5 December, 2020

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A Populist Budget Risking Higher Debt 

By Ameer Ali

Dr. Ameer Ali

The maiden budget of the new regime, as a demonstration of President Gotabaya Rajapaksa’s “Vistas of Prosperity and Splendour”, was read out by the two-in-one Prime Minister cum Minister of Finance (PM-MoF) without much fanfare. No doubt, it was a budget presented at a very challenging time, and, in tune with the government’s populist mindset, it promised many things to many people in the name of development. As expected, it is a deficit budget and that deficit would have been higher had the establishment been honest with statistics and accounting. The opposition highlighted the mis placement of Rs. 700 billion worth of this year’s expenditure into the already audited accounts of 2019. Had that amount been accounted honestly the magnitude of the current budget deficit would have been larger. However, with an expected revenue of Rs. 1.9 trillion and an expenditure commitment of Rs. 3.5 trillion there is a deficit of Rs. 1.6 trillion or 9 percent of GDP, of which almost two-fifth is expected to be funded from foreign sources. The specifics about those sources were not spelt out. There is also a promise of reducing the level of that deficit to 4 percent by 2025.  

While one newspaper quite justifiably described the budget as “oozing with overoptimism”, the National Chamber of Commerce, the corporate club of Sri Lanka, provided guarded support after pointing out that the “Budget proposals of 2021 hinges on achieving the revenue targets”. In short, the budget is less a “bedrock of a new growth wave”, as State Minister Cabraal boasted, but more a budget drafted with populist exuberance to deepen the country’s debt burden. 

A few disturbing aspects of the budget need highlighting. In a mood of sheer desperation and to seek and increase private direct investment the budget reiterated an earlier announcement by the Central Bank to adopt a policy of no questions asked if illicitly accumulated funds would be brought from abroad and invested in local projects. Isn’t this an open invitation for money laundering? Does the President, his PM and cabinet of ministers think of the adverse reaction from international institutions if SL becomes a haven for this illegal financial ablution? Even with all lucrative incentives offered for such investments there is no way the government could avoid more borrowing to finance the deficit. But that will become extremely costly if money laundering is encouraged. Ultimately, the onus of financing the deficit will fall on the Central Bank, whose printing machine will have to work overtime. This will inevitably enhance inflationary pressures.  

Without taxing the wealthy and big corporations the budget continues to depend for its revenue on indirect taxes and it is proposing a simplified Goods and Services Tax (GST) on alcohol, cigarettes, betting, gaming, telecommunication and vehicles. Tax on these items account for about 50 percent of total tax revenue. Given the extent of corruption in the country, whether the proposed GST, even if mechanically operated, would create a flourishing grey economy, only time would tell. In the meantime, continuing import restrictions on consumer essentials in the name of advancing domestic production, though makes economic sense, yet it needs supportive measures to make the policy successful. On the other hand, import restrictions have already raised the ire of the European Union, which is the second largest export market for Sri Lanka.  Restriction on imports cannot avoid negative impact on exports also.

The budget’s hastiness in expanding university education is also a populist measure rather than one based on a studied understanding of the real issues in university education. The need of the day is to improve the standard of education in the existing universities, which are already too many, rather than adding to their number. There is an acute deficiency of qualified teachers in the universities, and majority of graduates passing out of these institutions are unemployable in the market. This explains why the public sector is carrying an excess burden of arts and science graduates. Churning out graduates without a need for them is a colossal waste of scarce resources.

Another worrying phenomenon is the budget allocation for security. As one Tamil member in the parliament pointed out, expenditure on the military has been increasing even though the war has ended. Accordingly, budget allocation for security has increased from Rs. 312 billion in 2020 to Rs. 355 billion in 2021. The military has now become another white elephant. If extremism and the under-world have been wiped out as the President claims then what is the rationale for sustaining a huge military? It is the fear deliberately created by a supremacist-autocracy that another war is imminent, which prevents demobilization of the army. The military is not only a drain on the country’s finance but is also making economic revival and development more difficult. It should be understood that the sources of economic growth in Sri Lanka go beyond pure economics. Without building the foundation for a united society with its ethnic and cultural diversity economic development of the country will always be suboptimal. Covid-19 has made it worse. Perhaps, the rulers want the disunity to prevail to remain in power.

In a sense, analysing this will take us nowhere, because as mentioned in a peace published earlier in this journal the superman at the top can always change budget allocations willy-nilly as long as there is a parliament prepared to rubber stamp his decisions. “Guts lead to glory”, GR said, and the budget needs a lot of that to achieve its targets.

*Dr. Ameer Ali, School of Business & Governance, Murdoch University, Western Australia

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Latest comments

  • 7
    2

    Looking back from today:

    1) What have we achieved for the benefit of the masses ? No price reductions, no fuel price reductions, no reduction in medical drug prices, not even the concessions then offered by GG govt, nothing, but like the blue flies would not go away from the heaps/cadava, there are lot more people still behind Rajakshes yet today. Either people or Rajapakshe rascals should have no brains. What is the difference between far poor countries like Malavi, Uganda, Sudan, Swaziland and srilanka today ?
    :
    2) The greater difference our people are known to be highly literate, enjoying free education, free health and free so many things, but their stumbling block not being able to an inch move from A to B towards the progress – is because their thinking nature. Not many would respect yet today facts and figures. If inhalation would be introduced as a step should be taken as precautionary actions for lung infections, even COPD or the like lung patients (over 40% of srilankens are said to be suffering from lung related allergies/what they call PEENASA) would do it without thinking twice. Mislead is well planned by corrupted TV shows on the contract of the corrupted business men.

    • 2
      0

      LM, I’m happy with fuel prices being kept steady, but with the savings there, we ought to see improvements elsewhere.
      .
      As for Education, I’m very concerned. Lack of schooling most affects the poorest. Sophisticated parents will be able to pass knowledge and good attitudes on their progeny in various ways. If our people don’t even know how to vote at an election, then they are not educated. Mere monolingual literacy is insufficient for the 21st Century.
      .
      Crude promises were made pre-election, and Gota was congratulating himself on keeping them. Dr Ali has mentioned University Education – mere numbers being admitted, although I think I saw something about vocational subjects. (I confess I haven’t studied the Budget all that carefully). 100,000 km of roads, including in the Sinharaja. I wonder if Gota realised that the circumference of the Earth is only 40,000 km.
      .
      Will the plastic menace be really addressed in the New Year, instead of talking rot about importing beef? Let me leave it at that!

  • 6
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    This is only a basun hahe’s budget to fool the masses. Now the Govt. MP’s have become prostitutes, anything what the Rajapakse’s say will be gospel truth even though common sense says otherwise.

  • 6
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    Rajapakse brand is publicity, populist talk, fake patriotism but making money from deals rather than real focus on people and country. On the look budget proposals are appear to attract many but when it comes to reality it is an empty pot. Does any one know what is the current status of the economy from this budget proposal. It talks about development but nothing about fraud, corruption control, efficiency and effectiveness. Budget talks in terms of billion or trillion dollars, but people are taking about Rs. 5000 corruption support money for Corona lockdown. Do they have a target on productivity of ministries, projects, investments and measurement of achievement of targets. We know during 2010 to 2015, Mahinda spent billions on Hambantota cricket stadium, airport and many other projects and what was the outcome. I understand only benefit of it was Rajapakse became the richest Srilankan.

  • 4
    0

    The BOI has signed an agreement with Shandong Haohua Tire Co. Ltd to set up a tyre factory in the Hambantota “Industrial Zone”, which is in close proximity to several national parks. Bundala National Park is only 16km away from the proposed tyre factory, while Yala and Kumana National Parks are situated 50 and 80km away from the zone. I wonder where there is any EPA report pertaining to this agreement.
    Even the Executive President is bound by Environmental Protection Laws.
    This concern is raised in light of the decision of Chinese EPA in 2018 to shut down tens of thousands of factories related to textiles, rubber, leather, chemicals, etc., in many provinces including Shandong, Beijing, Henan and many other cities. I am not sure whether Chinese EPA’s decision has something to do with China’s decision to introduce a national parks system in 2017.
    As many people and organizations pointed out since 2010 and, as we saw with our own eyes in 2020, Rajapaksas have no respect for the environment, forest, wildlife or archaeological lands. Right now the freedom of speech and travel are restricted under the guise of quarantine laws so as many of their monumental illegal deforestation activities and land grabbing in residual-old-growth forests & grasslands are hidden from the public.

    • 3
      1

      Champa: You raised a very valuable point in your comment. The setting up of a “Tire Factory” to produce 9 million tires annually for “Export Only” must be a well “Planned” project to “Complement” the loss of production from the close of their own factories in those provinces due to “Environment Pollution” issues. This “Project” would be “SOLD by the “Rajapakse & Co. Inc”” to the “GUILABLE” Sri Lankan as an “Investment” that would generate huge “Income” and “Employment”, even at the cost of destroying our Wild Life Sanctuaries and Environment. The only “CRIETERIOR” would be “HOW MUCH”income “Rajapakse & Co. Inc.” could “Generate.

    • 0
      1

      Champawati,

      This Tyre company is purported to export only. Otherwise it will bankrupt the local manufactures. Local products are already very good quality and in the external markets they are accepted as “Made in Ceylon”. To the product to be labelled as Made in Ceylon, the product should be made with Ceylon labor and Ceylon material. If China intending them to replace its close down factories then it is going to use the Chinese labor and material. This will create a strain on EU & US GSP+. If they could not export and eventually Aanduwa allows to sell locally, the internal investment will be lost. But, for the media talk at least, King told Chinese Ambassador that he doesn’t want loan, but investments and China has immediately put $300 M and opening this factory. Last month, US State Secretary told that US bring investments like Coca Cola, IBM, Oracle. This month China too bring investments. So many secrets needs to be un-knoted.

  • 2
    0

    The “BUDGETS”, presented in Sri Lanka, whether “Populist” or otherwise “Economically Sound” mean “NOTHING” either to the Governments or the People. If all the “Budgets” presented for the last seven decades were “Meaningful” in action-oriented and target measurements, Sri Lanka by now would be the “Kethumathi Rajaya” (Heavenly) of the East. Unfortunately,” 98.5% Literate” people do not possess the least of intelligence to assess their own “QUALITY” of life as at the date, having passed through the last seven decades of Budgets. But one common “Goal” we have been led up to now is a “DEBT LOADED BANKRUPT” country in which each and every individual now living and yet to be born is made a “DEBTOR” to the tune of Rs.400000.00 (could be much more). But do the people have an “IOTA” of knowledge or feeling of this fact? Or are they worried over it? NO. That is a FACT. That “Fact” is utilized by the corrupt politicians who PLUNDER the county’s wealth and secure their prosperity. This comment is a “Preamble” to continue later comment….

    • 0
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      Simon
      “Unfortunately,” 98.5% Literate” people do not possess the least of intelligence to assess their own “QUALITY” of life as at the date, having passed through the last seven decades of Budgets”.
      *
      Each of us is easily tempted to imagine that he/she is the only intelligent creature under the sun but perhaps for the few who may agree with his/her views.
      Is the situation any different in supposedly more politically literate ‘democracies’?
      ‘Experts’ with certain biases run the show everywhere. (The US is the most indebted nation. Does anyone care?)
      *
      The thinking of the people is conditioned by the information that they have access to. Are the media tuned to sensible politics?
      See how sectarian views that dominate these pages; the frequency of downright bigotry; personal abuse as substitute for reasoned arguments. If that is what we see in a forum for the politically literate, what hope do we have for media that rely on circulation to ensure advertisement revenue.
      *
      It is not just corruption or corrupt politicians but the system as a whole. Our system is integrated with a global system. How many of the ‘well informed’ are willing to challenge it?
      It is easy to blame the public, forgetting that we are part of it.

      • 0
        2

        ” (The US is the most indebted nation. Does anyone care?) “
        Is that your theory that elephants are dropping heavy calves that is why elephants are always overweight? You never studied Tamils-sad! But, did you hear during rural people’s conversation “Viralukketra Veekkam?” (The swelling size is depending on which finger it is).

        ” See how sectarian views that dominate these pages;” Isn’t that you oil, constantly, the anti-Muslim rhetoric here by your expert-ism in ridiculing simple & innocent comments?

        ” It is easy to blame the public, forgetting that we are part of it.”
        So when are you going to correct yourself?

  • 0
    0

    My comment continued….This Budget is no exception to what I described above. Every “Budget” excepting “ONE” (if I remember correctly) had and has an ever-increasing “DEFICITS”. This narrative “Deficit” i.e the difference between the Revenue and Expenditure, is what the entire population (irrespective of literacy rate) must be concerned with. That “GAP” (Deficit) is proposed to be “Bridged” with the acquisition of “LOANS”. In simple understanding, a “Loan” must “ADD” value (increase the net worth) and such added value must be capable of “REPAYMENT”. A good example of this assessment was given in an “Audit Report” by the Auditor General, who said “3 to 1” was the return, meaning Rs. 03 million was the Loan Fund Investment only Rs. 01 million was the Return (added to the net value) (Note: The figure quoted is from my memory, but the fact is correct) So when this present Budget is looked at from this aspect, do we see any future prospects properly stated or analyzed to have at least some “Hope”? No. Only an “Educated CROOK” like that of Navad Cabral will say: ” Bedrock of new growth wave”. That is to further “Mislead” and purposely “Hoodwink” the people with the sole purpose of hanging on to power. This “Crook” is the “Advisor” to PM who is also the Minister of Finance.

  • 5
    2

    Ameer Ali is an expert in economics. I’ll take his word any day.
    The Budget permits bringing back hoarded wealth. This is clears the way for money laundering by the heads of government, who have their illicit wealth stashed in foreign soils.

  • 2
    0

    Amir Ali and Nathan: These “Money Laundering” tactics are nothing new. Recollect how the “Yahapalanaya” regime passed the same type of Legislation giving an opportunity to Ravi Karunanayake to escape the case against him for bringing in US $ 300,000.00 that was sent to him “Direct” in violation of Exchange Rules of Sri Lanka, by Rudra Kanaganayaga (I think the name is correct) who was sentenced for fourteen years in prison in the USA for various “Money Laundering” acts connected with “Gillian Corporation”. Incidentally, the “Financial Advisor” to that Corporation in the USA was none other than the ex-Governor of our Central Bank, Mr. Kumaraswamy, under ex-PM Ranil W. See how these “Crooks” play their games under any Government.

    • 0
      0

      Would being a financial advisor to a crook make the individual a crook.
      In which case the lawyers defending criminals are even worse culprits.
      If advise was given in ways that induced the client to adopt illegal means to make money, then the advisor is culpable. Was the advisor indicted in any way in the US?
      *
      I do not defend Ravi K, but think how Mahinda R got away with mishandling tsunami funds. Think of how a Chief Justice admitted to letting him off the hook.
      We are selective in our criticism I fear.

      • 0
        2

        “We are selective in our criticism I fear. “
        Who is the “Our”?
        I do not defend Ravi K, but think how Mahinda R got away with mishandling tsunami funds. Think of how a Chief Justice admitted to letting him off the hook.
        The case is about 15 years old. Buffoon De Silva bragged about his great deed 6 years ago. Can you tell us when was the first time you mentioned about this in your comments? (Then please explain us why did it take so long for such a prophet like you?)
        Thanks in advance!

      • 0
        0

        SJ: Thanks. Any “Professional” (meaning Academics) of any field that “SELL” their “Services” (Advice) to “CROOKS”, knowing that they are “Crooks” are, to me, WORSE than those “Crooks”. In most instances, these “Advisors” are also capable, and they do possess that “Acumen” to escape culpability and in that effort, the Law Enforcement too shamelessly assist them. Just look at the recent case of the “Sil Redi” judgment. The worst part of it is the public statement of the acquitted, top class “Civil Servant” of the day, in that, he said: “Now the Public Servants need not fear”. The system to prevent these culpabilities are there, but unfortunately, the people entrusted with safeguarding the “System” too are corrupt. Don’t you think that MUST be corrected?

        • 0
          0

          Simon
          Greetings.
          You should know that most businesses are not not honest and there are shady deals somewhere.
          Expert advise is sought for various matters; and by your criterion all major law firms, accountancy firms and even categories like insurers will prove to be CROOKS.
          One has to be focussed in one’s criticism. To pounce on one not directly involved in an offence is to divert attention from core issues.
          Before picking on someone one needs to identify the exact offence(s).
          *
          Correcting a systemic fault starts where public interest is adversely affected and the public can be alerted and activated.

  • 1
    2

    Why do Rajapaksas love foreign debt? Foreign debt is borrowed in USD. Without translating these can be robbed and deposited in bank accounts abroad for the large number of American citizens in the Rajapaksa clan. If they convert rupees into USD, money laundering may catch them. This is why they deliberately borrow and borrow in foreign currency.

    Just dish out some racist punnakku for local cattle.

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