By Hema Senanayake –
Let me write freely. I knew that Prime Minister and his close political associates strongly believed that they know economics better. Therefore, they did not pay any attention to any serious government official or other economic analysts who performed their duty outside the government by airing their views through media. Politicians thought that they can instruct the government officials as to what they should do. This wishful thinking has almost ended by now. The economy is in a mess. It seems politicians have now surrendered to officials.
Officials of every kind might think that they can now dictate to the elected officials of the government as to what they should do now. There are chances that the political authorities would listen to them this time around because they come with IMF side by side. First, let me prove my point, so read the following quote carefully.
“It is politically difficult. We need to raise taxes. Policymakers need to convince the public that they should be able to pay more taxes. There’s no other choice as the government will have to collect more revenue.”
Who said this? It was the Deputy Governor of the Central Bank of Sri Lanka (CBSL). Please read it again. He insists that “…that there is no other choice.” I do not agree with him. These officials, I define as inexpedient, I mean in regard to the very job they are supposed to perform that is to take care of the country’s economy and economic governance. Do you need a proof? Let me give you just one example but this one is astounding.
CBSL is the official economic advisor to the government. Its Board of Directors known as Monetary Board met on February 23rd 2015 and made the following decision:
“… the Board instructed the Superintendent of Public Debt to conduct a 30 year Treasury bond auction during the week and arrange to list sovereign bonds in Euro Clear Exchange in future.” (Board Paper No: MB/ER/4/2/2015, date 23-02-2015).
What is this decision? Dear readers you do not need to be expert in the subject but you use simple logic and question as to whether the Superintendent of Public Debt has ever arranged to “list sovereign bonds in Euro Clear Exchange.” If the answer is NO, what do you think of this decision? Nonsense!
Yet, we categorize this decision as a microeconomic decision. If CBSL makes this kind of blunder in regard to a microeconomic decision do you think that they can make prudent macroeconomic decisions? I do not think so.
This is the reason that Deputy Governor wants the politicians (policy makers) to convince the people to pay more taxes. For these officials taxation is a mechanism to collect revenue for the government and again this is a microeconomic thinking. But taxation is a macroeconomic subject which can be used to put the demand-and-supply equilibrium at increasing output levels quarter after quarter or year after year. What does this mean? It means economic growth, more output for consumers and more demand for the entrepreneurs. Is this difficult to convince?
What is politically difficult is to convince the microeconomic plan of taxation which CBSL want to sell to the political authority of the government. It is wrong and not prudent even though IMF supports it.
Anyway the government has to listen to its officials. This too is not prudent and I proved it above. Instead, the best strategy for the political authority is to listen to serious government officials while listening to those who criticize those officials’ point of view. This is important in view of the reforms the government is planning to implement. Recently, Deputy Governor had talked about some of these plans.
He said, “We are going to see very strong reforms focusing on addressing fiscal imbalances we have been having for about 10 years – declining government revenue and increasing spending…We’re now working with the IMF on fiscal consolidation… The IMF program will contain a large number of very important structural adjustment reforms of state owned enterprises like SriLankan Airlines, Ceylon Petroleum Corporation, Ceylon Electricity Board and the Water Supply and Drainage Board…If we can implement those reforms, it will boost growth.” (Economy Next, April, 28, 2015).
I do not agree with his final conclusion which says that these reforms boost economic growth. Why? The ultimate structural adjustment they could do is to privatize all of them. Even if you do that it would not boost economic growth? All these measures are microeconomic adjustments. But what the country now needs are macroeconomic adjustments under which fiscal consolidation is treated as a sub-subject.
In view of above, we urge the Prime Minister to be more serious about the economic governance.