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The 2016 Budget has to be understood within the current political context and the post independent political milieu of governments pandering to relief measures and welfare expectations of the electorate. Few budgets have eschewed political considerations to pursue crucial changes in economic policies. And these too have adopted devious and deceptive ways to mitigate unpopularity.

This fiscal culture has been the underlying reason for not enabling the economy to grow to its potential and the prime cause for the serious financial crisis. The 2016 budget has postponed rather than resolved fiscal reform and fiscal consolidation. It has hardly faced the current fiscal realities and failed to resolve the fundamental problem of reducing the fiscal deficit.

Budgets and ballots
Budgets and ballots have been quite irreconcilable in the country’s political environment. However, budgets and ballots cannot be separated from each other as the current economic crisis is of such proportions that very soon it would have to take economic decisions that are unpalatable: a “bitter pill” in Prime Minister Ranil Wickremasinghe’s words. Unwillingness to take it now would necessitate deep surgery soon.

Popularity not economics
Fiscal imperatives were not the main objectives of the 2016 budget. The Budget for 2016 followed the recent trend of budgets seeking popularity rather than remedying the economic situation.

It was an extended manifesto of the coalition government with its political rhetoric far outweighing the essential economic and financial content. Its object appeared to be the legitimisation of the government among its own ranks and at the same time seek popular support among a people used to expect a multiplicity of reliefs concessions and subsidies from the government (sahanadara).

The attitude of MPs towards budget proposals was amply demonstrated during the budget speech. When proposals giving concessions and subsidies were announced there was thumping on the desks to demonstrate their approval. There were no plaudits for revenue measures that were essential for fiscal consolidation, except when some taxation measures appeared to fall on the affluent.

The budget debate disclosed that MPs were insensitive to the vital need for reducing the fiscal deficit by garnering higher revenues. This approach of legislators imply that it will be the poor who will pay for this ignorance or irresponsibility of legislators, through inflation, more import restrictions that distort prices and damage our international credit worthiness. Despite its populist rhetoric it is unclear whether it would gain support even within the governing coalition.

Impractical ideologies
The opposition’s rejection of the budget was to be expected. Yet it was disappointing that much of the opposition’s critique was based on moribund impractical ideologies, some of which they themselves appeared to have shed on the run up to the election. They probably think that their old ideological policies are what would gain them popularity, rather than new perspectives based on global economic realities. There were valid criticisms of the budget on inconsistencies, doubts of raising revenue and some expenditures being unfeasible.

Fiscal weakness
The overall deficiency of the budget was that even the budgetary figures did not bring down the fiscal deficit to manageable proportions. As against an expected fiscal deficit of 6 per cent in 2015, the budget projected a deficit of 5.9 per cent of GDP that was hardly an improvement in fiscal consolidation. The vision of bringing down the fiscal deficit progressively to 3.5 per cent of GDP in 2020 has to be realised by far better fiscal management, especially revenue collection than what this budget envisages. Overall the budget and its debate is populist rhetoric rather than a serious discussion of the financial issues to resolve or at least alleviate the serious economic problems.

Economic crisis
The Finance Minister failed to provide a data based assessment of the economic straits the country is in. The serious fiscal, debt, trade and balance of payments problems of the country should have been exposed and explained in detail and placed before the house as the backdrop to the Budget. There was only a fleeting reference to the serious financial position the government inherited at the end of 2014, when the public debt had reached proportions when revenue was hardly adequate to service the debt. Foreign debt had reached about US$ 40 billion and its servicing absorbed one fourth of export earnings. Export earnings were on a down trend and the trade deficit was a high US$ 8.3 billion.

The budget proposals are unlikely to resolve these fundamental macroeconomic problems. The taxation measures may be quite inadequate to improve the government’s revenue. Moreover, there could have been appropriate cuts in expenditure. Drastic mid course corrections would be needed on both the revenue and expenditure sides to even contain the fiscal deficit to 5.9 percent of GDP.

End political rhetoric
Let us hope that political rhetoric would be exhausted by the end of the year that was a lost year for the economy though a year of achievement for political and human freedom, law and order, rule of law and ushered in an era of better governance.
What the government has achieved cannot be judged in physical quantities. The quality of governance is a stark contrast to that of the last regime. This is no mean achievement.

The Prime Minister’s speech at the Business Today TOP 25 Awards Ceremony, perhaps gives a clue to the government’s strategy.
He indicated that hitherto it was all politics and the future course would leave aside politics in as far as possible and buckle down to resolving the economic crisis the country is facing. He said “We would effectively conclude our political reform programme on the first anniversary of President Maithripala Sirisena coming forward as the common presidential candidate with the backing of the UNP, and then we will get cracking on our economic agenda”. Furthermore he said, “The next year will see major decision-making in this direction.” This is the much needed correct approach for the future of the country.

Way forward
The country has paid a heavy economic toll for its populist policies and electoral politics. It is now at cross roads when there has to be a strong political resolve to adopt effective and pragmatic economic policies in the interests of the country’s economy rather than truckle to the multitude to retain political popularity and court economic disaster.