Consumption and Urban Bias in the Budget

14 November 2012 06:30 pm - 0     - {{hitsCtrl.values.hits}}

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By Muttukrishna Sarvananthan
The National Budget is the financial strategy (expenditure and income) of a government towards achieving specific economic and social development goals during the forthcoming financial year and beyond. According to the President cum Minister of Finance and Planning, the current budget proposals have been formulated targeting three important objectives in the next three years (2013-2015) which are (a) transforming the country into a poverty-free upper middle income economy, (b) strengthening food, water and environment security, and (c) putting the country on a path to realise quality education, skills development, and research and technology revolution. However, there is no coherent and convincing set of policies propounded by the Government to achieve these proclaimed objectives.  

In a nutshell, the National Budget for 2013 presented by the Minister of Finance on November 8, 2012 promotes consumption and pampers the urbanites as opposed to promoting and rewarding production and productivity in the country. The critical elements of the budget are the pay rises to public servants and pensioners, and subsidies to farmers and other transfer payments which stifle empowerment of individuals, entrepreneurship, and self-reliance. Amidst decelerating economic growth and accelerating fiscal and monetary vulnerabilities such benevolence of the Government is baffling.
Just a couple of weeks ago prior to the presentation of the budget Senior Minister and President’s brother Basil Rajapaksa publicly said that the public servants should not expect a pay rise next year. However, the recent confrontation between the Executive and the Judiciary and the subsequent impeachment motion against the Chief Justice seems to have made the Government to pacify the public sector employees through measures of fiscal opulence. Such short-fused and short-sighted management of the economy has been the hallmark of the Rajapaksa regime in the past seven years.  
The Finance Minister proposes to develop a “value creating economy” by literally providing hand-outs to farmers and public servants who produce meagre value (both in terms of quantity and quality) at an astronomical cost to the entire population. The Government’s avowed goal is to attain an “upper middle-income economy that is free of poverty” by the end of 2015. If indeed that is the overall policy goal of this Government, what is the rationale and rush for the establishment of the Divi Neguma Development Department (which is touted as a poverty alleviation department) because public institutions are immortal?

The Government also envisages developing a “sports economy” in the country in order to satisfy the pastimes of the sporty off-springs of the first family through exemption of the importation of “specially designed racing vehicles” from the Special Excise Provision Act and other such extravaganzas (probably another poverty alleviation programme)? This is yet another example of the consumption and urban bias in the budget. There is nothing wrong in the development of the sports economy as long as it complies with the rules of the games and the rule of law in the country, which appear to be anathema to the ruling family.    



Over half the national budget will be spent on public debt repayments as the allocation for the Ministry of Finance and Planning reveals. The ministries under the purview of the three Rajapaksa brothers appropriated 72% of the national budget earmarked for 2013; Ministry of Defence and Urban Development 290 billion rupees, Ministry of Economic Development 89 billion rupees, Ministry of Finance and Planning 1,319 billion rupees (including public debt repayments), and Ministry of Ports and Highways 132 billion rupees out of 2,532 billion rupees of the total public expenditures anticipated.

All the re-nationalised state-owned enterprises such as the Lanka Hospitals, Hilton Hotel, Lak Sathosa, Litro Gas, and Sri Lankan Airlines during the past five-years have been incurring huge losses ever since such re-nationalisation took place. The foregoing the state-owned enterprises add to the perpetually loss-making erstwhile state-owned commercial enterprises such as the Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), Sri Lanka Railways, and Sri Lanka Transport Board (SLTB). On top of the foregoing, the newly-established state-owned commercial enterprise - the Mihin Air - is yet another drain on the public purse. The “Act to provide for the vesting in the Government-identified underperforming enterprises and under-utilised assets” of 2011 in fact should be applied to the state-owned enterprises in the first place. The combined losses incurred by these state-owned commercial enterprises could exceed 250 billion rupees (>$2billion) annually. Unfortunately, the National Budget 2013 justifies these losses by claiming that “…the evaluation of state enterprises purely from the point of view of commercial profit is not justifiable considering their contribution to economic and social welfare, by expanding the bank branch network all island, by providing electricity and water to all etc.”

" Over half the national budget will be spent on public debt repayments as the allocation for the Ministry of Finance and Planning reveals. The ministries under the purview of the three Rajapaksa brothers appropriated 72% of the national budget earmarked for 2013 "

There are a number of inflated figures tossed by the Minister of Finance during the course of his budget speech which mislead the Legislature and the citizenry: according to the Appropriation Bill the Ministry of Health has been allocated 89 billion rupees for the year 2013 whereas the President claimed an allocation of 125 billion rupees; similarly, while according to the Appropriation Bill only 66 billion rupees has been allocated for education and higher education in 2013 the President claimed an allocation of 177.6 billion rupees; moreover the President’s claim that the market capitalisation of listed companies in the Colombo Stock Exchange “increased to 40% of the GDP ” is a complete lie.

In his concluding remarks the President proclaimed that “A change in the prevailing Provincial Council system is necessary to make devolution more  meaningful to our people. "Devolution should not be a political reform that will lead us to separation but instead it should be one that unifies all of us………The elimination of provincial disparities using national standards is the main weapon through which national reconciliation can be promoted.” Although the President failed to disclose what those national standards are, one of the lowest ministerial allocations of 532 million rupees to the Ministry of National Languages and Social Integration tells-it-all.  

Muttukrishna Sarvananthan is a Development Economist by profession and the Principal Researcher of the Point Pedro Institute of Development, Point Pedro, Northern Province. He can be contacted at sarvi@pointpedro.org

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