Comments on Budget 2023
Posted on November 23rd, 2022

Vichara

In his budget speech the President asked the rhetorical question Where did we go wrong? How did we go wrong?

The answer which is obvious seems to be still evading the President and present policy makers which has not identified the real the problem. In common parlance it is the dearth of dollars arising from the persistent adverse trade balance and balance of payments and the propensity of governments to resort to heavy borrowing and falling into a debt trap. The ordeal became unbearable with the drying up of the income from services from repatriation from foreign employment and earnings from tourism due to the Covid pandemic. The comparison made by the President between the 2021foreign reserves of Vietnam and Sri Lanka is not logical. Vietnam is a country with both more human and physical resources. A per capita comparison would have been more relevant.

In the 2023 Budget proposals there is no focus on addressing the dollar crisis. If one leaves out the provisions for welfare and subsidy programmes it is noted that in the expenditure proposals under 29 items only a few items address the immediate problem. Most provisions are on the creation of new institutions. Some like the new Wellassa Medical faculty, climate university and study of history of the country are good proposals but have little bearing on the current crisis and can be shifted to the backburner.

There are no provisions to address the chronic problem of lack of technical skills as well as a shortage of venture capital” which were identified by the IBRD as constraints on development as far back as 1951.

There is no provision to bring in legislation to stop the leakage of foreign exchange in international trade. On the contrary the export industry will be adversely affected by the tax on exports and the removal of the export development cess on imports.

While criticizing the Budget 23 (BS) for its lack of focus on the current dollar crisis it behoves one to make a few general comments and highlight some of the positive proposals. They follow the order of presentation in the budget speech.

It is clear that there is a strong appeal to the youth in the BS although it is not specifically reflected in the proposals. President has revived his 1999 political refrain of giving gold chains to the youth, which has now appeared as satisfying the modern life style of youth and declares that youth is the real wealth of the country.

BS states that new entrepreneurs should be created.

But they cannot pluck enterprises from thin air. They must have information on the opportunities available for new entrepreneurs to make use of. For example, Agriculture authorities should provide the information on potential for new crops and value addition prospects on them. The mineralogical authorities must show the availability of mineral resources which can be exploited. The ideal situation would be to establish a bank of feasibility studies on potential investment ventures. This is done by leading Banks in India and Pakistan. Our representatives abroad should provide information on new products and markets in the countries to which they are assigned. Entrepreneurs cannot invest in enterprises unless there is finance at reasonable cost. High risk investments should be supported with venture capital.

The BS proposal to have a focus on the following is acceptable provided a short term objective is added. There is no stress on the immediate problem of food security, malnutrition and cost of living.

1. An export oriented competitive economy.

2. An environmentally friendly green and blue economy.

3. A digital economy.

The second item may be postponed for better times.

BS expects to achieve a number of goals

What is in under the control of the country is to create an internationally competitive workforce with high skills in the next ten years. For this there must be a complete revamping of the education system which is now limited to produce unemployable personnel who become a burden on the society.

The statement of the President that we are not having a wedding by being in debt to the world” is ironic when one thinks of the grand wedding the country celebrated when the Yahapalana government borrowed 10 billion US dollars in sovereign bonds at high rates of interest.

BS proposes to set up a new agency in place of the Board of Investment, Export Development Board, Sri Lanka Export Credit Insurance Corporation, National Enterprise Development Authority. The recognition that there should be coordination of the policies and programs of these agencies is admirable. But to set up a single mega agency for this may be counterproductive. These five agencies have distinct objectives involving specific specializations. To bring them under one umbrella would demand managerial talent with some knowledge of all the fields. Even the very housing of such a giant will be costly. If the objective is to coordinate overlapping objectives and programs it could be achieved by cross representation at the management board level of these agencies. This was achieved with the provision for the Director General of the BOI to participate as a permanent member of the management board of the EDB. For example, most external promotional programs were done as joint trade and investment promotion events. Bringing these agencies under a single ministry would also be imperative for better coordination of the activities of these bodies.

Proposal to set up New Economic Zones is laudable.

It would be useful if each of these zones specialize in select aspects of industry. They should not fall into the trap of attracting just cheap labor. One must realize that new economic zones are costly and takes time to become viable.

The BS proposal to introduce policy measures focused on enhancing Sri Lanka’s ability to compete in global markets through innovation, efficienry, and quality is creditable. A priority policy should be to introduce strong incentives for high-tech pioneering projects similar to those enjoyed by Champion industries in India.

The proposal for a Project/program Appraisal Scheme is indispensable.

 This will eliminate wasteful investments and commission earning proposals backed by politicians.

This proposal backed by the proposal to establish a National Operations Centre (NOC)

for tracking implementation issues of all development projects are the best and timely proposals in the BS. In the 1960s there was an Operations Room modeled on the Malaysian example. It was manned by smart administrators like Geoffrey Gunathilake. It not only monitored implementation but also introduced advanced tools of project implementation like PERT.

National Productivity Commission is a good idea but its real purpose of tariff rationalization is veiled under the euphuism of trade adjustmmts schemes. It is likely based on the recommendation of the Harvard University in 2017. In other words it will lead into import liberalization which is a standard recommendation of the IMF. https://growthlab.cid.harvard.edu/files/growthlab/files/2017.10.28_tradeassistance_harvardcid_v2.pdf

The proposal to establish a lnternational Trade Office to deal with all the
international trade negotiations is opportune.

This task is presently performed by the Department of Commerce which lacks the expertise and the independence to do this. The Trade Agreement with Singapore met with lot of criticism that it is a giveaway. It is proposed that this office will come under the umbrella of the Ministry of Foreign Affairs. As the process of negotiation involves the supply side of trade, both EDB and BOI should participate in this task.

Lands for Agricultural Exports
A vast amount of land belonging to janatha Estate Development Board
flEDB), Sri tanka State Plantation Corporation (SPC), and Land Reform
Commission (LRC) remains without being cultivated or productively utilized.

On the surface this sounds a rational proposal, but it needs careful implementation. Firstly it is assumed that this is marginal land which would be more suitable for forestry or cultivation of fodder by the planation labor. If outsiders are allocated these lands, to avoid conflicts it should be for crops other than that of the main plantation.

Disposal of Government Lands
Proposal to assign the allocation of  Mahaweli Authority and Land Re{orm
Commission overnment lands to District Secretaries/Govemment Agents through
Divisional Secretaries/ Additional Government Agents on the ground that there are  

discrimination and malpractice in the related to disposal of lands by these two agencies is not a sound argument. That is a problem that should be addressed but to expect the Divisional and District officers to do better is a serious error. Their decisions will be influenced by the local politicians. The past experience in the North and the East is that there was collusion between official and politicians on land allocation. 

Effective Usage of Sri Lanka’s Mineral Resources for National Development It has been observed that the contribution to national development of Sri Lanka’s mineral resources remains at a very low level.

The first priority should have been the exploit the proven deposits of hydrocarbon in the Mannar Basin. First priority should be to carry out a comprehensive survey on our mineral resources. At the same time we should stop our minerals being exported as raw materials and take steps to convert them to finished value added products.

Promotion of Marine Tourism -However, there are lack of approaches to develop the
maritime tourism considering advantages of the location of Sri Lanka.

Tourism is one industry which can be revived in the short term. Hence active support should be given to all forms of tourism in addition to traditional ventures e.g. medical, caregiving, religious and sports.

Providing Internet Facilities to Schools – Usage cost has to be reduced. Already the facility is available on Smart Phones. Here again fees should be reduced or subsidized.


Post-Graduate Education Opportunities for Doctors
Steps must be taken to ensure they return to the country. Local Post Graduate Institutions must be upgraded to level where foreign students to are attracte.

Foreign Scholarships for A-Levels Qualified Students and Graduates
The study programs selected should be in development relevant areas. It is imperative that the candidates are given a relevant language training before they go.

New Faculty of Medicine

We appear to be producing doctors for the benefit of developed countries. It may be necessary to examine the qualifications required from medical practioners at different levels. In the past we had a cadre of apothecaries in rural hospital and dispensaries. Today doctors depend on lab reports for any diagnosis. What we need probably are more laboratories and lab technicians.

Public Service Reforms 

This certainly is an urgent need. There should be a rationalization of the cadres as well as the service they provide. A recent note on the subject is available on –

www.lankaweb.com › items › plight-and-prospects-of-our-public-service

Concurrently with the reform of personnel cadres the content of the service need to be examined. There are many services and administrative action which are outdated and could be eliminated. Rules have a habit of extending their lives.

Development of Inland Fisheries Industry
With the numerous inland water bodies this has immense prospects. There was a setback when President Premadasa prevented government support to the industry. Inland fisheries also had a good potential for export. We should look into very hardy and fast breeding catfish which is a major fish export by Vietnam.

Tax on Beedi sticks
In order to regularize the Beedi industry and deter people from Beedi
consumptior; I propose to impose a tax of Rs. 2 Per Beedi stick.

When compared to the price of the cheapest cigarette this is a too low a tax. It should be at least Rs 5.

Restructuring of SOEs
Before restructuring SOE it is necessary to identify what ails them and consider other options available make them revenue earners. It is an axiom that it is not the ownership but the management that determined the performance of an enterprise. Even in large Private firms the owners do not participate in management, and it is left to professional managers. SOEs managed by Boards of management appointed by the Minister. Frequently Boars members are selected not on their competence but on political loyalty. Often it is as a payback for political services rendered, particularly for contributions of funds for the election campaign. Not only these political henchmen mismanage the SOE but try to recover their political investment. What is required is not to privatize but to resort to better options.

  1. Establish an umbrella agency similar to that of Temasek of Singapore which manages a combined portfolio of enterprises valued at S$403 billion, or SASAC of China which manages a combined assortment of assets of USD 30 trillion)
  2. Contract out the management to large enterprises or institutions.
  3. Establish a special management cadre to manage the SOEs. This could be combined with item 1.

If the above options are not feasible and the only option is to privatize loss making SOEs they may be transferred to the domestic private sector on the condition that the service rendered by the SOE is continued. It must be ensured that the experience of past flagrant privatization done again. Let us not forget that even a President and a Secretary of finance were found guilty of fraud in a sordid privatization episode by the SC.

The President justifies the privatizing profit making enterprises on the argument that the sale proceeds will be used to augment the foreign reserves of the Central Bank. But the experience of the sale proceeds of the Hambantota Port were not even used to reduce the debt of the country. That makes the credibility of the statement questionable.

Another argument is that the country gets a return in dollars. It is not realized that although the country gets a onetime gain in dollars the foreign investor will repatriate the profits in dollars over the lifetime of the project.

Sale of profit making enterprises like CEB, Telecom and even Insurance to foreigners involves a national security threat which should not be brushed aside. 

Should we not issue shares for dollars to Sri Lankans living abroad particularly to our work force in the Middle East.

It is hoped that the selling of profit-making enterprises at commanding heights is dropped with an amendment during committee stage and alternate options are examined regarding other SOEs.

51. Establishingl Agro-entrepreneurshipVillages
This is a good proposal and should not be limited to only 10 villages. It is suggested one such village for every District.

Milk Production
Develop the Kundasale Artificial Insemination Center and adopt new technologies’

This is encouraging and should be the policy rather than importing cows which was a scam which happened in the past. AI was done extensively in the early 1960s. If this program with strict enforcement of the Animals was continued during the last 60 years we would be having a productive upgraded cattle herd. AI should be practice on the buffalo herd as well. High quality semen could be imported from Amul, India.

Training of Youth for Foreign Employment
I propose to allocate Rs. 50 million in 2023 to the National Youth Services
Council to train youth for foreign employment opportunities.

This is a positive measure but a typical piecemeal action. What is required is to revamp the education system giving priority to technological education.

Paying Wards System in Government Hospitals
This is a timely proposal which will reduce the exploitation of patients in private hospitals where the charges are exorbitant. They even charge separately for the cotton wool used. The annoying charge is for the services of the house doctor who has to be paid separately for visiting the patient in the morning and just wishing good morning.

Vichara

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