In presenting the Budget without a tea break, Finance Minister Ravi Karunanayake said, “We have a dream to be a developed nation. We will ensure delivery of targets and goals set focusing on short, medium and long-term strategies to facilitate transition towards an upper middle-income economy. The medium-term strategies proposed consist of (a) Enhancing income levels, (b) Development of rural economies, (c) Generating of one million employment opportunities.”
To me, these are not strategies but a few items in the government’s “wish list”. In the wish list we find among others - a proposal for signing free trade agreements with Japan, the USA, South Korea, allocating Rs.1.5 million for each Grama Niladhari Division (14,022 such villages) for rural economic development and allocating some Rs.60 billion to upgrade 5,800 primary and secondary schools and many more.
Two weeks before, on November 5, the Prime Minister delivered a policy statement to the same august body which enumerated the platform for Budget 2016. It was reported that the government will pursue a social market economy. However, only very few people remember that President Mahinda Rajapaksa government also came to power in 2005 emphasizing the same old “socially-oriented market economy system” to uplift the economic welfare of the people.
You will also recall the slogan of the 1994 PA government of Madam Chandrika Kumaratunga - Open economy with human face. So this is nothing new. Does it mean the government will continue to pump in money for maintaining subsidies, salary increases to public and private sector employees without linking it to productivity and performance? Rs.25, 000 per hectare to paddy farmers instead of the fertiliser subsidy, cash vouchers to children instead of school uniforms are some features of this year’s Budget proposal.
Foreign reserves to go down
Raising spending will give a boost to the economy, repeating the standard Keynesian doctrine. If state spending is financed purely by taxes, growth will be neutral, as somebody’s money in the private sector will be taken and given to the state sector. If the spending is financed by excess liquidity, or actual printed money, then we could expect foreign reserves to go down.
When former President Mahinda Rajapaksa handed over the government on January 9, 2015, the foreign reserves stood at US $ 8.2 billion, which is equivalent to 5.1 months of imports. One of the criticisms against him was the then government resorting to heavy borrowings, especially from China. Contrary to popular belief, the Central Bank annual report presented this April revealed that the total external debt as a percent of gross domestic product (GDP) was at 57.4 percent as at December 2014, against 54.9 percent of the GDP when he took over the government in 2005.
During the year 2014, the total imports were US $ 19 billion and exports were US $ 11 billion. Although the trade deficit of US $ 8 billion was recorded by end-December 2014, that was more than off-set by remittances from migrant workers and foreign exchange from tourism totalling US $ 9.4 billion. It is true that debt servicing is on the high side totalling US $ 3.4 billion but end of the day, it was a current account surplus as at December 2014.
Further, the government budget deficit was curtailed to 6 percent of the GDP and that was the lowest since 1978; when he took over in 2005 it was 7.5 percent of the GDP. Out of 11 billion exports, textile and garments and tea and rubber contributed 7.2 billion, which is 65 percent. When we take into account the tourism and migrant remittances, it was 86 percent of the total imports.
Female worker participation
The writer argues that it is mostly the female workers who really contribute to the revenue and as can be seen from the above, it was more than 85 percent of the government import expenditure. These poor people of our country, namely, the garment factory workers, migrant Sri Lankans, tea and rubber pluckers and tappers including some 500,000 small holder families earn 86 percent of the foreign exchange requirements for imports.
As stated in the Budget proposal, the fertiliser subsidy was removed for tea, rubber, etc. Further, the guaranteed minimum price of Rs.80 for tea smallholders and Rs.350 per kilo for rubber was withdrawn with immediate effect. It is a pity that the government Budget has not focussed enough on these real producers. In fact, under plantation economy, not a single word was there on tea smallholders.
The election promise of adding Rs.10,000 to the public servants’ basic salary, which enables them to get enhanced gratuity payment, is broken. Middle-income families were expecting some concessions to buy small vehicles, but the vehicle taxes have been substantially increased, thus depriving them from buying a small vehicle at an affordable price.
In addition, the Finance Minister has proposed to impose a fine of Rs.10, 000 in case of a road accident. The fact that the reduction of essential food items would cost the government only Rs.30 billion and the Nation Building Tax (NBT) rate increase (revenue to the government) costing the people more than Rs.900 billion shows that the cost of living will go up significantly.
Land ownership to foreigners
The foreigners can now own leasehold rights to the land without paying any taxes. The previous transfer taxes have been taken off from this Budget. One can argue that the first Budget presented by the ‘national government’ is a foreigner–friendly Budget, thus neglecting the national economy and social market economic policy framework. All these will translate into some unrest among the masses.
In some countries, governments are imposing ceilings on the amount of farmland foreigners may acquire. Argentina and Brazil have recently moved in this direction. The intent was to set limits on the amount of agricultural land foreign investors can own as a way to contain growing resentment about “foreignization” and loss of sovereignty.
In Australia, the issue of foreign investors getting control over farmland has become a hotly debated issue in the last few years, with polls showing that four out of five Australians are against it. In 2012, the government announced that – to increase transparency and following the examples of the governments of Queensland, the US and Argentina – it would create a register of foreign owners of Australian farmland based on a national consultation.
Sri Lanka is a small country. There is a need for optimal utilisation of land resources. The country can no longer afford to neglect land, the most important natural resource, so as to ensure sustainability and avoid adverse land use conflicts. There is a need for preservation of the country’s natural, cultural and historic heritage areas. In every case, there is a need for optimal utilisation of land resources.
UNP Budget and not from national government
Consequent to the general election, a ‘national’ government was formed between the United National Party (UNP) and Sri Lanka Freedom Party (SLFP) on September 2, 2015. Under the 19th Amendment, the party which obtains the highest number of seats in parliament together with the other recognised parties in parliament shall form the national government, and only then the Cabinet of Ministers could be increased beyond 30.
However, the SLFP is not a recognised political party in parliament and it is, if at all, the United People’s Freedom Alliance (UPFA) that could join the government. Further, there was no mandate given by the people at the general election to the UPFA/SLFP to form a national government with the UNP, which is a rival political party. Therefore, this unethical move to form a national government and thereby increasing the Cabinet of Ministers beyond the stipulated 30 is against the letter and spirit of the Constitution, in particular the Article 3 and Clause 46 of the 19th Amendment.
Unlike the Indian or the U.K. Constitutions (unwritten), our Constitution vests sovereignty in the people. “…The members of Parliament hold a mandate and are agents of the People”. These are the extracts of the judgement delivered in 1987 on the 13th Amendment to the Constitution by Justice Wanasundera. Therefore, this act could be construed as “going against the will of the people” and the mandate given by the voters at the elections. It was reported in newspapers that one lawyer has filled a fundamental right (FR) application in the Supreme Court challenging the national government under Article 153 pointing out an infringement of his fundamental right.
According to the Finance Minister, the government has a responsibility to create a strong base for future economic and social development. As stated in the Budget speech, the government is committed to follow more market-oriented policies. The Budget deficit of Rs.740 billion will be entirely financed through borrowings. One can argue that the government Budget presented by Ravi Karunanayake reflects mainly the neo-liberal policies of the UNP and not necessarily the policy of the SLFP, the other party in the national government.
In the past, the SLFP-led governments used to give much prominence to uplift the agriculture economy, which is totally neglected in this Budget. The continuation of the UNP/SLFP unity government will be at stake as there would be mass protests from grass root level demanding the SLFP ministers to cross over. However, there is a move to take a few SLFP members who have not yet joined the government as a strategy to counter such public opinion against the government. Whether President Maithripala Sirisena and Prime Minister Ranil Wickremasinghe would be capable of withstanding the pressure and hold on to the Opposition demand is yet to be seen.
In a recent newspaper cartoon, an English teacher is asking her students in the class, “One day Sri Lanka will become a highly developed country. Which tense is this?” A student answered, “Future impossible tense.”
(Jayampathy Molligoda is a Fellow member of the Institute of Chartered Accountants of Sri Lanka and holds a Master of Business Administration (MBA) from the University of Sri Jayewardenepura. He is currently the Director/CEO of a leading Regional Plantation Company in Sri Lanka and can be contacted through firstname.lastname@example.org)