Sri Lanka Treasury – “A Bottomless Pit” !
By Gamini Jayaweera –March 12, 2016
Gamini Jayaweera
Finance Minister, Mr. Ravi Karunanayake presented the “Yahapalanaya” government’s budget for the year 2016 to the Sri Lankan Parliament in November 2015, indicating that the proposed estimated expenditure would be Rs. 2,787 billions and the estimated revenue and grants for the same period would be Rs. 2,047 billions leaving a budget deficit of Rs. 740 billions. According to the media reports, following the initial talks with the IMF about a loan which could be used to plug gaps in the budget, the Finance Minister has stated that the IMF is very concerned about the size of the budget deficit, over-estimated revenue, and the under-estimated costs. It appears that the IMF’s concerns over the budget deficit indicate that the deficit would be more than the amount which has been tabled by the Finance Minister during his budget speech. If the IMF can, within a very short period of time identify the inaccuracies in the estimated revenue and expenditure budgets tabled by the Finance Minister, one has to question the honesty and integrity of the Ministry of Finance. It has also been reported that the IMF may demand, presumably asking the Finance Minister to raise taxes and control the public sector spending budget in order for them to authorize the loan which has been requested by the Finance Minister.
Before we examine how to tackle this huge budget deficit we need to examine where we were during the last 6 years and where we are now in relation to our economic position. During Mahinda Rajapaksa regime, we as a nation enjoyed a fantastic “economic boom” and some politicians of the previous regime, business leaders, and to a certain extent the general public were having a “jolly good time”. The general public were led to believe that the Rajapaksa regime had laid a strong foundation on solid ground for a healthy economy. People were confident that they could spend today with borrowed money and pay tomorrow because they would have a “vibrant” economy in the near future under “Mahinda Chinthana”. The government, the general public and some private sector organisations went on borrowing because they believed that tomorrow is going to be better than today. Banks and lending institutions, with the backing of some government ministers and MPs of the previous regime, allowed certain section of the society to borrow money without sufficient, or with no security for their debts. Additional consultancy commissions and contracts were placed at higher than normal price levels with the previous regime’s favored private sector companies because of the increased spending in the public sector organisations. Business leaders were happy as they were making substantial profits and bonuses. The problem was most of our Politicians, top Business Leaders, and Bankers from the previous regime turned a blind eye to a very basic principle of Capitalism which is “Bigger the Boom, Greater the Bust”. To make things worse, in our case the “Boom” was built on huge amount of borrowed money with a very weak industrial base. It is now understood that instead of building the economy with a strong foundation on solid ground, the previous regime has built our economy with a very weak foundation on “sand”.