A budget whose policy side does not matter

What counts in the next six months will be concessions and handouts

Kumar David-March 16, 2019, 7:15 pm 

"Our determination to pursue a liberal outward oriented economy is more steadfast than ever. . . We are creating a new breed of private enterprise, where success is through merit and the market operates on a rules-based level playing field. Sri Lanka needs a private sector free from the protectionist mind-set that continues to hold back our country’s development and modernization". MangalaSamaraweera, Budget Speech, March 2019.

Fat hopes! Finance Minister Samaraweera bathed his budget in a plethora of oxymora; on the one hand panegyrics brandishing liberalism and capitalism as in the quoted words, and on the other,promises of handouts and goodies for the masses. Poor sod! A sombre missive of frugality to charm business, to pacify the IMF and to soothe the nerves of fuddy-duddy economists; but oh dear there is a presidential election later this year, so populism to the fore!

A Rajapaksa nominee, and perhaps a flapping buffoon of a disoriented scarecrow, will take on the UNP contender; so Samaraweera has a problem. It has obviously been made clear to him that his task is to help the UNP win the presidency, not fertilise capitalism for future decades. Securing the presidency and keeping the Rajapaksa nominee and the delusional coot at bay will also be key to the parliamentary and provincial elections. In a word the pledge of a free and open market economy counts for much less than election winning populism. In any case, policies announced in March 2019 will not show results for two or three years, and that too only if the UNP wins and sustains its policy commitments. To put it in a nutshell, verbal liberalism counts for nought, it can bear zilch fruit in six months. What may (or may not) work are populist offerings.

Vote catching allocations

Allocation under the Gamperaliya Scheme to address critical infrastructure needs in villages and cities is to be increased from Rs.200 million to Rs.300 million per electorate. This will delight MPs and consolidate votes in parliament; Rs.48 billion has been earmarked for this and a further Rs.10 billion allocated for rural roads through the "Ran Mawath" programme. (Rs.1 million = US$5,600 and Rs.1 billion = US$5.6 million).

The Minister has copied Indian PM Modi’s lead in promising sanitary facilities and allocated Rs.4 billion to ensure that all homes have lavatories. And there was a sting in the tail: "Mr. Speaker, in spite of the country reaching middle income status and millions of rupees invested in sophisticated expressways and city development, 260,000 houses in the country are without sanitary facilities. The Hambantota District, which saw a splurge of mega projects in the form of California style highways, Chinese style conference halls and sports stadiums (he forgot to add airports without airplanes) has left 15,000 people without the most basic sanitary facilities".

The monthly salary of lower grade state employees will increase from Rs. 11,730 (in 2015) to Rs. 21,400 in 2020 incurring a recurrent annual expenditure of Rs 20 billion. There are 560,000 pensioners who retired before 2016 and 71,000 retired in 2016-2018. There is a disparity in the pensions of these persons and those who benefited from later salary increases. "I propose to allocate Rs.12 billion (recurrent) to rectify these anomalies. . . In 2017 and 2018, allowances to the police were increased, but commando, uniform, rent and good conduct allowance of the armed forces have not been increased, in some instances for over 20 years, and will be increased from 1 July 2019".

The housing needs of "the most vulnerable sectors of society, including low income groups in urban, rural and estate sectors and the North and the East" will be allocated Rs 24.5 billion. "At the same time work on 15,000 brick and mortar houses in the North and East will commence with an allocation of Rs 4.5 billion" in addition to the Rs 5.5 billion previously allocated. This is expected "to address issues of re-settlement of Muslims who were forcibly evicted from the North".

I am not sure whether Tamils will think the Rs 5 billion ($30 million) spread over two years as a "Palmyrah Fund" for restitution of war ravaged areas, adequate. However it will cement TNA support, vital for passage of the budget through parliament. Gajan Ponnambalam and Wigneswaran who prefer hemlock to the TNA may find this reason enough to throw their weight behind Gotabaya rather than a UNP presidential candidate. Human psychology works in inexplicable ways!

Disabled persons now get an allowance ofRs.3,000 per month which will increase to Rs.5,000 and the fund will be expand to accommodate 72,000 more individuals. The allocation is Rs.4.3 billion. Private entities that recruit at least five persons with disabilities, will get a salarys ubsidy of 50% of the salary per person up to an limit of Rs.15,000 per person per month for two years. At present 21,000 CKDu patients are paid an allowance of Rs.5,000 per month. The Minister promised to expand this by a further 5000 patients, thereby eliminating the waiting list, for which Rs.1.8 billion was allocated.

The crucial point that will matter is how many of these promises the government gets moving within the next six months. A playful Churchill mused "The best argument against democracy is a five-minute chat with the average voter". The Rajapaksa bandwagon is on the back foot; it besmirched its copybook in the 51 day fete that our national pantaloon enacted. But the UNP is on a sticky wicket too; rising inequality and slow growth are factors behind public discontent. Its liberal economic game of three years has been starved of success. This populist extravaganza is the UNP’s last fling; whether Churchill’s prescience will pay off remains to be seen.

The small and medium

(SME) sector

Samaraweera promised better opportunities for the SME sector and instructed all ministries and departments earmark "at least 10%" of the value of procurement to SMEs. This is a healthy and progressive measure. It is also a vote-puller if effectively and quickly implemented within six months. SMEs, more than big capital, have been an engine of social advancement. He added "(the) private enterprise I mean is the genuine entrepreneur who uses ingenuity to compete in a fair market, small and mid-size businesses that embody the spirit of trade and companies that compete on the global stage". One cannot fault these sentiments.

Interestingly he also cussed:"There is the other segment of the private sector which is averse to competition and fair markets. The beneficiaries of crony capitalism that thrived in a kleptocracy which enriched those connected to the previous regime. These companies grew rich on rents from walls of tariff protection driving up costs for 20 million citizens. They benefited from inflated government contracts the costs of which are still being paid-off. These oligarchs, a small but influential part of the private sector, yearn for the return of dictatorship". Endorsed!

The macro-economy

The 2019 budget expects total revenue and grants of Rs.2.5 trillion and estimates expenditure at Rs.3.2 trillion (one trillion = 1000 billion). The budget deficit of Rs.685 billion (4.4% of GDP which is on the high side) is to be financed by foreign sources, Rs.55 billion, and domestic sources, Rs.630 billion.

FDI inflows have increased in recent years encouraged by the end of the war. Lanka received a high influx of FDI in 2017 of US $ 1.4 billion (excluding foreign loans of BOI companies); 53% more than in 2016. But FDI as a percentage of GDP remains low, below 2%, compared to 6% for Vietnam. The IMF and the EU are putting their best foot forward to support the government, but post-war Rajapaksa governments kept up GDP growth rates of 6% to 7% compared to, disappointing for an Asian country, 3.5% growth expected in 2019.

I will not discuss the capital budget, GDP and manufacturing outlook, or the long-term impact of macroeconomic and fiscal policy since these are stuff of the imagination for a government stuck in an election cycle with a presidential challenge breathing down its neck. I would also have liked to discuss the proposed Colombo Light Rail Transit system; Rs.5 billion has previously been allocated to the Fort-Malabe section and the first tranche will be released in 2019. A Colombo-and-environs suburban railway is of paramount importance and decades overdue. Again and again, promises and promises, will anything ever happen?

Mangala means Delight

Samaraweera has long cherished this: "Mr. Speaker, I am delighted to launch the Scholarship for Educational Excellence Fund to enable top students in the Physical and Biological Sciences, Technology, Commerce and Arts at the ‘A’ Levels to pursue undergrad studies at top universities such as Harvard, MIT, Oxford and Cambridge. The first group will be chosen from the results of the 2019 ‘A’ Levels in August. Those selected will be required to return and serve at least 15 years in Sri Lanka". But first Mr Minister, teach them English, or they will waste their first year abroad.

Advanced facilities were promised for local universities. Rs.25 billion has previously been allocated to meet infrastructure gaps by provision of theatre complexes, professorial units and libraries. Professorial units are promised for Kuliyapitiya and Ratnapura Hospitals (supporting Medical Faculties at Wayamba and Sabaragamuwa Universities) and a Faculty of Allied Health is earmarked for Ruhuna University.A state of the art laboratoryfor research in cancer, diabetes and infectious diseases was promised for Jayawardenapura. These are good intentions and one wishes them well.

What is more important is to flood the market with doctors to break the unscrupulous influence of the GMOA. Contingency measures must be prepared to bring retired local doctors into service and to hire Sinhala or Tamil speaking overseas medics. Preparations to break that oft-threatened GMOA strike, that intends to hold the public and the poor to ransom, is an important reserve power in the arsenal of every government.