The Sunday Times Economic Analysis : by the Economist

The Sunday Times Economic Analysis By the Economist

No easy way for economic recovery
In whatever dire economic conditions the country may be, we are not prepared for "blood and sweat and tears", perhaps a few tears of self-pity. Neither austerity nor sacrifices are on the cards. The political situation and culture does not permit a call for sacrifice. However difficult the economic conditions are, it is the task of governments to confer benefits rather than place burdens on the people, at least not in an ostensible way. Many ascribe this to over half a century of welfare policies that provided free education, free health and subsidised food , even free rice for a period. Whatever may be the reasons there can be no doubt that we are a nation used to receiving rather that giving, "tasting the fruit rather than planting the tree and nurturing it".

As we have said before in these columns the Prime Minister's statement outlining the parlous state of the economy was followed, not by measures to tighten our belts, work hard and make sacrifices. Instead it was an exercise in reducing prices and postponing the resolution of the fundamental problems of the economy. The only immediate solution envisaged is to replenish the empty public coffers by selling government enterprises, such as Sri Lanka Telecom and the Insurance Corporation.

We are not arguing against privatisation but such means of solving the problem could indeed give a false idea to the citizens of the country. The President once called privatisation the "selling of the family silver".

Yet she has to be credited with the sale of quite a bit of the country's family silver. In fact it was the privatisation proceeds that temporarily reduced the public debt and brought about some relief to the dire straits of the public finances at that time. Her record may however be even surpassed by the UNF government. The government no doubt expects a similar relief from the sale of public enterprises even though it will face a lot of criticism on this score and mostly for the wrong reasons. The point we are labouring to make is that successive governments have failed to correct the fundamental imbalances in the public finances. Extravagant and unreasonable expenditures have characterised government expenditures. The revelations of the previous government's handling of public money indicate a total lack of any sense of public accountability and responsibility.

Apart from such horrendous wasteful expenditures, there is a lot of expenditure that is highly unproductive. We have one of the largest public services for a country of our size and population and spend an excessive proportion of our revenues to maintain a large public service and paying salaries and pensions. Our Samurdhi programme has given benefits to 58 percent of households in the country. This is a clear indication of corruption too. Obviously the benefits have gone to unintended beneficiaries and failed to reach some of the really poor. We still continue to run some corporations at a loss and serving no useful public purpose. The Sri Lanka State Plantations Corporation (SLSPC) and the Janatha Estate Development Board (JEDB) are clear examples of a burden to the country. If these corporations are disbanded and their lands sold, there would be an increase in agricultural production.

The revenue proposals of the government were also weak. It was preoccupied with the disincentive effects of taxation. A more imaginative approach to taxation could have ensured higher revenues. Here again the need to retain the government's popularity restricted the overriding need to increase tax revenues. Tax revenues have been coming down in recent years. Tax revenues as a percentage of GDP declined form 21.1 percent of GDP in 1990 to 16.8 percent in 2000 and to 16.5 percent in 2001.

Revenue measures and collection are quite adequate to support the range of government expenditure and the large defence costs. The political system and culture have prevented governments from aligning expenditures to tax revenues or tax revenues to expenditures. Even more horrendous a fact is that the debt service payments exceed revenue. All other expenditures have to be met by borrowing and that again increases the debt. When will the people realise the need to make sacrifices to get out of this state of finances that are crippling the development effort? When will we have governments that can rationalise public expenditures and gather in adequate revenues?

The Sunday Times Economic Analysis Archives

Back to Columns