Editorial

With the presentation this week of the Budget for next year, the Finance Minister has already been and will be for the next few days at least, inundated with ‘unsolicited proposals’ and gratuitous advice on how to manage the economy.

One of the major factors resulting in a record Budget deficit is the vast bill to fund the Government. It is too fat and overweight. The continually rising bills of salaries, the pension and interest burden eat up the bulk of the Budget. The yearly inflexible budget on Defence and Public Security comprising about 20 percent of the Appropriation Bill of about Rs. 2,500 billion for 2022 as well as for essential expenditure on Education and Health leaves very little fiscal space. Money printing has been the primary means of financing the Budget and is surely the cause of the recent intensifying of inflation that is impacting the poor massively. The Government, meanwhile, is hardly looking for ways and means of arresting the downward spiral of the economy.

One of the credible decisions of the newly elected President in 2019 was to limit his Cabinet. In years gone by, Sri Lanka broke world records for the number of Cabinet, State and Deputy Ministers, each with personal staff and a phalanx of security officers, vehicles, house and ministry. The Government ran out of official bungalows and office space and had to rent them. What indeed is the rationale is there for two cabinet ministers for Power and Energy, or 15 ministers and state ministers handling the subjects of Agriculture, Plantations, Irrigation and Lands? The expense from the public purse to maintain this “Government” is a burden the people can hardly carry.

Then, one finds the number of state corporations and state-owned enterprises (SOEs) that are bleeding this country’s finances — what is left of them. Almost every one of them is looking for capital infusion from the Treasury to stay afloat. One owes the other and the General Treasury is merely making book entries. Apart from the regular culprits like SriLankan Airlines, state-run Petroleum, Transport and Electricity entities, there are dozens of parasitic corporations like Lanka Sathosa reeking with corruption and surviving on handouts from the Government or from banks, the latter buttressed by Government guarantees.

Next to the Defence Ministry which receives the biggest Budget allocation for next year (Rs. 373 billion) for 250,000 regular men and women, the Public Services, Provincial Councils and Local Government Ministry has been allocated the second largest expenditure of Rs.286 billion while the Education Ministry gets Rs. 185 billion, less than the Highways Ministry (Rs. 250 billion). More millions are being allocated to hold elections to Provincial Councils which, it seems, only another country wants.

The Budget has no answer to this question, except to cut overtime payments, reduce bata and mobile phone allowances and the use of fuel, water, electricity and stationery; important but relatively minor avenues of pruning costs in comparison to the mega expenditures in the public sector. It seems a case of micro managing a macro economic issue.

There is a need for a major ‘haircut’ in public finance, but there is no political will for fear of losing votes. However bad the economy, the Government does not want any bailouts from international lending agencies like the IMF because it fears the demands they will make on pruning public expenditure and restructuring public enterprises. The reviving of the ailing economy goes hand-in-hand with drastic reforms focused on the bloated public service and SOEs. It is clearly a need independent of the IMF constraint.

The Government will soon run out of options. It is simply depending on wishful thinking — the billions that will come from the gas finds in the Mannar basin, from the Port City, from the hundreds of thousands of tourists who will flock to the country. There is no plan to rewire the Government and no political will to reset the public sector. The haemorrhaging of the economy will only continue to the next year and thereafter, until the country goes into virtually complete insolvency.

Bank robbery

That the country is in dire straits on the foreign currency reserves front is a public secret. Much of it is due to repayment of loans taken in 2011 and thereafter for so-called ‘development’ projects that brought no revenue or benefits, and the usual consumption. It is payback time. Next year is expected to be worse.

The legality of the Central Bank’s decision may be a question, but the ethics and the wisdom of it is the issue — it is daylight robbery on the one hand, and risking investor confidence on the other. Desperate situations may need desperate remedies, but this is only going to make a bad situation worse.  Foreign investors who have been guaranteed their profits can be repatriated (in foreign currency) are getting shortchanged in the process.

In the 1990s, when the East Asian financial crisis hit countries like Thailand, Malaysia, Indonesia, the Philippines and even South Korea sending their currencies into free fall, there were “national sacrificial movements” in some of these countries to repay foreign debts running to billions of dollars. The people’s campaigns included citizens surrendering their personal gold as a show of solidarity with their Governments.

Neither the Central Bank nor the Government will dare launch such campaigns in these trying times given their standing in the country right now. The IMF bailed out those Asian countries then, stabilised their economies and they were back on their feet. IMF/World Bank options have been ruled out in Sri Lanka. These mandatory directives are seemingly their only options.

What next, is the question on everyone’s lips.