on fiscal and financial problems to future governments
President understands economics. So do some of her advisers. The
Finance Minister too is aware of the iron laws of economics. They
are however more concerned with politics than economics: the politics
of remaining in power. There are others in the government who appear
to not understand economics.
them economics is politics. If they get the politics right they
think that the economics will right itself. It may also be that
it suits them best to run down the economy so that in the fullness
of time they emerge the saviours. They are willing to spend more
than the country can afford in the belief that this would serve
their political interests.
they have chosen the "expenditure ministries". It is the
responsibility of others to find the money for them to spend. Where
they find it and how they find it is not their concern. Their mission
is to help the farmers, subsidise the poor and undertake projects
without weighing the economic costs and benefits or the affordability
of the projects and programmes. In such a context sound economic
decision making cannot be expected.
economic problems of the country will be shelved that will remain
unresolved in this political context is the fiscal problem. The
problem of the huge public debt, its crippling servicing cost, the
unacceptable level of the budget deficit, inadequate revenues and
the imprudent public expenditures.
will continue to persist, in fact to grow in intensity. Government
revenue collection fell below expectations in 2003. While the budget
expectations were to harness Rs. 331.5 billion, the actual revenue
collection was only Rs 276.5 billion. This was only 15.7 per cent
of GDP compared with 21 per cent of GDP in 1990. Between 1990 and
2003 revenue as a proportion of GDP has been falling.
declining trend is a serious problem for public finances in the
country. The indications are that revenue collection is not adequate
this year too. In the first five months government revenue was only
Rs.2 billion more than in 2003: it was Rs.119.4 compared with Rs.
117.4 billion in 2003. This comparison for the same period of last
year it must be remembered is with a poor-performing year for revenue
collection. In contrast, government expenditure in the first 5 months
of this year has increased by Rs. 15.5 billion compared to last
are new institutional reforms being put in place to enhance the
efficiency of tax collection. Whether these would succeed is left
to be seen. In any event, it is most unlikely that these changes
would bring in higher revenue collections this year. Meanwhile there
is evidence of increased expenditure and promises of still higher
expenditure. Some of these promised expenditures will not be implemented.
expenditures are inevitable. The subsidisation of losses on account
of the higher oil prices means that government expenditure would
increase. However it is likely that the government would resort
to "creative accounting". The increased expenditure may
be bank financed and consequently not shown in the government expenditure
figures. They will surface in later years. Such deception is a violation
of political and public accountability. Yet it may go unnoticed
or not sufficiently criticised. Certainly the public would not realise
the fact that their burdens are cushioned off for the present to
be borne later on.
is no prospect of fiscal consolidation with a coalition government
whose parts think differently and whose tenure is uncertain. The
significance of the constituent parties of the coalition for ensuring
a majority for the government and the uncertainty of such a majority
means that economic decision making will continue to be irresponsible.
The root of the fiscal problem is the political condition. Long
term economic viability is being threatened by these political circumstances.
fiscal problems of the country cannot be remedied until a strong
government that could take bold decisions in the long term interests
of the country is in place. And such a prospect is not on the horizon