Editorial
A budget oozing overoptimism
Thursday 19th November 2020
Prime Minister Mahinda Rajapaksa, who is also the Minister of Finance, has presented Budget 2021, which looks a good story with a happy ending. It has offered something to everyone, and is bound to go down well with those who are to benefit from tax exemptions and other such relief. All 75 budgets presented in the Sri Lankan Parliament have been tales told by Finance Ministers. Most budget proposals, especially the progressive ones, have remained unimplemented, all these years, for want of funds mostly due to failure on the part of successive governments to meet their revenue targets and curtail wasteful expenditure.
As for Budget 2021, proposals to abolish PAYE and the withholding tax and increase the personal income tax threshold will benefit a large number of people. But it will be swings and roundabouts for them if indirect taxes increase, as feared in some quarters. Steps taken to develop local agriculture and industries through tax exemptions, etc., and allocate additional funds for developing public health and education sectors are welcome. The proposed expansion of the university system, however, is a task that the government has to carry out cautiously, taking into consideration the need to ensure their standards. Even the existing universities are experiencing a severe dearth of qualified teachers and facilities. There are some more progressive budget proposals, and they are welcome. One can only hope that there will be enough funds for their implementation.
The devil is in the detail, though. When one reads Budget 2021 carefully, one sees that several crucial issues have not been addressed in a satisfactory manner. The government has made numerous expenditure commitments as regards development and social welfare, but how does it propose to meet the revenue shortfall resulting mainly from tax concessions and a significant decrease in foreign earnings? Borrowings, both foreign and domestic, will not be easy.
The government has undertaken to reduce the budget deficit to 4% of GDP by 2025. This is a very ambitious target. One may recall that it was first set by a UNP-led government, in 2002. The then Prime Minister Ranil Wickremesinghe declared, in Parliament, that the budget deficit would be brought down to 4% of GDP by 2008. (His government fell in 2004!) Later on, the Mahinda Rajapaksa government undertook to achieve that target. Now, another Rajapaksa government has repeated the same promise. It seems to believe that the economy will expand at such as rate that its revenue will increase automatically. It is being overoptimistic.
The success of any programme to reduce the budget deficit to the expected level hinges on the government’s ability to increase revenue to at least 10.8% of GDP, in 2021, as economists argue. This goal will be unattainable without new tax proposals. A shortfall in revenue collection may lead to a much higher budget deficit than 8.8% of GDP. Such a situation can be averted only by curtailing public investment, inter alia, to match lower revenue. This means most ministries will not receive allocated funds for the implementation of envisaged projects in such an eventuality.
It will also be an uphill task for the government to fulfil its expenditure commitments while reducing public debt from 90% of GDP to 70% of GDP and ‘minimizing the risk in debt composition caused by sourcing of foreign loans’. How the government is planning to achieve this target is not clear.
As for the envisaged budget deficit, 8.3% of GDP is expected to be financed through domestic borrowings. Enough domestic financial resources in terms of savings will not be available for the government to borrow such a large amount domestically, and the Central Bank may have to print money as it has done this year in view of the pandemic. If money printing continues, it will result in serious problems such as higher inflation and price instability.
The government has expressed serious concern about slow progress in foreign-funded projects and low returns therefrom. Pointing out that the number of programmes implemented annually with foreign financing has increased exponentially, the PM has said in Budget 2021: “However, a significant number of projects worth more than USD 6.000 million show slow progress. The main deficiencies identified in monitoring of project planning, feasibility, implementation are deviation of the projects from national requirements, and frequent cost and time escalations resulting in low returns … Due to these expenditures, productive investments which could have been implemented at a lower cost are not adequately financed …” Has the government forgotten that most of these problems are also due to rampant corruption involving politicians and bureaucrats. How does it propose to tackle corruption, which will put paid to its efforts to keep the costs of development projects low and increase returns?
Meanwhile, Budget 2021 does not reveal how the Treasury is going to meet USD 6 billion worth of foreign currency debt obligations falling due during 2021 while having only USD 5.5 billion official reserves with the Central Bank. If the government fails to raise at least USD 6 billion external borrowings, it will be forced to default on its external debt obligations––absit omen!––and this has never happened in Sri Lanka. If it were to happen, Sri Lanka would have a hard landing currency crisis similar to ones faced by Greece, Argentina and Zimbabwe, in the past.
Overall, we view Budget 2021 as a government attempt to achieve a set of highly ambitious goals within an overoptimistic macroeconomic framework.
Saturday 8th June, 2024
It was with shock and dismay that we received the news about death threats to COPF (Committee on Public Finance) Chairman Dr. Harsha de Silva over the ongoing parliamentary probe into the on-arrival visa scam. Dr. de Silva yesterday told Speaker Mahinda Yapa Abeywardena, in Parliament, that he was facing death threats and intimidation, and it was incumbent upon Parliament to ensure his safety. He stopped short of naming names, but revealed that some ruling party MPs were among those who had ganged up against him. The Speaker only said there had been no complaint, and he would look into the matter.
The SLPP-UNP government has been doing everything in its power to have all parliamentary committees under its thumb. The COPE (Committee on Public Enterprises), which once helped restore public faith in the legislature by exposing state sector corruption, has now become a mere appendage of the incumbent regime, thanks to the appointment of SLPP MP Rohitha Abeygunawardena as its Chairman. The SLPP-UNP combine also tried to oust COPF Chairman Dr. de Silva, but in vain. However, it knows more than one way to shoe a horse.
The COPF, under Dr. de Silva’s chairmanship, has been a thorn in the side of the government, which is struggling to cover up numerous corrupt deals. Dr. de Silva yesterday told Parliament that he found it extremely difficult to function as the COPF head due to severe resource constraints his committee was facing; he himself had to pay the salaries of some of his staff members besides burning the midnight oil.
The sheer workload he had to cope with as the COPF chief had taken its toll on his health, he said, informing the Speaker that he was at the end of his tether, and at times thought of resigning from the COPF. This is exactly what the government wants him to do; resource squeezes and threats are aimed at making him quit.
On 26 May, Dr. de Silva revealed, in an ‘X’ post, that the COPF had uncovered some vital information about the visa scam and it would reveal everything after its final meeting on the issue; the COPF was committed to exposing the truth behind the controversial tender, he added. In an editorial comment on 27 May, we warned him.
While thanking him for his bold stand, we pointed out that by making such a statement, he had thrown caution to the wind, and become a marked target, with the government making an all-out effort to delay the COPF investigation lest the truth should come out much to the detriment of its interests in this election year. Unfortunately, what was feared has come about; Dr. de Silva is complaining of death threats and government moves to strangulate the COPF financially to derail its investigations.
Dr. de Silva’s predicament exemplifies the fate that befalls the few good men and women in Parliament. It is hoped that all those who seek an end to the state sector corruption will rally behind Dr. de Silva, and bring pressure to bear on the government to ensure his safety. Let Dr. de Silva be urged to reveal the names of those who have issued threats, veiled or otherwise, to him and are trying to scuttle the COPF probes.
Friday 7th June, 2024
The SLPP-UNP government is going hell for leather to make bad laws as if there were no tomorrow. It is abusing its parliamentary majority, which has been retained with the help of some crossovers, for that purpose. The Opposition, the media and trade unions are up in arms, and understandably so. The incumbent regime is a dead man walking; it is so desperate that it is capable of anything. Hence the need for it to be restrained.
The Electricity (Amendment) Bill (EAB) plunged Parliament into turmoil yesterday, but the government secured its passage. The Supreme Court (SC) determined the entire EAB inconsistent with the Constitution and recommended changes thereto. After unveiling the Bill, sometime ago, Minister of Power and Energy Kanchana Wijesekera hailed it as an excellent piece of legislation aimed at straightening up the power sector to serve the public interest better.
The SC determination left him with egg on his face. He reminded us of the proverbial curate who, while eating a stale egg, assured his host, a Bishop, that parts of it were excellent. Wijesekera’s egg, as it were, made Parliament stink yesterday, but he sought to please his masters by praising it as a silver bullet.
EAB should have been discarded and a new one drafted in consultation with all stakeholders. But the government is apparently driven by an ulterior motive; its aim is not to serve Sri Lanka’s interests but to look after those of some moneybags.
It is not uncommon for Bills to contain some flaws, which are rectified either before or during the committee stage. But there is something terribly wrong with draft Bills that are full of sections inconsistent with the Constitution. The drafters of EAB have demonstrated their sheer ignorance of the supreme law, and that they are not equal to the task of drafting Bills. If they had read the Constitution at least perfunctorily, they would not have drafted such a bad law.
Ignorant and incompetent, they do not deserve to be paid with public funds and must be sent back to law school. They must be summoned before Parliament and questioned on their serious lapses, which have caused public faith in the national legislature to diminish.
Curiously, the MPs who demand that judges, doctors, Central Bankers, and other public officials be summoned before Parliament have taken badly drafted Bills for granted. The power sector trade unions yesterday alleged that EAB was of Indian origin and geared towards furthering the interests of Adani Group at the expense of Sri Lanka.
Most critics of EAB are agreeable in principle to the need for power sector reforms; the Ceylon Electricity Board should be given a radical shake-up, and transformed into a modern organisation capable of providing a better service at a lower cost. They only asked the government to tread cautiously, consulting all stakeholders and taking action to ensure that the country’s interests prevailed over everything else. But the government was in a mighty hurry to steamroller the Bill through Parliament, making the Opposition ask whether it was doing so at the behest of some external forces involved in controversial power generation deals here.
What is passed by the current Parliament can be either amended or abolished by a future parliament in a constitutionally prescribed manner. But that does not mean that a government is free to pass bad laws, making the country enter into long-term agreements with powerful nations and their investors. It looks as if the SLPP-UNP regime did not care two hoots about the consequences of its actions.
Thursday 6th June, 2024
The outcome of India’s parliamentary election (2024) has led to a ‘perspective ambiguity’. Prime Minister Narendra Modi lost no time in declaring victory for the BJP-led NDA alliance, which secured 293 seats in the 543-member Parliament, but he must be a worried man. The BJP is short of 32 seats to form a government under its own steam; it has lost 63 seats or about 20% of its parliamentary strength. It had 303 seats in the previous Parliament, and that number has dropped to 240.
Modi has become the second Indian Prime Minister to win a third term. The first PM to do so was Jawaharlal Nehru. But Nehru won an outright majority in Parliament in 1962; Modi has had to depend on smaller parties in his alliance to retain his hold on power. Modi must be reeling from a sharp drop in his victory margin in his own constituency, Varanasi; it has decreased to 152,000 from 480,000 in 2019 whereas Modi’s bete noire, Rahul Gandhi, won Raebareli by a staggering 390,000 votes.
Modi, who reigned supreme with 303 seats in the previous Parliament, is now dependent on parties such as Nitish Kumar’s JD-U and Chandrababu Naidu’s TDP to form a government. He has had to lead an alliance of strange bedfellows. Both Kumar and Naidu were bitter critics of Modi. Kumar helped form the oppositional alliance, the INDIA bloc, before switching his allegiance to PM Modi. Naidu also closed ranks with the BJP in the run-up to the election. These politicians have been described as extremely ambitious and highly unpredictable, and whether Modi will be able to manage them and consolidate his grip on the NDA alliance remains to be seen. They will demand plum ministerial posts in return for their support. The TDP is said to be eyeing Transport and Health portfolios! That is the name of the game in coalition politics, where it is not uncommon for the tail to wag the dog, so to speak. These two political leaders are however not the only problem Modi will have to contend with. The next five years will feel like an eternity for PM Modi.
Nothing would have been more shocking for the BJP than its defeat in Uttar Pradesh’s Faizabad constituency, where the Ram Mandir has been built. Modi may have thought he would be able to win the Lok Sabha election hands down after the consecration of that temple, which became a centrepiece of the BJP’s election campaign. The BJP lost that seat to the Samajwadi Party! Modi must be disappointed that the Ram Mandir hype failed to trigger a massive wave of support for his party. This particular defeat signifies a massive setback for the BJP’s ethno-religious agenda.
Modi’s divisive election campaign failed to yield the desired result. The BJP’s failure to secure an outright majority could be attributed to a host of factors, some of them being the suppression of the Opposition, the arrogance of power, chronic unemployment, and the rising cost of living. The BJP also did not care to reimage itself in a positive light to attract the youth.
Modi will hereafter see the Congress-led INDIA bloc with 223 seats, in his rearview mirror. The Congress (99 seats) and its allies have eaten into the BJP support base considerably, but they have a long way to go before being able to capture power.
The bumpy ride ahead for the BJP-led coalition government to be formed may improve the INDIA bloc’s chances of bettering their electoral performance and turning the tables on the BJP and its allies in time to come. Modi will have a lot to worry about in his third term.
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