After reducing inflation to a single digit, govt confident in ‘budget of concessions’

Q There is a general criticism that the government announced a relief package in the budget targeting  a presidential election. How do you respond   to such criticism?

There is an element of truth in the remarks that this is a budget of concessions.  It is not something new in this budget only. Soon after been elected to the presidency for the first time in 2005,  President, Mahinda Rajapaksa, presented a fresh budget for 2006, annulling the budget that had been passed by Parliament at the time for that financial year. He outlined benefits in it as well.    It is in that budget he announced the Rs. 350 fertiliser subsidy for the first time.  Since then, he has been giving concessions.  The President ensured some form of relief for public servants in all  his budgets barring one. He has been concerned about Samurdhi or Divi Neguma beneficiaries in every budget.  A concession announced in one budget becomes irrelevant in    the next budget. In this budget, there is a host of concessions. The government was in a position to give more benefits to the people today.  All the allowances announced in previous budgets for public servants have been added to  their basic salaries this time. Actually, it should have been done [earlier]. Otherwise, it will affect them when getting retirement benefits. We have done it in the past as well.  Earlier, we were blamed for giving allowances instead of adding them to basic salaries. Now, we are being criticised for increasing the basic salaries.  Once the basic salaries are increased, other payments such as overtime payments would increase proportionately.  

This is a continuous process. We have to give concessions gradually. If we plant a mango seed, we have to wait till it germinates and grows to be a fruit-bearing tree. Once it is a grown up tree, we can harvest fruits. During the process, we have to tend to the plant. In this country, we had to establish peace first.  So, we engaged in battle and we also launched humanitarian operations. The army did not have even enough boots and other logistical requirements; we did not have enough money [to run] the country and we sometimes ran short of foreign exchange to make payments for fuel imports. When a fuel shipment reached our shores, we had to withhold  payments for other foreign trade transactions and reserved the limited available foreign exchange to  pay for imported fuel.  

Today, the lending agencies are eager to approve loans for Sri Lanka. They, in fact, come after us.  At that time, we borrowed from commercial banks.  Then, there were protest marches in front of the branch of that bank demanding not to give loans to the government. These elements even slandered the banking authorities for approving loans for Sri Lanka. Yet, we borrowed. We have even settled  loans. Our state banks can raise loans in the international lending market without sovereign bonds.  

We provide continuous supply of electricity today to all consumers of electricity .   There are no power shortages.  We opted for the best mode to generate electricity. In addition to hydro-power, coal is the cheapest way of generating electricity.

Q In the budget, you have added all allowances to basic salaries of public servants. Then, there is an increase of the Cost of Living Allowance by Rs.2500. It means there is no substantial increase of public servants’ monthly incomes. What is your response?

These are the salary benefits announced in the budget. Normally, the proposed increases are effective from January, of the following year. But, an allowance of Rs.3000 was announced effective from November itself. It means public servants will get more than Rs.3000 from January onwards. Retired public servants will get increased payments due to the rectification of their pension anomalies. But, the rectified pensions will be paid after a few months. Until then, they get Rs.2500. A professional told me he would get a payment of Rs.15, 000 as an increase. Besides, a host of employees recruited on a casual basis, will be made permanent. All the professional categories will get increased payments under special arrangements. Teachers and principals will benefit immensely because introduction of new service minutes. In addition to the overall pay hike announced, there are separate benefit schemes for different categories of public servants.

QHow do you find the revenue to implement these concessions announced in the budget?

This is not only a relief budget but also a development–oriented budget. We   have proposed to invest in the Divi Neguma programme. There are proposals to develop various industries.  The concessions announced for rubber cultivators, dairy farmers and paddy farmers are all investments aimed at boosting economic growth. We announced Rs. 60 for a litre of milk to boost the dairy industry.  It will save foreign exchange, otherwise used to import milk. For the education sector, there is a huge investment. At least, 12 per cent [of the budget] is for education. It covers allowances for pre-school teachers and also research grants for university academics.  

All these allocations will be beneficial to the country in the long run. We have also announced some strategic actions to improve the financial positions of some government institutions. A percentage of dues to the Treasury from some of these institutions have been converted to capital grants. It does not involve an additional cost for the government. We have announced a special interest rate for the deposits of senior citizens.

QWhat measures do you propose to bring down the cost of living?

It will drop automatically with the implementation of these plans. For Samurdhi families, we have increased the allowance to Rs.3000 by Rs.1500.  It is sufficient to pay a number of bills. A family normally uses less than 30 units of water when the water bill amounts only to Rs.105 for a month.    Also, the electric bill can also be covered with this increase of the Samurdhi allowance. If a family uses 60 units, the bill will only be Rs.280.60.

From the Rs.3000 allowance for public servants, a lot of such payments can be covered.  We have announced a guaranteed price of Rs. 60 for a litre of milk. It is a ten rupee increase.  It means a dairy farmer will get an additional income of Rs.1500 a month.We have contained inflation; we have reduced inflation to a single digit rate. Normally, along with the economic growth, the rate of inflation increases, but, we have contained it.

We have stopped the privatisation of state enterprises.  The World Bank and the International Monetary Fund (IMF) do not advocate privatisation today. They only talk about the improvement in their management, be they in the state sector or the private sector. When we stood against privatisation at that time, nobody took such a stand. Today, both the World Bank and the IMF do not ask for privatisation as an economic strategy.

QYet, in [marketing] agricultural produce, middlemen seem to be making huge profits leading to increased prices in the end. What is the mechanism you have in mind to address this issue?

There cannot be a huge gap between guaranteed prices for the producer and the consumer of a particular product. At the same time, a reasonable price difference is targeted because there is a cost involved in transport, wastage, packaging etc.  Yet, some traders give a minimum price for producers and sell their products at exorbitant rates. This happens in a monopolised trade.  In the retail trade, this happens when the small and medium scale trader population is small. In this situation, supermarkets can monopolise the trade eventually leading to price hikes. We have implemented certain mechanism to counter this.  However, there are traders creeping through loopholes in the system. Therefore, there should be a level playing field for small and medium scale businessmen in the retail trade. I personally believe that there should be restrictions on the expansion of supermarket chains. We should approve super markets with some control.

‘I challenge the government to implement this budget for one year before an election’

QOne of the main criticisms the Opposition has hurled at the Budget 2015 is that represents election propaganda. On what basis do you say this?

Using the word budget to describe Mahinda Rajapaksa’s speech in Parliament on Friday is really an insult to the word. If it is a budget you are looking at a commentary of the past, a political philosophy behind it, the socio-political and the socio-economic direction of it and then you will be looking at numbers. So, what was presented in the Parliament last Friday would hardly be called a budget. Firstly, there were lots of claims, ideas and suggestions that were reiterated without corresponding numbers. This was more like a wish list but how much was going to be spent against each wish or where is the money going to come from was not mentioned. Money has to come from either new borrowings, loans or cuts in other areas; but this was not clearly spelled out. So, the word budget is a misapplication of the word; it is more of an election manifesto or a promise. It is good till you get to the election. After that promises are what are normally being broken by the regime. I would say this so-called budget is valid only till the elections Now to give you an idea of why I am saying it is not possible to implement these proposals after the elections, I will give you a few examples.

Firstly, from this budget, they are going to introduce three new types of pensions for three sectors. But they have not even been able to properly establish a pension scheme for farmers which was something that was promised much earlier. The fundamental problem with a lot of these promises is that there is no provision to implement them. So you cannot see how these expenditures are going to be met and therefore you can come to the fair conclusion that these promises are not going to be met.

Another example comes from the higher education sector. They have said that they are going to increase the university intake to 100,000 students by 2020 from the current 25,000. This is four times as much as the current intake. If they were serious about that statement, shouldn’t they have made provisions for at least opening one new university this year? In the budget, they should put a concrete plan down with a concrete investment. But here, there is no plan, no investment and numbers don’t tally. The expiry date for this budget is the election.

Here is yet another example of how impractical the promises in the wish list are. Now the president, as the finance minister said that he was going to make available a medical check for everyone in this country. For this, he has given an allocation of 500 million rupees. This is so unrealistic for a number of reasons. For one thing, when people go to a state hospital, they don’t get a bed. When patients try to get their tests done, they have to have it done outside. Most of the medicines are not available and have to be purchased at private pharmacies. This is the reality of our current government hospitals. Now, the president tried to create the impression that we had a developed health system when anyone could get a medical check done at the expense of the government. But if you divide the allocation of 500 million rupees by the population of the country, it is 25 rupees per head that is allocated for a health check. This illustrates the absurdity of the budget proposals.

The main aim of the budget was to create a ‘feel good’ factor before the election. Now we are not opposed to people getting benefits, but we want them to get the benefit and not just the promise. The promises should be backed by realists financial allocations to be implemented.

QLet’s talk about the allocations for some of the major ministries. Could you shed light on some these major allocations and how they will be used?

Basically, the largest allocations have gone to the ministries under the President - Ministry of Defence and Urban development, Ministry of Law and Order, Ministry of Highways, Ports and Shipping, Ministry of Finance and Planning. These allocations amount to about 40 per cent of the total expenditure. About another 6 per cent has gone to the Ministry of Economic Development which is under Basil Rajapaksa. So, nearly half of the total allocations have gone to the ministries under the directive of the Rajapaksa family. I will make the point that when such large allocations are made for these ministries, there should be different ministers for each one of them. You cannot expect the Executive (the President) to physically be able to or have the time to delve into all the different areas of these ministries. One of the lessons that has been learned is that the executive president should not be holding the portfolio of the finance minister. Personally, I believe that he should not be holding any other portfolios. An additional point is, with rampant corruption, those who are responsible for the budget and the spending, are also responsible for the corruption in the country. If the President is holding the portfolio as the finance minister and is responsible for such a large amount of expenditure, then he is responsible for the corruption as well.

QTwo of the most important sectors are Health and Education. What are your views about the budgetary allocation for these sectors?  

When you look at the Health and Education sectors, from 2014 to 2015 there have been some marginal increases. However, it is only the rupee value and not as a percentage of the GDP or a percentage of total expenditure, which gives a true picture. The budgetary allocation for Education and Higher Education as a percentage of total expenditure is about 5 per cent. As a percentage of GDP it is about 1.5 per cent. For the Health Sector, the percentage of total expenditure is about 7 per cent.  This shows that the government is concentrating more on developing the physical infrastructure rather than the social infrastructure. The budgetary framework of the country has not changed.

What the government is spending on a student in the country per month is about 1000 rupees. You can imagine how low that is: it is about a day’s earning of an average employee. This gives a sense of how low the investment in the social infrastructure is. This shows that the government’s policy direction is still concentrated on the physical infrastructure and not on developing social infrastructure. If I give you another comparison to put things into perspective. The allocations for Education and Higher Education are 47 billion and 41 billion rupees respectively. The total loss incurred by Sri Lankan airlines in 2013 is nearly 30 billion rupees. The losses for 2014 are going to be the same or more.  So this means that one company is losing nearly 40-45 percent of our total expenditure on education and higher education. We can see what a disservice we are doing to the social sector in the country.

QCould you comment on the funding of the budget?

There is no credibility in the numbers. Now, they have reduced VAT to 11 per cent but they have not given the corresponding loss of revenue and the impact of that loss. So how are we going to close this gap? What is actually happening is our debt funding, both foreign and local, is increasing. Now, when you look at the per capita debt it is nearly 449,000 rupees per person. This is almost equal to the per capita GDP which is 416,000 rupees.

I want to add that the government is understating its debt. Government’s obligations to the commercial banks are not reflected on the budget. The government is building a large off balance sheet risk. Even Parliament doesn’t know what the government’s undertakings are on non-commercial investments such as roads which are not bringing in revenue.

Another point is that the government needs to start paying back some of the loans by 2015. That debt is also going to be repaid with more debt. In other words, we are taking loans to pay off loans.

Q Do you have any other comments to make on the 2015 budget proposals?

They have given a few freebies to the people who are politically important to the government like  policemen and the Grama Niladhari officers. Why are they selectively giving benefits only to those employees? What about the employees in the private sector? They got no benefit or incentive to increase their efficiency or production. Finally, I would like to reiterate that this is not a budget but a wish list. What is going to happen is either the public will be disappointed with broken promises or they will rob one to pay another. That is the only way this budget can be implemented. So my challenge to the government is to implement this in January 2015 and then go for an election any day after 31 December, 2015 because I am certain that the government cannot implement this budget.