University teams do research for Budget 2017

All national universities participate:

By M. Ali Hassen

Minister of Finance, Ravi Karunanayake has come up with a novel idea of bringing in more of our intelligentsia in national universities for a bottom up approach to prepare the Budget for 2017.

The objective of this project named 'Citizens' Engagement' in the Budgetary process - 2017 is to obtain input from the people on their needs, systematically as well as to make them aware of budgetary constraints and the development and reform programs introduced in the Budget.

Efficient Budget management depends upon information flowing strongly, top-down, imposing macroeconomic constraints and broad national policies and priorities, and bottom up, with information on the costs and benefits and performance of present and potential future expenditure.

Twelve teams have been appointed from 12 National Universities of the country comprising professors and other academic staff to conduct systematic and scientific research at grassroots level.

The Minister who met the teams at the Miloda Academy of Financial Studies in Colombo recently, said the government wishes to reach the four corners of the country and to give a voice to the voiceless people to ensure a realistic and futuristic economy.

"We need to bring in the knowledge you possess into Budget making as well as certain other areas where there is a lacuna in policy planning. I see many universities coming up with various proposals.

They are good at that particular time. The government hopes to stimulate the theoretical knowledge of the intelligentsia, blend it with the ground situation and create a national plan for a strong domestic economy," he said.

The Government has identified five major areas to be given top priority in the next five years under national economic priorities. Generating one million job opportunities, Enhancing the income level of the people, Development of rural economies, Ensuring land ownership to the rural and estate sectors, the middle class and government employees and creating a wide and a strong middle class that will also set the foundation for a strong domestic economy. The government has also embarked on a long-term plan to become a higher middle-income country by 2025. This envisages creating a strong, diversified, resilient and competitive economy. But the efforts on the part of successive governments have not brought the desired results and had kept Sri Lanka behind other countries in Asia. This must be the reason for the Finance Minister to propose a bottom up approach in a more systematic and scientific way.

As Prime Minister Ranil Wickremesinghe in his economic policy statement in Parliament on November 5, last year said, "In the past we Sri Lankans were hiding behind slogans and making excuses for the shortcomings which concealed the actual facts further."

We, the people of this country were made to believe that the country has developed in to a middle income level. (Which deprived us the facility of grants and soft loans with grace periods) with per capita increased to over US $ 3,800 in 2014. According to statistics, Sri Lanka's GDP growth rate registered a constant increase from 8.0 % in 2010 to 8.4 % in 2011 and 9.1 % in 2012 which was perceived as a great achievement but in reality it didn't bring any favourable change in the living standards of the people which is the yardstick to prove real economic development.

The policy makers at the time tried to simulate this as economic development. In fact, development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards

Growth without development

There are several schools of thought that differentiate economic growth from economic development. It is possible to have economic growth without development. Sri Lanka could be perceived as such a country where we have a large military and a large public service compared with the population and the expenditure on it will accumulate to the public expenditure bill and would increase the level of GDP.

During the time of the past regime, we spent huge amounts on infrastructure such as sea ports, airports and expressways with hardly any returns. It is no secret that during the period of the previous government there was an exaggerated GDP growth rate that was fuelled by the debt-creating spending spree because almost all the infrastructure development inclusive of some of the rural roadways were made possible with foreign loans many of which were at commercial rates.

The value of the GDP has increased to Rs 11,183 billion (US$ 82.3 b) in 2015 from Rs.6,414 billion (US$ 56.7 b) in 2010. Sri Lanka has a new phenomenon in its expenditure chain where a sizeable portion goes to social welfare and subsidies. Sri Lanka spends a colossal amount on welfare and subsidies, over Rs. 382 billion annually, but its value is questionable. Sri Lanka inherited a government where its revenue was not enough even to service debts. As all these welfare and subsidy schemes have an effect mainly on the rural masses, the efforts on the part of the minister of finance for a bottom up approach is expected to bring in desired results directly to the beneficiaries. The idea of this approach is to have a national plan for a strong domestic economy with the concept of value for money.

To get real value for money for investment on the rural masses, the minister said that the government pursues a social market economy. He called upon the academics to ensure systematic research where all capital expenditure brings benefits and return on investment. The Minister expects a thought-provoking job and not a mere tinkering job from the intelligentsia.

The Citizens Program which is in progress has all 332 Divisional Secretariat divisions as its sample population and will use questionnaires to collect information from five GN divisions of each DS division on the real needs of the people. The idea of this novel proposal is to plan public policies to go along with the wish and the real needs of the rural masses which they expected with the change on January 8 last year.

Due to the government's current policies, support from the international community and development partners are coming through various support schemes for a sustainable medium term program.

Some features of a new economic landscape at the end of the medium-term program would be:

• A fiscal deficit of 3.5 percent of GDP by 2020 - sustained or lowered over the longer term to ensure the debt-to-GDP ratio continues to fall.

• An increase in the tax-to-GDP ratio from 10.1 percent in 2014 to about 17 percent by 2020.

• A reduction in public debt to about 60 percent of GDP by 2020.

• An increase in foreign exchange reserves of the Central Bank to about 10 months of import cover by the end of the medium-term.

The writer is the Director of Information, Finance Ministry.