A lacklustre budget debate

Editorial-November 30, 2013

Given the government’s comfortable parliamentary majority, the passage of the second reading of the 2014 budget on Friday after a lackluster debate surprised nobody. There is no doubt that the Mahinda Rajapaksa government, with Treasury Secretary P.B. Jayasundera responsible for all its budgets since 2005, has retained policy consistency. Massive infrastructure expenditure continues despite unanswered questions on whether the country is getting the best prices for such projects as well as whether some deserve the priority that have been accorded to them. The Economist Intelligence Unit has seen the budget as a ``mix of small-scale concessions to key voters’’ including the rural majority and the bloated public sector. UNP MP Eran Wickremaratne was not wrong when he said in the course of the debate that the government’s solution to unemployment is providing state sector jobs for its supporters and `exporting’ citizen to work abroad.

There is no serious argument that the state sector is over crowded and many of those paid from the public purse are not doing any productive work. In a country with a population of about 20 million, there are 1.4 million government employees according to Wickremaratne’s count. About a third of them are with the police and the security services, he said in his budget speech. There was an expectation that the armed services will be downsized after the end of the war; but that has not happened possibly for good reason. Demobilizing men trained to fight without suitable alternative employment can obviously lead to problems such as those Bangladesh faced after its liberation war. Here in Sri Lanka too we have seen military deserters who have stolen service weapons engaging in criminal activity. There has been a serious effort to deploy servicemen for civilian duties facilitated in part by the Ministries of Defence and Urban Development being brought together. Whether this has resulted in a cost: benefit advantage to the taxpayer has not been demonstrated.

The size of the cabinet and the multiplicity of ministries have resulted in weakened parliamentary control of public expenditure. Quite apart from too little notice being taken to COPE and PAC reports, for the first time in our post-Independence history we saw the government adopting a device of getting a clutch of ministries to have their votes discussed and approved by an all-party standing committee rather than parliament itself as has been hitherto done. Parliament will merely debate the report of this standing committee. Given the number of ministries loaded on the backs of the taxpayer to accommodate UNP defectors and UPFA loyalists, there was insufficient parliamentary time for the budget debate to be concluded in the usual manner. It is a pity that the opposition permitted this to happen without audible protest. Now that the precedent has been set, the chances are that succeeding governments of whatever political complexion will continue to follow the bad example of jumbo cabinets and multiplicity of ministries. CHOGM possibly ate into some parliamentary time this year compelling resort to the standing committee device. But the opposition, as far as we are aware, did not demand or obtain an assurance that this would not be regular practice.

Sri Lanka’s present ranking as a middle income country has shut the door to concessional funding it received in the past for development purposes. This compelled the government to resort to expensive commercial borrowing abroad and this has naturally raised concern in recent years with many critics regarding foreign debt levels particularly as way too high. Servicing and repaying such debt require further borrowing at higher rates of interest. These rollovers, as they are termed, inevitably become progressively more expensive as we have seen. In fact, the question has been raised why our banks pay only a fraction of the interest paid on dollar bonds to local holdings of foreign exchange in resident and non-resident foreign currency accounts (NRFCs and RFCs) in Sri Lankan banks. The answer to that question is fairly obvious. NRFC and RFC account holders are captive lenders whose interest payments are determined at rates fixed through limited competition between local banks. Attractive rates, far higher than those prevailing in overseas markets, must be offered to sell our dollar bonds. This has been done and the various bond issues have been comfortably subscribed. We have thankfully never defaulted on our debt obligations, either local or foreign, and the government’s intention of raising a further USD 1.5 billion overseas was announced in the budget. Ideally export earnings should generate a substantial proportion of our foreign debt service and repayment obligations. This, unfortunately, has not been happening in recent years.

It is doubtful that the opposition collectively, and the UNP in particular, has the gumption to undermine the government even on issues such as the lack of good governance, financial profligacy and its various acts of omission and commission. As Minister Basil Rajapaksa was to say in his speech winding-up the second reading debate on Friday, in 2007 the government risked being toppled on the budget but ``thanks to some UNP MPs’’ (read defectors rewarded with cabinet office), that was not to be. The country is very well aware that President Mahinda Rajapaksa and his brothers, Economic Development Minister Basil Rajapaksa and Defence Secretary Gotabhaya Rajapaksa controls nearly 50 percent of the budget. This has been repeated often enough but not evoked the kind of angry response among ordinary people that the opposition would hope to provoke. The man in the street concerned about making ends meet in the context of the ever rising cost of living does not bother about familial rule and who controls budgeted expenditure. He’s more concerned about the price of dried haalmessas (sprats) and parippu that MP Sudharshini Fernandopulle (Mrs. Jeyaraj) spoke about from the government benches. She appealed for relief from price increases for these essential protein providers for the poor man. The UNP’s Rosy Senanayake pointedly raised the question of increasing the price of sanitary napkins while reducing the duty (why oh why?) on men’s neckties.

While making dhal more expensive was probably to support an import substitution strategy by encouraging people to switch to alternatives like locally grown cowpea, green gram and other pulses, sprats are another matter. Local production would never match demand and the chances are that people will perforce have to switch to another imported product – canned fish. Hiking duty on imported sanitary napkins would also have been intended to give a fillip to local manufacturers. With Christmas round the corner, it is likely that a consumer concession on dhal and sprats will probably be announced in the third reading stage of the budget debate same way duty on imported potatoes and onions were reduced pre-budget. But these are hardly concessions that would enable the poor to eat better.