Passing on fiscal and financial problems to future governments
The 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.

To 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.

So 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.

The 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.

These 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.

This 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 year.

There 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.

Other 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.

There 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.

The 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 yet.

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