By Chandra Jayaratne –
Were the leaders of this State, including those political, official, business, academic, journalist, and civil society leaders, who participated in the process of compiling, presenting, endorsing, and sometimes misrepresenting and deceiving the public promoting the National Budget 2015, as well the leaders who made presidential election promises by way of published vision statements/manifestos, action programmes, presentations and platform pronouncements, praying to the Aruchchana Deviyo ( the god purported to control thunder strikes) for protection or taking insurance covers to protect and risk mitigate against possible lightning strikes or doing both?
Has the Budget 2015 Conformed to Expected Bench marks?
Despite our leaders of our nation articulating that the Chinthanaya that guides this nation is now quoted by the IMF, World Bank and ADB, let us review, “what a budget is and what are its objectives ”.
The World Bank states that [i] “The word “budget” comes from budjet, a Middle English word for the king’s bag containing the money necessary for public expenditure. Budgets evolved in two directions. At first, Parliaments fought to take control of the budget and make governments accountable for the use of resources. In democratic societies, for instance, approval of the budget (the “power of the purse”) is the main form of parliamentary control of the executive. The budget authorizes to the executive to spend and collect revenues. In later years, the scope of government activities expanded considerably, and the role of the government budget became more complex. Today, government expenditure is aimed at a variety of objectives, including economic development, and social goals, or redistribution objectives. Hence, governments need sound fiscal policies, i.e., policies concerning government revenues, expenditures, and borrowing to achieve macroeconomic stability and other government objectives. The budget is the most potent instrument of the government in carrying out its policies. In countries with representative governance systems, the budget is the financial mirror of society’s choices. Public money should be spent only under the law.
The scope of the budget depends on the field of activities of the government, but must also be in a form to allow government policies to be appropriately scrutinized by the legislature and the public. Assessing the soundness and the realism of tax forecasts should be the preliminary step in analyzing a budget. Since fiscal stabilization, distribution, or allocational objectives can be achieved either through tax policy or through public expenditure policy, common issues need to be reviewed together, especially those concerning policy goals that can be achieved either through direct spending or through tax expenditures, or both. Accordingly, it is necessary during the budget formulation process to coordinate the preparation of the expenditure and revenue portions of the budget and consolidate them into a single document at the time of presentation to Parliament.”
Some of the important objectives of government budget[ii] are Reallocation of Resources, Reducing inequalities in income and wealth, Economic Stability, Management of Public Enterprises, Economic Growth and Reducing regional disparities.
The Civil Society Role
The civil society must bench mark above expectations and standards with a review of the process leading to the announcement of the budget, substantiate budget numbers and validate the deliverable outcomes. They must examine whether the political, official, business, academic, journalist, and civil society leaders who sang hosanna’s following the budget announcement have assured the validity of assumptions and numbers, outcomes and especially, acceptable reallocation of resources, reduced inequalities in income and wealth, sustainable economic stability, and have laid a foundation for effective management of public enterprises, achieving sustainable economic growth and reducing regional disparities. They must also assess whether the revenue and expenditure forecasts are realistic, achievable in the likely external environment and examine whether there are any serious risks in the sustainable future. They must examine whether the budget is a collective effort of all relevant stakeholders.
Did these estimates conform to the required framework of accruals accounting, incorporate provisions for contingent losses, provisions for expected negative free cash flows of public investments and independent corporations, consolidation of losses of state enterprises and provisions for impaired assets and liabilities under guarantees of the state and state owned corporations? An effective review of the budget approval process, bench marking with the New Zealand legislative process, especially during the working committee review, which requires a collective initiative of the officials and external experts, professionals and civil society participating actively in such a process?
An impartial and independent review will reflect that the 2015 budget violated most expected norms.
Credibility, Transparency, Accuracy and Right to Information
With several issues of significance having been raised by independent professionals, including some yet in government service, the level of credibility, transparency, and validity of published key economic data remain highly questionable.
Two respected Economists cum columnists have regularly in their columns pointed many examples that challenge the credibility and accuracy of published data. The issues of data inconsistencies and methodological soundness were highlighted in several presentations made by recognized professionals during the annual sessions of the Sri Lanka Economic Association. The Central Bank officials however continue to follow the ostrich culture where under a buried head outlook claim that these issues were not unique to Sri Lanka and that they have been addressed.
The laughable fiasco of Senior Central Bank personnel justifying that the country has done well, despite the fall in the World Bank ‘ease of doing business index’ by slipping over the last year from 85th place to the 99th place this year, lends credence to the public opinion that misrepresentation and deception in search of ‘window dressing’ are not only a fine art mastered under the then ruling regime but probably an embedded core value of their governance framework. The new regime must address this serious issue by arranging early a professional due diligence audit conducted by a competent panel.
It was clearly evident that, at the last minute, the budget proposals had been changed by either two or a few individuals in order to accommodate budget hand outs targeting an election victory.
In the absence of right to information laws and independent public institutions headed by persons of independence and integrity, the budgeting and budgetary control processes will remain within questionable realms.
Priority and Equality of Allocation of National Resources
The Overseas Development Institute publication ‘Equity in Development- Why is it important and how to Achieve it’ states “promoting equity is valuable in itself, is likely to contribute significantly to positive processes of social change, has the potential to improve development programming and may add value by marshalling involvement, enthusiasm and political support for development efforts. The key question is whether there is the political will?
A policy agenda for equity would involve focusing on the following:
- Redistribution and progressive taxation;
- Welfare and social protection;
- Affirmative action policies;
- Intergenerational concerns; and
- Shifting power imbalances to have sustained impact.
Development agencies should incorporate a more systematic understanding of equity and inequity into their policy decisions and, more than this, should implement pro-equity policies and influence developing country governments to do so themselves”[iii]
In Sri Lanka ‘Priority and Equality of Allocation of National Resources’ is unfortunately given low priority by all leaders and stakeholders of society.
Election Promises Must Follow Rules of Transparency and Accountability
The pending election law reforms must include provisions, requiring greater transparency and accountability commitments when publishing or pronouncing any proposals of political parties or contestants of presidential and parliamentary elections. The financial implications and expected socio –economic outcomes must be required to be published.
Presently the Fiscal responsibilities Act, requires the Secretary to the Ministry of Finance, within three weeks of the publication of a Proclamation or Order requiring the holding of a general election for the election of members of Parliament, cause to be released to the public a Pre-election Budgetary Position Report containing the information on the fiscal position of the country. Pre-election Budgetary Position Report should contain the following information for the current financial year:—
(a) estimates of revenue and expenditure ;
(b) estimates of the Government borrowings ;
(c) the economic and other assumptions that have been used in preparing such estimates ;
(d) a statement of the risks, quantified where practicable, that may have material effect on the fiscal position,
(i) contingent liabilities including guarantees and indemnities given by the Government under
any Act ;
(ii) publicly announced proposals for spending by the Government that have not been included
in the estimates referred to in paragraph (a) ;and
(iii) Government negotiations in progress and not finalized; and
(e) such other information as may be necessary to reflect fairly the financial position of the Government as atthe date of the said Report statements
Mini Budgets Following Elections
Any mini budget or vote of account announcements made post or prior to a Presidential or parliamentary elections should follow a similar commitment to make transparent financial statements.
Independent professionals believe that the 2015 budget presentation as delivered lacked clarity, left many questions on the validity and reliability of the estimates, and had inadequate depth of the supporting implementation framework for policy proposals and in addition failed to detail the basis of computations of the expected outcomes of proposals eg. Refinance facility for payment of tax arrears Rs 40 billion, balance sheet restructuring Rs 230 Billion, Basis of and adequacy including contingent/associated spends consequent to expenditure proposals.
The budget debate and committee stage approval also remained unprofessional and lacked the required validation, independent strategic reviews with recommendations for better allocation, agreement of transparent outcome expectations and allocation of tasks of oversight of the budget management.
Election promises too lacked a professional and responsible leadership expectations led pronouncements supported by transparent information and outcomes estimates.
It is hoped that the election law reforms will bring out a more responsible leadership culture with greater transparency and accountability in both pre and post election pronouncements, strict assurance that state resources and state power will not be abused and that officials will be made accountable if they carry any illegal activities or incur unauthorized budgetary spends. There must be inbuilt safeguards to ensure that the Finance Minister and the Ministry Secretary cannot undermine the laid down procedures or amend collectively developed budget proposals and estimates.
Civil society remains vigilant to validate whether the promised good governance commitments will be honoured in presenting the mini budget due on the 29th of January, as a vote of account under the 100 day programme. Will this presentation meet the professional expectations, and bring out a transparent statement of the current state of financial affairs of the state and set out the resultant financial and social outcomes and spell out the key change management result objectives. A time bound action plan must also be announced with due accountability, and be followed up with transparent disclosures of results on a quarterly basis.
One of the main lessons I have learned during my five years as Secretary-General is that broad partnerships are the key to solving broad challenges. When governments, the United Nations, businesses, philanthropies and civil society work hand-in-hand, we can achieve great things. –Ban Ki-moon