Calls for a paradigm shift in the Government Budget 2018
Everybody is expecting magical changes in the November 9 budget that would rehabilitate the crisis-hit economy while improving the worsening macroeconomic fundamentals.
File picture of Finance Minister Ravi Karunayake walking into Parliament during last year's 2017 budget presentation. The 'black box' (as the briefcase containing budget secrets is popularly called) will remain the same but the Finance Minister is a new one - Mangala Samaraweera.
Bad governance in procurement is considered as the root cause of the problem of all these accelerating economic crisis. Debt-capital based development projects in particular are not generating direct and indirect benefits to pay-off periodical repayments and ultimately, taxpayers have to bear the total burden. The Treasury has to borrow new debt to repay the old debt. If this situation continues, all forecasted development targets by the end of 2020 would be jeopardy.
The 2018 budget should be aimed at debt-recovery measures through strengthening foreign exchange inflows; increasing productivity and exports, foreign employment remittances, FDI, tourism, attracting PPP type private-contributing projects together with in-house strategies such as prudent fiscal and monetary policy application, managing trade deficit and balance of payment, minimising waste, corruption and malpractices associated with debt-capital-supported investments.
Treasury reality
The 2018 Appropriation Bill clearly reflects all the structural weaknesses in the Sri Lankan economy today. Expected total revenue of the government in 2018 is around Rs. 2162 billion while expenditure is around Rs. 3982 billion and proposed borrowing limit is massive amount of Rs. 1813 billion or almost 100 per cent of the revenue.
However the forecasted actual situation at the end of 2018 is that the borrowing limit would increase by 120 per cent making fiscal consolidation a dream. According to the policy declaration by the Prime Minister the government has to take the right policy directives for enhancing debt repaying ability. He cited one example – “Uma-Oya” development project and explained the main reason for such a volume of uneconomical debts and environmental hazards was due to politicians’ incorrect decision making together with so called educated university level experts’ poor-recommendations.
According to on-going investment proposals such as highways, megapolis activities, housing, road, health and education, etc, the estimated value of debt-based procurements in 2018 is US$14 billion, most probably they are out of foreign borrowings. Therefore, it is essential that the government should follow principles of good governance, accountability, transparency and principles of procurements.
Every citizen, institution, group and societies expect some benefit for them in the budget. On the other hand, the government cannot delay development activities.
Hence, structuring a two-way budget 2018, is really an unreachable challenge for the government. In addition to public expectations, the government has to plan for achieving vision of “2020 and an all-rich Sri Lanka by 2025″.
According to the evidence, the Government’s new type of debt-relief strategy adopted for Hambantota Port is economically and commercially feasible solutions and the government is on the right direction whatever criticisms made on political platforms. However, the government needs to continuously monitor and supervise these new debt-sharing projects and at the same time maintain a long term policy assurance apart from the political stability for confidence building and winning international recognition.
To achieve the 2025 economic targets, fiscal consolidation targets and a wide range of reforms and investments are needed to be introduced in the budget 2018 and onward, aiming at enhancing productivity, efficiency, exportability, overall growth of the economy, minimising debt-burden and more essentially the human resource development. Debt-based development projects have to be implemented as per National Procurement Commission (NPC) formulated new procurement guidelines. The budget makers are expected to translate all those procurement policies into the budget and a paradigm shift is suggested for strengthening the economy.
Cost-share basis with pvt sector
The most significant budget proposal is in inviting and sharing development activities with the private sector on a cost sharing basis, giving unconditional state guarantees together with policy consistency and political stability. Instead of the government doing every economic activity, firm policy directives are to be spelled-out motivating and providing incentives to the private sector and enabling them to share economic activities under; Private-Public-Partnership (PPP) arrangements.
There are three proposal areas;
The first area is for existing debt-based white-elephant projects: Debt-burden sharing with debtors similar to the Hambantota harbour. Under this arrangement, the debtor takes over the larger share of the debt capital and the government holds a smaller partnership share as facilitator, with a view to partnering the management and participating monitoring and steering the project for success. This policy essentially provides debt relief, jobs, direct and indirect income sources, rates and taxes together with comparative advantages to the country.
The second area is in a partnership arrangement with the private sector to manage loss-making state sector enterprises while keeping majority shares under the Treasury. This strategy could be extended to international investors provided that they are with local partnerships. Most probable ventures coming under this category are SriLankan Airlines, etc. This policy helps the Treasury to minimise loss-sharing burden and also make them efficient entities while enhancing income as taxes and rates to the Treasury.
The third area is to encourage mixed-development projects, innovative investments and entrepreneur types under PPP arrangements. These are innovative type entrepreneurial development projects. For example innovative opportunities and events under PPP are:
Boat transport service using existing canals system in Colombo city
Overhead highway type toll road from Colombo centre to the suburbs and public vehicle parking areas in the cities.
Mixed development projects for places like Bambalapitiya Flats area, Summit Flats area, Welikada Prison area and Charmers Granary area in Colombo.
Waste material, garbage recycling projects
Energy development projects using Wind, Solar system, sea waves, etc
Toll road highways for longer destinations
Sea water harvesting and oil exploration
Trincomalee unused oil tanks for oil storage, refinery or distribution project
New industrial free trade zone in Trincomalee and Hambantota
Entre-port type import/export industrial processing zone
World-wide sea transport security project
Mono rail network in city of Colombo and Kandy or cable car system
International financial transaction processing centre
Knowledge-based industrial research and consultancy project
International professional education project for medicine, engineering and technology clean procurement
For these to be succeed it is essential to establish good governance as the central pillar in every procurement processes together with accountability, transparency and the core principles of the procurement. Furthermore, every debt-financed project is needed to be planned properly with “feasibility and need assessment, cost benefit analyses, environmental and socio-economic assessment”. These are compulsory requirements for the project to get the greenlight. The National Procurement Commission (NPC) has already formulated new procurement guidelines and procedures which are effective from 2018. These guidelines are inward-oriented, with outward-face, innovative and entrepreneurs supportive within the framework of international procurement principles.
The guiding principles of public procurement are based on the concept of stewardship. The term “stewardship” generally refers to the careful and responsible management of something entrusted to one’s care. Public sector political authorities and institutions are the stewards of public funds, undertaking a fiduciary role and the funds have been provided in trust by people to fulfill specific procurement purposes.
The Core-Procurement-Principle is achieving the “best value for money” which could be possible to achieve if core-procurement principles for each and every procurement process as mentioned below under four broad good governance requirements are adopted.
Best Value for Money
In general “best value for money’ could be defined as the trade-off between price and performance that provides the greatest overall benefits and outcomes under the specified selection criteria of the procurement.
Fairness: Equality and Integrity
Fairness: Ensuring (i) equal opportunity and treatment for eligible bidders, (ii) equitable distribution of information, rights and obligations between eligible bidders and (iii) credible mechanisms for addressing procurement related complains. Procurement guidelines are paving the way for open competition and rational procurement approach in order to maximise fairness of opportunity to bid. In the context of public procurement, fair process is free from favouritism, self-interest or preference in judgments. Fairness is the foundation for effective procurement-equity and integrity of the procurement process.
Equitability in procurement implies procurement action related justice dictated by reasons, conscience and a natural sense of what is fair, which is conformity, with what is legally and ethically right and proper.
Effective Competition: establishing level playing field
NPA guidelines; promotes effective competition among bidders, establishes the level playing field for all bidders to compete on equal ground and level playing field ensuring cost effectiveness quality and efficiency as a part of objective of achieving value for money.
Transparency: ensuring accountability
Transparency literally means that something is visible, evident and accountable to everyone and that nothing is hidden. By being transparent during the procurement process, it can demonstrate at any time to all stakeholders and bidders that a fair process has been applied.
Cost effectiveness: Economy, quality, efficiency
The cost effectiveness; ensuring final output delivered or completed in a timely and effective manner and commensurate with the context, risk-free, value and complexity of procurement satisfying intended outcomes and development objectives. Determination of “lowest evaluated substantially responsive bid” is largely depended upon cost effectiveness, economy, quality and efficiency and the final outcome it exactly fits for the intended purpose.
Way forward; budgetary measures
Take action to mitigate debt burden similar to Hambantota Harbour arrangement with a view to reduce debt burden and provide room for new fruitful development activities.
As far as possible avoiding borrowing at high interest rates and obtain assistance for soft-concessionary loans and redeeming high interest loans.
Promote PPP type cost-sharing innovative programmes with the debtors and if possible go for debt rescheduling and concessionary terms and conditions. .
Formulate a proper plan on a step by step basis with effect from 2018 in achieving 2020 objectives and 2025 vision.
Conclusion
It is imperative that the government needs to introduce a paradigm shift investment strategy in the budget 2018, although it is a challenging task for the Maithri-Ranil Government with different ideologies and political interests. It is also essential to follow pragmatic economic policy reforms and NPC formulated procurement guidelines if we are planning to achieve the predicted goal by 2020 and vision by 2025. The success and prosperity for all of us depends upon political will and unity of the authorities.
(The writer is an economist with Treasury level experience on the subject. He could be reached at palithaeka@yahoo.com)