincial councils and pensions etc. But will MR, GR, RW, MS etc do that? Time for honest people to implement honest economic policies. This article attacks crony capitalism and forgets to mention crony socialism which is equally bad.
March 27th, 2019 at 5:38 pm
Nothing new.
All governments since 1977 indebted the nation. All governments since 1948 ruined the economy to win votes.
I agree with the above comment. Capitalism is the only sustainable economic policy. However, this does not mean crony capitalism or extreme capitalism.
Only a section of Sinhala Buddhists were fooled by socialist nonsense. As a result more Sinhala people lost their lives than the war and allowed minorities to become rich doing business. That is why socialist parties (including the party of Tissa Vitharana) went totally bust. These parties cannot contest an election alone. If they do, they cannot win even a single seat! At last Sinhala Buddhists have joined others in rejecting socialism.
GDP figure is not very useful in measurng the country’s international standing. Net foreign reserves (total reserves minus all foreign debt) is more apt. Our net foreign reserves position collapsed after 2011. These are real numbers and not estimates. GDP figure is manufactured by the Central Bank based on estimates. All CB govenors are political appointments.
March 28th, 2019 at 7:43 am
I agree with Dilrook. Crony capitalism and Crony socialism are both bad. East Asian countries followed the economic model of genuine capitalism with elements of pragmatic socialism and developed at lightning speed.
Politicisation frankly began post 1972. A terrible closed economy and stupid nationalisations of friendly companies/nation’s as well as domestic (primarily Sinhalese and Burgher) businesses ruined the country under Mrs. B and her extreme socialist allies. Jayawardene did no better by not industrialising and bringing in foreign investment.
What is needed is clean efficient administration with the freedom to operate businesses with the rule of law. This is how Singapore, China, Japan, Hong Kong etc developed. We had those policies in the past and we desperately need to implement them again. But the vested interests who benefit from this corrupt perverted system we have now which is some weird mix of socialist nonsense and a feudal jobs for the boys system will not give it up.
The Sinhalese in particular need to recognise economic truths in a non partisan manner. Bandaranaike and co. ruined the country and did the worst damage to the country and especially the Sinhalese that could have been done.
None of the current mainstream parties are advocating, or running the country on the model of genuine capitalism. Therein lies our problem.
Debt itself will not be an issue if we enlarge the economy. But it is clear that money is borrowed and then:
1. Wasted on useless unproductive jobs for the boys
2. Wasted on paying for perks for inept politicians
3. Wasted on massive unnecessary bureaucracy such as Provincial Councils
4. Wasted on inefficient public bodies which are bloated and overstaffed
5. Wasted on election gimmicks – an auction of non existent resources
6. Used to pay the interest on the entirety of previous loans
7. ROBBED – e.g. of the $11-15 billion borrowed according to statistics, barely $1 billion has been spent.
Instead that money borrowed should be spent on productive infrastructure that will promote the domestic flow of business, inward investment and encourage foreign investment from ALL countries.
But we have a rigged system whereby we are borrowing money to buy Indian junk (lorry buses etc, awful trains), money is robbed, the people are told to tighten their belts, whilst all politicians including the socialists pervert the law to ride around in tax payer funded Western luxury cars.
Politicisation as you say is a serious issue and problem. Frankly at last it seems many people including many Sinhalese people are waking up to the fact all 226 at the top are hoodwinking the people of this country. I don’t believe we should tie loyalty to the country with one party, or family. I haven’t seen GR advocate major change in economic management diverting from SLFP mantra.
We need leaders who understand how the world works and who appoint honest people in a very very lean form of government (e.g. 15 ministers at most) with a lean civil service who open up the wheels of commerce and make this island nation a great trading nation.
With the same amount of borrowed money, it is better to spend that on better value for money things. The whole lot of these corrupt buffoons and their cronies should be caned. That may be the only punishment to deter tomfoolery at the top.
March 28th, 2019 at 1:49 pm
Another true comment.
Until 1972 we had the Soulbury Constitution which is the only constitution agreed to by all. It didn’t prevent 1956 Official Language Act, 1948 Citizenship Act, etc. Britain’s Privy Council was the final court so our courts were forced to act professionally. All this ended in 1972 when we started making and tinkering with constitutions. It was very popular among Sinhalese but little did we realized it paved the way for Indianization of the island and politicization of law and order and the civil service (once a professional service).
We Sinhalese love outward looks and symbolism. No place for substance.
Yes; we need leaders who understand “how the world works” above everything else. There is no such leader in sight.