Give, give and give…
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The die is cast. Postal voting began this Thursday morning and the presidential race is on in what is perceived as one of the closest elections in the country’s political history.Apart from two strong candidates, a third force is emerging with JVP’s Anura Kumara Dissanayake, while in former Army Commander Mahesh Senanayake, the country has seen the coming together of civil society organisations, in putting forward a candidate.
With these thoughts in the air, Kussi Amma Sera, Mabel Rasthiyadu and Serapina were at the gate badgering a fish seller to reduce his prices.
“Apoi meka hari ganang (Aiyo this is very expensive),” said Kussi Amma Sera examining some seer fish in the container on the fish seller’s motor-bike. “Missi … thora hari ganang dan (Miss, seer is very expensive now),” said the tradesman. “Mathivarane hinda-de ganang gihilla thiyenne (Has the price risen because of the election)?” laughed Serapina, the youngest out of the trio. “Adukarala denna ko (Please reduce the price),” said Mabel Rasthiyadu.
Watching from my office window, I saw the trio then engage the fish seller in a political discussion as to who is leading in the presidential poll, which is what everyone is discussing these days; not the economy, not the cost of living and not the fertiliser subsidies.
On the top of the agenda of discussion are the promises being made by all the candidates some of which are akin to the famous 1960s promise of even bringing rice from the moon! What is very interesting and making a mockery of the whole campaign is that when one candidate promises something free to the electorate, another candidate offers the same thing and the tit-for-tat battle goes on.
Thus in this uncertain “I-can-do-better-than-you” kind of politics, only one thing is certain: The country’s debt will rise given the kind of promises that the two main candidates and others on the fringe are making to woo voters.
And this was what Cardboard Sando, the muscle man from the nearby Petti-kade, wanted to talk about this Thursday morning. While tax is not his thing and flexing his muscles is his strong point, he was unusually concerned about how all these tax promises would be funded. “With all the tax promises that candidates are making to reduce the burden on the people and businesses, do we have enough money to pay for these promises,” he asked, during a morning call. I hadn’t spoken to Sando for a long time and his interest in economic issues intrigued me.
“Reducing taxes cost money and the only thing certain is that whoever of the two main candidates wins, the country’s debt burden will surely rise if these promises are kept,” I replied, deciding then, in this week’s column, to examine the debt burden on the country.
The irony is that when a government promises to reduce the tax burden or engages in costly infrastructure projects, done mainly with borrowed money, the burden of paying this falls on the next government and when this new government also engages in costly spending, the cycle of debt continues, year in year out. Ultimately, it’s the people who pay through rising taxes and printing money which increases inflation.
Let’s examine some figures. This year the external debt payment due of government and state-owned enterprises is a total of US$6 billion of which around $2.6 billion was paid in the first three months of the year.
According to Treasury sources, the total external debt in Sri Lanka increased to $55.47 billion in the second quarter of 2019 from $54.22 billion in the first quarter of 2019. Interest payments alone cost Rs. 852 billion in 2018, amounting to 42 per cent of Government revenue and 6 per cent of the GDP in 2018. The total interest burden for 2019 is Rs. 913 billion and Rs. 1,000 billion for 2020.
These figures mean nothing, actually, to the likes of Kussi Amma Sera or the man on the street who represent the larger voting population. That’s why for politicians and presidential aspirants, the sky is the limit in making all kinds of costly promises. The burden of repaying all these loans and costly borrowings is lost on the larger segment of the population.
In a recent commentary on the country’s debt, respected economist Dr. W.A. Wijewardene likened the country’s debt burden to a bankrupt company. “What do you think of a private company which is indebted to the hilt, does not earn enough to repay its debt and experiences a low sales growth which is declining year after year? Surely, it is a problem company needing quick fixing. If its capital has completely been eaten up, it is said to be a bankrupt company which, as those in the market would say, is in the red. To convert it into green, capital has to be brought in from outside, while its operations are restructured. If this is not done, the private company will go under and has to stop operations before the authorities would force it to close shop.”
“Now consider the parallel between this company and the country called the Democratic Socialist Republic of Sri Lanka. The total public debt incurred by its central government is about 83 per cent of the country’s total output, known as the Gross Domestic Product or GDP. When the central government’s borrowings from the Central Bank and state banks are also added, the total debt increases to 85 per cent of GDP. That number includes only the foreign borrowings of the central government. In addition, private sector entities also have made foreign borrowings amounting to some $21 billion.”
“When that number is also added to the central government borrowings to represent the total country borrowings, it rises to 100 per cent of GDP in 2018,” he wrote.
Do these figures mean anything? No… the presidential hopefuls are sure that the electorate doesn’t understand these numbers and the plight the country is facing now and will face in the future when we have to borrow, borrow and borrow to pay our debts. Thus as long as the electorate doesn’t understand how an economy functions and the intricacies of revenue, recurrent expenditure, capital expenditure, debt and printing money, the promises to make the country an El Dorado where the bottom segment of the population is as rich as the top segment, will flow like the Mahaweli with scant regard on how the people will pay for these costly promises.
The trio at the gate hadn’t completed their negotiations with the fish seller but the conversation, as I said earlier, had turned to politics. “Me rata-ta avanka nayaka-yek oney (This country deserves an honest leader),” I could hear the fish seller saying. That’s what all of us are yearning for, I thought, finishing my second cup of tea.