Budget 2016, a continuation of complacency - Dr. Sally

by Lalin Fernandopulle

Economic analysts condemned the 2016 Budget which has been amended in an unprecedented manner widening the budget deficit further and failing to address fundamental issues in the economy.

Finance Minister Ravi Karunanayake acknowledged that the Budget deficit would rise by Rs. 7 billion as a result of the amendments.

Last week the country was again plunged into turmoil with trade unions and farmers resorting to strike action and protests over the government’s failure to address key issues affecting employees in the public sector and the fertiliser subsidy to the farming community.

Many experts on the sidelines of the seminar on the global economic outlook for 2016 organised by the Ceylon Chamber of Commerce last week said the 2016 Budget has let down the aspirations of the people who longed to see some prosperity in the country with the economy being revived.

“It is true we inherited a bankrupt economy from the former regime that abused and squandered public funds but the new government was voted to power to provide a fresh impetus to the ailing economy and boost development. We don’t see any move to achieve these goals,” an expert said.

Associate Professor of the Lee Kuan Yew School of Public Policy at the National University of Singapore, Dr. Razeen Sally said Sri Lanka should make concerted efforts to improve its macro economic policy with a focus on expanding international trade and fiscal consolidation.

He said there is a clear discrepancy in what was stated in the policy statement of Prime Minister Ranil Wickremesinghe and the Budget presented by the Finance Minister. This questions the government’s credibility. There are many good things in the policy statement of the Prime Minister that should be implemented.

He said this Budget is a continuation of the culture of cursed complacency in the country. There needs to be major and comprehensive tax reform, and the country’s foreign debt exposure should be reduced. Monetary tightening and hikes in interest rates will pose a huge challenge in the coming years.

“Bail outs from the International Monetary Fund will be like preventing a sinner from repenting. The problem in the country has to be sorted out here. Sri Lanka cannot expect the IMF to sort out its issues. The government lacks credibility in the eyes of the IMF,” Dr. Sally said.

He said there is nothing positive that the could be said about the macro economic policy of the country. “One or two aspects of the 2016 Budget are positive. Removing red tape to improve the business climate in the country is vital. We see lot of good initiatives to improve the business environment but they have to be translated into action. These are piecemeal efforts which are inadequate to take the economy forward.”

“Overall exports and import volumes must increase. Many right things have been said by the Prime Minister such as liberalisation of tariffs. These may be good on paper but not in reality,” Dr. Sally said.

He said there are many scoundrels in the business community. There was a time when what was good for General Motors was good for the US and similarly what is good for Dilmah is good for Sri Lanka. The tea market should be open to blending.

Experts also said the current tariff structure is too complicated. They said the export duty should be done away with other para tariffs and effective trade facilitation should be promoted. The government must be serious with trade negotiations. It must consider free trade agreements with the USA and China and aim at joining the Trans Pacific Pact, the TPP, a pact comprising 12 countries that will be party to the trade agreement.

Dr. Sally said the TPP will bring significant export market access to Sri Lanka. If not it will be harder to get to global value chains. Sri Lanka must not miss this opportunity to join the TPP and gain from wider international market access.

He said the country needs leadership, direction and right systems with the right people in the right positions. The secret of Singapore’s success was having five competent people at the top with Lee Kuan Yew in the forefront. “We need to ask, are there those five people at the top in the government?”

“We need to ask penetrating questions about the new government. It is not a question of not having competent people in Sri Lanka but the issue is not having this calibre at the top. Why aren’t there competent people in key ministries?, Dr. Sally queried.

Central Bank Deputy Governor Dr. Nandalal Weerasinghe said the government will have an uphill task in containing the Budget deficit as the revisions have increased the fiscal deficit further. The hike in the US interest rates will have an impact on foreign borrowing by emerging economies.

However, he said a good thing is that this government is willing to change once it has realised something is wrong.