4 July, 2020

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Peoples’ Perspective For National Budget 2019

By Emesha Piumini Perera –

Emesha Piumini Perera

Sri Lanka is now recovering from the political chaos due to the constitutional coup leading to the ouster of the Prime Minister. The economic volatility remains. Sri Lanka requires a well –planned budget that also takes into consideration principles of fairness and equity that will improve the lives of people. Moreover the budget is a mirror that reflects the government‘s direction and commitment towards ensuring human rights particularly economic, social and cultural rights.

Mr. Juan Pablo Bohoslavsky, United Nations Independent Expert visited Sri Lanka (3-11 September 2018). In his report he highlighted the effects of foreign debt and other related international financial obligations on the advancement of human rights, particularly economic, social and cultural rights (ESCR). His report is an eye-opener and one that the government (at all levels) and the civil society organizations should take into account and use as a prism through which to review the programs on development – both in their design and execution. It appears that so when far none of the governments have taken the human rights dimension into account formulating economic and development policies. Human rights tend to be confined to the political arena but not to the economic and social spheres. The report of the independent expert calls for a paradigm shift so that total development efforts are approached from a human rights perspective. 

The report grapples with four objectives, namely, a) to examine the effects of public debt, structural adjustment, fiscal consolidation and other economic reform policies on the realization of human rights; b) to assess the efforts made by the Government to curb illicit financial flows; c) to analyse the effects of international development assistance and lending to Sri Lanka from a human rights standpoint, and; d) to study the efforts deployed by the Government to integrate human rights standards in the financial sector with a particular interest on micro finance.

On June 11, 1980, nearly forty years ago, the Government of Sri Lanka (GoSL) ratified the International Covenant of Economic, Social and Cultural Rights (CESCR) pledging that it would take necessary steps towards the progressive realization of ESCR within the given limits of country’s maximum available resources. Though the Sri Lankan constitution of 1978 recognizes some of the ESCR as directive principles of the state under Article 27, they are not enforceable in any court or tribunal. The attempts were made 2016, during discussions around the draft constitution to include them as justiciable. However, the proposal of the Subcommittee Report on Fundamental rights 2016, have floundered along with the broader constitutional reform process.

The UN independent Expert recognised that, “while maintaining macroeconomic stability is an important concern, this aim should not prevent human rights assessments of these planned reforms, in line with international human rights standards.” In Sri Lanka, the government’s focus is to maintain fiscal consolidation with the goal of achieving a budget deficit of 3.5 percent of the GDP (Gross Domestic Product) (GDP) by 2030. It transpires this target stems from the conditionalities associated with structural reforms prescribed by the International Monetary Fund and other finacial agencies.Sri Lanka is a constant receiver of IMF financial assistance. The Sri Lankan government received another extension of IMF loan of $1.5 billion for three years under the Extended Fund Facility (EFF) on 3rd of June 2016. The loan granted was to support “the country’s economic reform agenda” which is to be based on the six pillars of neoliberal policies. As prescribed by the IMF, the government’s strategy to address short-term imbalances and medium-term challenges rests on 1) Fiscal consolidation 2) Revenue mobilization 3)Public financial management 4) State enterprise reform 5) Enhancing monetary policy 6) Trade and investment facilitation. These pillars, are premised on the needs for fiscal consolidation and revenue mobilization together with Public financial managements. They are premised on the imposition of  austerity measures and  a substantial reduction of public expenditure. 

These budget cuts mainly affects eduction, health, welfare and other social security programs. For example, there is a 20.7 percent decline of budgeted expenditure on education in 2017, fueled by around 2 percent reduction in the recurrent expenditure and more than 40 percent drop down in the capital expenditure. This is a worrisome fact since the capital expenditure is the most vital segment of investments required for improving the education sector while recurrent expenditure focuses on the maintenance of the existing infrastructure. An underutilization of budgeted funds can also be observed in both the education and health sectors in the recent past. For instance, in 2016 the government has only spent 71 percent of what it had been budgeted on education and 79 percent of the amount that had been allocated for health. Sri Lanka can be proud of the free health and education provided to its citizens,. This policy has maintained the literacy and health standards at a reasonably high level. However, in recent years the investments in these sectors have declined and standards have declined.

 In the words of the UN independent expert, “These efforts of public private partnerships should not replace the Government’s primary obligation of ensuring the economic, social and cultural rights equally among everyone and its obligation in allocating maximum available resources.”As such the government cannot undermine the provision of these services to the citizen in the framework of ensuring the ESCR and this must be taken in to account in preparation of the budget estimates of for 2019.   

It is noteworthy that these so called austerity measures were not successful in many countries that obtained the same prescription from the international financial agencies and were harshly criticized by the economists such as Joseph Stiglitz, Paul Krugman and Mark Blyth. According to their argument raising taxes and cutting public expenditure too aggressively can potentially lead to a recession and can result worse outcomes during a period of economic contraction. Even if total debt is reduced, the debt to GDP ratio can increase because the gross domestic product (GDP) can shrink in tandem.  As Krugman noted in his column titled “The Austerity delusion”, the more austere the countries are, the lower the rates of growth. In the cases of Greece, Spain, Argentina and Portugal, the austerity measures have devastated the economies. The troika (the European commission, the European Bank and IMF) tyranny forced austerity measures on Greece and although it was followed by the biggest bailout in the world’s economic history, it only made the situation worse. As such, the failure of these austerity measures both in the social sphere but also in economic sphere has been confirmed. 

Besides the danger of shrinking the economy through austerity measures, there are severe issues emerging that are related to micro-credit and predatory lending. Current practices have ignored the true objectives behind micro-finance and this was brought to the attention of the independent expert and been discussed separately in his report. Perhaps the so called austerity measures might also have incentivize the vulnerability of the victims of predatory lending since they had no other option to finance their basic needs. The upcoming budget should also focus on providing necessary concessions to the families who are trapped by debt and also to support families of the people who lost their lives through debt-induced suicides.

Given the context of both the country and the citizens, the following recommendations are presented for consideration during the preparation of upcoming budget. This is presented from the citizen’s perspective.

Recommendations

The government should consider a right-based approach in preparation of the national budget 2019, concentrating on optimum resource allocation for ensuring the progressive realization of ESCR.

The government must allocate more resources to improve agriculture and fisheries in Sri Lanka as they are the livelihoods of the most of citizens belonging to the lower socio-economic rung of the society. Nearly 26 percent of the labour force belongs to agricultural sector and most of them counted as the poor.

The social infrastructure namely education, health and social security networks should be prioritized for resource allocation and the quality of these services together with their outreach must be upgraded. Regular monitoring system should be initiated to prevent the underutilization and squandering of public funds in these sectors.

Take into account the recommendations of the UN independent expert. He noted that there are three complementary options that merit consideration by the government as alternative policy reforms to recover from the debt trap without reducing expenditure on social and economic services. First, boosting domestic demand through various channels, including progressive tax reforms, expanding social benefits and increasing of minimum wages, among other measures; the resulting improvement in GDP growth would increase fiscal revenues. Second, opening the discussion on whether the military budget reflects   the fundamental changes the country has undergone in the last years, in particular in the fields of peace and economic development. Third: renegotiate the debt with creditors in order to expand the fiscal space to boost the domestic demand and generate revenues to ensure that nobody is left behind. Fiscal, monetary, economic and social policies need to be aligned and consistent.

A strict regulatory framework should be enacted to protect vulnerable communities from predatory lenders of microfinance.

Ensure that the proposed interest rate cap is applicable to all the micro-credit providers including those in the informal sector. 

Appropriate compensation packages must be developed to assist the victims of these debt traps. 

This compelling problems created through this flawed micro-credit system must be taken in to account in the upcoming budget.

*The writer is a researcher at Law and Society Trust, Colombo

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Latest comments

  • 1
    0

    Emesha Piumini Perera’s noble aim is visible. We, layLankans, will be reluctant to approve the ever-increasing expenditure on bullet proof limousines, more arms to Uniformed Services, junkets like an entourage all the way to find out how Duterte controls drug-addicts and so on.
    Emesha Piumini Perera: There is the “Peoples’ Perspective For National Budget 2019”.

    • 1
      0

      Can you Defend the Defense budget provision?

  • 1
    0

    Emesha Piumini Perera,

    Once we are a debtor, we have to listen to the creditor. If not, SL cannot go back asking for more as they will attack our credit worthiness, although it is already bad. Fiscal Consolidation? So far haven’t seen anything other than some new taxes.

    Why the UN cannot control IMF on their austerity terms instead of going behind the debtors who have no choice?

    At SL’s current poor development status and inability, fastest way to earn more is by attracting foreign investments. Unfortunately corruption, political uncertainty and intermittent religious tensions plus those new taxes don’t attract foreigner to invest here.

  • 2
    0

    Mangala Samaraweera is used to get MCC loans to screw up Sri Lanka. This time also within the last few weeks he got a $ 1.5 billion loan from MCC but via IMF. So, he will give lot of Tax breaks that he did not want to afford with poor sri lankans. They gave humongous tax cuts to used car importers. Remember the beginning of the yahapalanaya and then finance minister Penthouse Ravi. His Gam peraliya is another special treatment for his Matara to fool the voters. This budget will be one with lot of free goodies voters. Their life will be happier untl the election.

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