24 June, 2024

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A Budget In Crisis 

By Ameer Ali

Dr. Ameer Ali

The President/Finance Minister Ranil Wickremesinghe’s 2024 budget, which could be his final one before going for a presidential election, reflects the impossibility of satisfying the conditions stipulated by IMF more than a year ago and expectations of a citizenry that is caught in a wave of unrelenting economic distress. While the release of the second tranche of $300 million from the $2.9 billion IMF loan hinges on how lenient the lender would be after witnessing RW’s failure to undertake vital reforms and particularly to bring down Sri Lanka’s gaping budget deficit, people’s reception to the budget is certainly not going to be positive, because of the gap between what the budget offers and what people need. In short, 2024 budget is in crisis already in spite of RW declaring it “a success as it was an important change for the better to usher economic prosperity and good governance”. This false confidence ignores the financial burden yet to be decided by negotiations over debt restructuring and the growing global economic pessimism caused by the two wars with imperial overtones, one in Ukraine and the other in Palestine. In country mired in polycrisis a budget crisis should not come as a surprise.  

Without accounting for the failure to achieve targets set out in the previous budget – a historical legacy in government budgeting since 1948 – new plans to spend a total 7 trillion rupees against a revenue of 4 trillion leaves a deficit of Rs. 3 trillion, which is an increase of 19% from the 2023 deficit, and 9.1% of GDP. IMF is certainly not going to be happy about this increase which is going to make it harder if not impossible to reach the set target of 2.5% primary surplus by 2025. While recurrent expenditure includes an increase in cost-of-living allowance to 1.3 million state employees and 700,000 pensioners, and tripling the allocations for the aswesuma welfare project, revenue is enhanced only by an increase in VAT from its current 15% to 18% with no other increase in direct taxes or introduction of new ones. The moneyed class is therefore spared partly because taxing the rich is against the philosophy of economic liberalism and IMF, and partly because RW needs the support of this class at the next election.  Politics always intrudes to blunt the sharpness of government’s economic instruments. To cover the expenditure therefore, government has to borrow from domestic sources, and the budget has raised the borrowing limit by 3.45 trillion from previous 3.9 trillion to 7.35 trillion. Above all, how does the budget going to stem the rising prices in the market, which has no correlation with the highly acclaimed fall in inflation?

There is nothing unique about this budget. Promises are one thing but delivering them quite another. Without ending corruption, which has become systemic, and without introducing radical changes to improve public administration and public enterprise management the gap between promises and delivery is set to continue. If anything, this budget demonstrates how difficult if not impossible for any finance minister presiding over a bankrupt economy to produce at least a balance budget within the existing political and economic paradigm. It was only Dr. NM Perera who produced a surplus budget in 1970 with the hope of changing that paradigm but he too failed. Now, RW in his role as finance minister reminds the people that, “The economic and political system of our country must be created anew. A new social consensus should be established”. It needs more than a social consensus Mr. President. It requires a strong political will to change the political culture. In fact, that was the essence of the demand by the aragalaya youth in 2021. Having put down that short but historic uprising, and benefited by becoming president, RW did nothing to change that culture and the system which produced it. 

Having welcomed IMF to steer the economy’s revival, reforms needed to improve domestic governance and efficiency were tragically left neglected. IMF itself pointed that out in its report after auditing progress made since RW received the first tranche. RW has already pronounced that he would be selective in implementing those reforms, and it need not tax one’s brain too much to conclude that his selection would be politically dictated. Even if one ignores for a moment that IMF reforms are focused more on stabilizing the financial sector of the economy and encouraging the moneyed class to take the lead in promoting economic growth and development than in the general welfare of the citizenry, it is doubtful whether the expected stabilization and encouragement would have delivered robust economic growth with a system of governance that is corrupt, undemocratic and unjust. For example, according to RW, “2004 budget signals the biggest ever privatization and pointed to landmark proposals of the Urumaya program, which involves handing over of ownership of lands already distributed to two million farmer families as well as vesting full ownership of houses in government-built schemes and land for dwellers in plantation and expanding the Bimsaviya program”. This in other words means legalizing an act privatization already accomplished. But will there be transparency in this legalization where vested interests are already at loggerhead with the original distribution. When it comes to plantation dwellers who are predominantly Tamils of Indian origin how would RW face opposition from Sinhala nationalists who are bent on reducing Tamil concentration in the hill country in the first place? Even the proposed cost of living allowance is not going to be paid immediately, but only from April next year and arrears to be received in instalments from October. This unnecessary delay would induce the beneficiaries to borrow in advance and invariably fall into an unwanted debt. 

Let the economists and statistician debate over the quantified variables of the 2024 budget equation. But what is crucial from the point of view of Sri Lanka’s future is the political and social framework within which this budget like all its predecessors is set to be implemented. With a parliament of the current 225 and a government made up of individuals and groups that were primarily responsible to the 2022 economic calamity and financial bankruptcy what hope is there for RW’s budget to bring “change for the better to usher economic prosperity and good governance”? Corruption for example, demands the existing political culture to continue but the economy demands its eradication. In between the two stand the actions of an executive president. Every act of RW whose slap on the wrist of a parliamentarian caught for smuggling through the VIP lounge at Katunayake airport to the saga over the Sri Lanka Cricket Board, it is the political interest of the president that overtook his commitment to clean corruption. It is corruption that allows big companies to get away with tax evasion and the rich to stack away surplus funds in tax havens. The second Pandora Box files implicated a cabinet minister in RW’s government who has stacked away funds in Virgin Islands. The first one too implicated a couple from the Rajapaksa dynasty and the investigation over that was never published. On the latest scandal there is silence from RW. 

The question that faces the nation today therefore, is not about the economic credentials or efficacy of the 2024 budget, but about the system that continues to produce budgets like this with eloquent promises without accounting for their delivery. Unless the system is overthrown with its political culture what hope is there for the future? 

None of the political parties that are represented in the parliament except JVP/NPP has made any commitment to change the system. JVP/NPP looks different because it is the product of a different generation and its economic ideology is left oriented. However, its leftism cannot coexist with the existing corrupt and ethnonationalist political system and culture, and that system and culture have to be thrown out. It is an intergenerational necessity. Even then, its radicalism has to be pragmatic and should not be driven by pure ideology to cope with the ruling international neoliberal environment. The JVP/NPP think tank seems to be aware of this. It is time Sri Lanka takes a new direction and sooner that happens better for the country and its multiethnic society. 

*Dr. Ameer Ali, Murdoch Business School, Murdoch University, W. Australia

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Latest comments

  • 10
    3

    History suggests that Ranil and his grand old party, more aptly known as the Uncle Nephew Party, are the pioneers of nepotism, cronysm and corruption in Sri Lanka.
    .
    It would be foolish to think that Ranil or his party therefore would or could usher a new era of a more just and democratic political culture and systems of governance in Sri Lanka.
    .
    The subsequent parties and leaders not only have continued these nepotistic, crony, and corrupt practices, they have done it with increased vigor and valour, eventually leading the country to banckruptcy.
    .
    Our economic troubles I believe therefore are a direct consequence of this banckrupt political culture, perhaps a reflection of the general culture of our people.
    .
    The sad truth is that Sri Lanka is now without any visionary leaders of calibre that could pull us out from the depth of our troubles.
    .
    Given this context if the Sri Lankan elocterate decides to take a radical step by handing over the country’s power to JVP/NPP for the first time in its history remains to be seen.
    .
    If it does that would be the biggest political experiment of our post independent history.

    • 3
      0

      Last week the highest court of the land condemned the Rajapakses as rouges who ruined the country …….. today tin pot ” el presidente” Ranil, is celebrating Mahinda’s Birthday standing next to Namal! ……. https://www.youtube.com/watch?v=5hSWM3jJ5dw

      Native is full of fire and fury in his criticism of women, Prabakaran et al ….. and even Namal. But would he ever even utter a single word against his hero Ranil?

      That’s why I don’t take …….. anything any Lankan says very seriously. :))

      The fault, dear Lankans, is not in our stars, But in ourselves, that we are underlings …….. our minds are enslaved ……. by one side or the other.

      The liberator the truth ….. has no room …….. in our minds.

      And life goes on ………….


      Happy Birthday to You
      Happy Birthday to You
      Happy Birthday Dear Mahinda/Ranil/Native
      Happy Birthday to You.

      From good friends and true,
      From old friends and new,
      May good luck go with you,
      And happiness too. :)))

      • 3
        0

        Isn’t that why he is now famously known as Ranil Rajapakse. They are all the same. It’s ‘you scratch my back and I’ll scratch yours’ politics.

  • 11
    3

    The effects of damage caused by RW to the SL economy will have an impact within the next few generations.

    • 3
      1

      HF
      The damage was already done.
      RW only worsened it.
      I doubt if any of his rivals have the resources to arrest the rot.

    • 4
      1

      BS B—- and based on unfounded inferences. RW inherited, S–T, “PODUJANA PERAMUNA” (PP) did and exited unceremoniously!!!??? They (PP) seem to be SOME PEOPLES, ever loved Left ‘B—-s’ and “Scape Goat” is RW!!??? instead it should be Gota, the Goat, did the final rites to ECONOMY!!!
      All this is to regain Power at all costs, ROB AND LOOT!!!???

  • 3
    1

    I am afraid that the author has an undeservedly good opinion of the IMF.
    The IMF knows well that if RW does not deliver unto them, it will be harder to get any other to do.

  • 1
    0

    There is no point of discussing whether this budget is good or bad without looking at the fundamentals of the problems that caused to the current economic crisis. Sri Lanka never had such a level of crisis in all aspects of political, economic, social, cultural crisis before the independence or Sinhalese governance. It is proved well that Sinhalese only leaders have failed to govern a small island which had sufficient natural and human resources. North East is considered as a dry zone that is not suitable for living by Sinhalese until the Tamils proved that you can make any land suitable with your hard work.

  • 6
    0

    The budget presented confused me. One reason why SL got into trouble was the massive loans obtained to pay for fancy consumption expenses and not for investments. This budget also has many such expenses and borrowings as well. So the drama of Ranil continues and down the line, there won’t be an IMF to fund us as we would have violated more clauses in the agreement.

    • 1
      0

      B1,
      Whilst, understanding your concern, certain item therein is to facilitate tourism and foreigners visiting in ad-hoc to assess the country and its working and societal habits prior to investing!! One couldn’t expect foreigners to domicile with their families devoid of those items considered essential by the Foreigners!!!??? Therefore, may be necessary expenditure!!!??? One reason, “Grapes, Apple Cheese and Deli meats” imports were allowed in 1977!!!??? You may well remember it took 2-3 years for initial investment to come-in and another couple of years to receive the “FRUITS OF FDI’s (1982, which was the acclaimed year of “PLENTY”!!!?? It was before ‘disaster struck’ 07/1983 – ‘shot on the foot’) Per Se, JRJ’s doomsday & decline – 2nd term commencement & Post referendum!!!???
      30 years war consumed all benefits!!??

      • 2
        0

        Tourism is not and should not be a State Business, it should be the business of the private sector.

        Most of the money allocated in the budget is for the Armed Forces when there is no war. This is done in order to siphon money out of Defense to direct to other fancy projects of the Government, similar to what Gota did for Gnanakka’s temple building and hotel project.

        The other major expense is to maintain a large government. Then the question should be asked do we need such a large cabinet and a band waggon of State Ministers in addition to the UNP losers who are now President’s advisors?

        To add more, the government now has to provide over 100 armed forces personnel for each of the “arthika gathakayo” declared by the Supreme Court this week. Not only the expenses for the security there are also additional maintenance expenses, housing, travel expenses, office expenses etc etc… Should the poor taxpayers get to carry all these expenses of the government?

    • 1
      0

      The 2024 budget will culminate in a crisis just like all previous attempts. The only way out of this crisis is a complete systemic change. Such a systemic change could be effected not through elections but only through a revolution that will transform the entire system to usher in economic prosperity and good governance.

    • 1
      0

      Buddhist 1,
      .
      I think taking loans to fund massive infrastructure projects that do not bring in any forex; and the absence of any export oriented economic acivities of scale are the immediate or proximate causes of banckruptcy in my view.
      .
      Having said that why there are no export oriented economic activities of scale to generate forex, the ultimate cause of banckruptcy, deserves some answers.
      .
      I am not thorough with the budget presented, but I think there’s still nothing about generating forex through export oriented economic activity, whether they be manufacturing or services, discussed.
      .
      We still rely on foreign remittance sent by the exported unskilled labour and of course tourism, the so called lowest hanging fruit in Ranil’s own admission. Even for the latter I don’t see a proper comprehensive national plan except for some desperate ad-hoc measures.
      .
      It seems like we are still not tall enough to reach the fruits in the higher branches. Will we ever be, is the question!

    • 0
      0

      Buddhist 1,
      .
      I think taking loans to finance massive infrustructure projects that do not generate forex, and lack of export oriented economic activities of scale, except for stitching bras and panties, are the immediate or the proximate causes of the economic crisis.
      .
      That said why there are no export oriented economic activities of scale that could bring in forex, the ultimate cause for the economic crisis, desreves some answers.
      .
      I am not thorough with the budget presented, but it looks like there’s still no attempts made to generate income through export oriented economic activities, whether they be high-end manufacturing or services.
      .
      We still seem to rely on remittances from exported unskilled labour, and in Ranil’s own words, the so called lowest hanging fruit – tourism. Even for the latter there appears to be no comprehensive nonational plan, except for some ad-hoc measures taken out of desperation.
      .
      When are we going to reach for the fruits in higher branches. Whether we will ever? Those who couldn’t do it for the past 75 year, can they do it now?

    • 0
      0

      B1,
      “One reason why SL got into trouble was, THE MASSIVE LOANS OBTAINED TO PAY FOR FANCY CONSUMPTION EXPENSES and not for investments”
      I disagree on your premise of Loans for consumption!!!?? They Luxury consumables, were necessary, without those consumables available freely and ON DEMAND in Super Markets, Local Vendors, all attempts, to attract FOREIGN DIRECT INVESTMENT (FDI), would FAIL miserably!!?? No Foreign Investor without his own trusted Expatriate Representative domiciled in SL, would venture to come over and part with MONEY!!!??? Those items you consider – luxury are ESSENTIAL DAILY NEEDS FOR EXPATRIATES!!!???
      So, the venture would have failed!! Major reason, Sirimavo/NM Perera Project FAILED in 1970-77!?
      On the contrary, Reason Economy, Failed, Half-Educated Finance Minister, 2004 – 2014, MISMANAGED, OVER-BORROWED, ALSO HIGHER INTEREST RATES, MINIMAL OR NO GRACE PERIOD, – REPAYMENT OF LOAN!!!???
      There was no, Comprehensive Feasibility Study report submitted and assessed ensure suitability of Return on Investment (RoI), which meant wrong project selection and NO environmental Impact Assessment (EIA) for projects!!! THESE WERE REASONS RESULTING WASTE & BANKRUPTCY – 2004 TO 2014!!!??? MaRa, as then Finance Minister and President did as long as 20% ‘CUT’ assured!
      Did despite warnings, by many, therefore solely RESPONSIBLE AND ACCOUNTABLE!?
      SOLELY CULPABLE.

  • 5
    0

    “A Budget In Crisis”

    Native,

    The Budget will be in less crisis ……. if you can forgo the Benz Ranil has given you …….. and follow this example ……. https://www.youtube.com/watch?v=0QohiR99LoQ

    If the experienced lifelong proletariat-ian can ride a rickety Honda, so can you! ……. bottom, feeling every bump on the road ….. Royal/Thomian invaluable special training to the fore ……..

    • 2
      0

      nimal fernando

      “Benz Ranil has given you”

      Why would he give me a Benz in the first place?
      I don’t even know how to write Benz.

      I have my legs, my bicycle, public transport, Auto, ……
      Are you trying to hide the presents Ranil gave you for your birthday?
      You betray the proletariat.
      No one will forgive you.

  • 1
    1

    with a 3 trillion rupees deficit you don’t need to search too far to see the root cause of the problem of srilanka’s economic woes.We are drinking champagne in a kassipu economy.All wastage ,corruption etc must be removed.IMF will not give the second trance of $ 300 million with a deficit which is three quatrers of what we earn as income which is 4 trillion.Can’t ranil see this, the bloody fool.

    • 3
      0

      Shankar,
      Reckon 1977/78 Budget had such deficit which was then bridged with Foreign Grants outright gifts and some low interest loans and Garce periods of 5 to 10yeras for commencement of repayments on loans!!! Correct me if I am wrong as this is based on memory!

    • 0
      2

      “IMF will not give the second trance (SIC) of $ 300 million”
      One cannot be so sure as IMF has its unseen agenda.

  • 2
    0

    Shankar,
    Reckon 1977/78 Budget had such deficit which was then bridged with Foreign Grants outright gifts and some low interest loans and Garce periods of 5 to 10yeras for commencement of repayments on loans!!! Correct me if I am wrong as this is based on memory!

    • 0
      1

      M
      You could be right.
      But the middle classes were so excited about liberalized imports, nobody would have noticed little things like budgetary matters

  • 10
    3

    He is not only odd but also very dubious.

    He is not an economist but likes to pose as one !.

    He is not a historian but likes to display historical tit bits without the larger view of history.

    He is not spiritual but quotes from Buddhism when he wants to fool the crowd.

    He has no integrity because he flies all over the world acting like he has a mandate from the people.

    He knows very well after these two years of pretending, he cannot get even get 500,000 votes in the country.

    It is such a man who has presented this budget

    Why is such a man doing politics ? To serve whom ? The people who don’t want him and who will always reject this fraud !

  • 3
    1

    How could one expect a person who has never had a job, fed a family, educated a child, or had any formal training in economics present a budget on behalf of twenty-two million people a vast majority of whom are barely able to make ends meet? He’s been living a life of super luxury for almost half a century at our expense.

    • 1
      1

      P
      May I know how many of our finance ministers were trained economists?

  • 4
    1

    According to parliamentarian Sumanthiran, the ”economy collapsed because public money has been stolen by MR & his brothers”. We all know that, although, some may still be in denial. MR & Co then promoted RW to save their hide knowing his loyalty to fellow politicians & cronies, more than the to the country he has pledged allegiance.
    In any employment, forget corruption, if responsible for financial catastrophe due to incompetence or even ignorance, that employee would be sacked, sued &, most likely, face jail time as well but in SL, a couple of minions have been sacrificed while the sharks are laughing. The joke is on the poor citizens having to fund their luxury lifestyle with perks & pensions while they continuing to pull strings behind the screen.
    RW is just another spineless opportunistic SL politician with no self respect, desperately trying to hold on as long as possible by any means but we should not forget who put us in the cess pit in the first place.

  • 5
    0

    Have you all read the Budget? I started to read. The “Introduction” is a “Sermon” on Buddha Dharma quoting from two “Suthras”. So my first impression was an “Attempt” to hoodwink, once again, the masses by “Rekindling” the religious sentiments.

    Secondly, the question that arose in my mind was, Hasn’t Ranil W passed a verdict of “Failure” on himself? He goes at length to detail the failures on the part of Governance that has been responsible for decades-long “Consumerism” – Living a life of luxury with borrowed capital. Who tells this? A Cabinet Minister, a Prime Minister, and a Legislator for more than forty years who contributed in no small measure to bring in that state of affairs.

    Next has he presented us a “BUDGET” that gives us any hope of “Recovery” with any “Recovery Plans? In simple terms, it is NO Budget but fragmented facts and figures that do not lead us to develop a sense of “HOPE”. for a reasonable comforts of life. One lead, I could give is a comparison of the IMF summary of the targets to be achieved with an attached document scheduling the same numbers with smaller differences.

    Next comes the “FANTASIES” – e.g. Building an “International Airport” in Polonnaruwa, “Additional University Facilities” (six of those); “Industrial Parks” etc. That is why it is NO BUDGET to talk of.

  • 0
    0

    //The only way out of this crisis is a complete systemic change. Such a systemic change could be effected not through elections but only through a revolution that will transform the entire system to usher in economic prosperity and good governance.//SriKrish

    Well said, but who is to bell the cat? Which party is there to bring about the system change? SLPP/UNP/SJB are birds of the same feather. The difference is only in name. For example, SJB is a clone of the UNP. So is SLPP.

    If the country is to progress we must have a brand new constitution that will guarantee equality, democracy and the rule of law. For that to happen the state should be secular. If Buddhism is given special status and protection of the state, it nullifies the principle of equality.

    Additionally. English is made the official language of administration of the country and higher education. English is no longer the language of Anglo-Saxons. It has become a world language, more people speak English than Englishmen themselves. These changes cannot be made if by chance the JVP/NPP comes to power. The top leadership is illiterate in English or any other language barring Sinhalese.

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