Basil’s Budget

Monday 15th November, 2021

Finance Minister Basil Rajapaksa has spoken, and the people are trying to figure out what he has said, one may say with apologies to Bill Clinton. Ordinary Sri Lankans, at whose expense governments raise revenue by way of indirect taxes, expect various benefits such as salary increases, tax cuts, subsidies, etc., when budgets are presented. So, Budget 2022 may have gladdened the hearts of only government teachers and principals. Rs. 30 bn has been allocated for the revision of their salaries. One can only hope that there will not be a spate of copycat strikes, as it were, by other state workers, demanding better salaries. The Sri Lanka Government Officers’ Trade Union Association has already threatened to launch a strike unless public workers are given a pay hike immediately.

What matters more than anything else at this juncture is how the government proposes to straighten up the battered economy, shore up dwindling foreign reserves, stabilise the rupee, service debt, improve the country’s creditworthiness, and overcome the balance of payment woes while raising funds to bridge the budget deficit.

Debt servicing is one of the biggest problems the country is beset with. Finance Minister Rajapaksa, presenting the Budget, on Friday, did not forget to take a swipe at the yahapalana government, which, he said, had raised debt to the tune of USD 6.9 billion during a 15-month period between April 2018 and July 2019 alone, and the debt the present government had to repay included that amount. Governments borrow heavily, leaving repayment to their successors. The Finance Minister, did not say that the yahapalana government had repaid the loans the previous Rajapaksa government had drawn, and the country’s debt burden could have been lessened significantly if borrowed dollars had not been spent on projects such as the Lotus Tower, the Mattala Airport, the Suriyawewa cricket stadium, the Hambantota port, etc.

Minister Rajapaksa said something sensible about debt repayment. “We cannot solve this problem only by obtaining international loans. Therefore, we must adopt a special programme to encourage exports to earn foreign exchange.” This, no doubt, is the way out. But will the government care to do so? Another way of overcoming the country’s forex woes is to attract foreign direct investment. But foreign investors are wary of parking their money here owing to corruption. Who wants to invest in a country where many palms have to be greased to get anything done? How does the government propose to eliminate corruption and improve the country’s ease-of-doing-business ranking to attract foreign investment?

The need for tax increases and surcharges would not have arisen if the government had not opted for tax cuts to win the last general election. That politically-motivated measure the SLPP adopted after winning the 2019 presidential election was one of the main reasons for the widening of the budget deficit, the other factors being lockdowns, pandemic relief and the cost of vaccination drive. Tax cuts caused a drastic drop in the state tax revenue from 12.6% in 2019 to 9.2% in 2020, according to analysts.

The government decision to curtail expenditure related to the state service and carry out public sector recruitment only to fill vacancies is welcome. Curiously, it was only last month that Leader of the House, Education Minister Dinesh Gunawardena said the government had decided to recruit more graduates to strengthen the public sector by increasing its workforce!

The budget proposal for reviewing the eligibility of Samurdhi beneficiaries is also welcome. Relief programmes in this country are characterised by poor targeting, which has benefited various racketeers, and led to an increase in the economic burden on the ordinary public, who pays indirect taxes. The Finance Minister ought to ensure that his directive is carried out.

Minister Rajapaksa said there were about 300 state-owned enterprises, and the government had invested over Rs. 670 billion therein and spent as much as Rs. 75 billion to maintain them, but most of them did not yield returns. What does the government propose to do with the loss-incurring ones? Is it planning to divest them or run them as Public Private Partnerships? Most of these state institutions in debt could be turned around if properly managed without political interference.

The Finance Minister has proposed that Rs. 8.5 billion, which Perpetual Treasuries Ltd., has earned through the bond scams, be transferred to the state coffers. Similarly, will probes be conducted into the sugar tax racket and other such frauds which have benefited the SLPP financiers, and action taken to confiscate the illegally raised funds?

Meanwhile, the Budget 2022 will not yield the intended results unless the government gets its act together on the health front. It may be recalled that the economy began to recover and the country recorded an economic growth of 8% during the first half of 2021 owing to the successful vaccine rollout. But thanks to the government’s refusal to impose travel restrictions in April to prevent an explosive spread of Covid-19, and resultant lockdowns, the economic growth rate is expected to drop to 5% or even 4% for the current year. The pandemic is spreading fast, and if the country happens to be locked down again, as feared by health experts, the economy will be in a far worse situation.