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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Budget vis-vis rule of law

Budget vis-vis rule of law

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1Budget vis-vis rule of law Empty Budget vis-vis rule of law Sun Jul 29, 2012 2:52 am


Director - Equity Analytics
Director - Equity Analytics
At a Business Times (BT) panel discussion on the Budget 2013 on Wednesday, parliamentarian and economist Eran Wickramaratne drew an interesting analogy between the budget and the rule of law.He also provided an interesting and hitherto unknown fact: Sri Lankan’s overseas (almost two million) represents the world’s second largest expatriate population, after Lebanon, in per capita population terms! Wickramaratne mentioned this statistic in the context of a huge Sri Lankan resource being unused particularly in encouraging them to invest at home.

On the rule of law, the relationship he drew with the budget was that of the independence of the judiciary and effectiveness and efficiency of state institutions. “There are 300 cases of torture in Sri Lanka on U-tube and everyone is looking at it,” he said.

Increased investments, reduced corruption, confidence-building measures to attract foreign businessmen – all depend on the rule of law being applied equally, a view that no one contests.

He called for independence of the judiciary from the executive which he said was possible only if the salaries of judges are sharply increased. “Invest on the judiciary and rule of law and investments will flow; budget deficits will reduce,” was his message.

The discussion was part of a unique approach by the BT to analyse the current 2012 Budget on its performance so far and look at expectations and needs in the 2013 Budget due in November.

The process included an island-wide survey by the BT polls partner, the Research and Consultancy Bureau (RCB), a panel discussion and an email poll by the BT. More details of this story is available elsewhere in the BT. Wickramaratne said the biggest problem a lack of proper management in all sections including the government, judiciary, schools, exams, provincial and municipal councils, etc.

There was a clear message from the two polls: the need for the President to give an undertaking in the budget that he would not tolerate corruption and mismanagement and abuse of the law. Overspending and too much borrowing, locally and overseas, were also raised as issues.

At another Colombo discussion on the economy on Friday, a key point stressed was the lack of a roadmap for development for the next 10-20 years or in simple terms: What should Sri Lanka be or have achieved by 2022/2032 in terms of growth, human capital, investment, poverty reduction, etc? Sri Lanka has the best opportunity to grow and President Mahinda Rajapaksa and his team must be credited with ending the war. No doubt about that.

But the unfortunate post-war happening is that the Government is squandering this opportunity with lopsided policies, huge borrowings and crony capitalism. Massive projects are mired in controversy like last week’s Sunday Times report which said the former Celestial towers complex in Kollupitiya was sold for almost half the price offered by another party!The budget itself is complex and being pulled in all directions.

According to respected economist Indrajith Coomaraswamy, policies have turned out to be unsustainable, capital flows are insufficient. Fiscal adjustments are being made at a time when Europe, Sri Lanka’s second largest apparel market, is in crisis, resulting in a fall in apparel exports.

The evolving scenario is not at all helpful and with the human rights issue still on the (European) agenda, the going is certainly not good for Sri Lanka. The country may have got the final IMF tranche of over $400 million, another $1billion from a bond issue and another $500 million loan likely from the IMF. All this is fine except for one fact: This borrowed money, borrowed loans and borrowed capital has to be repaid.

Sri Lankans in fact are paying these loans through their noses. For example, 96 per cent of annual revenue collected by the Government through taxes goes just towards debt repayment and interest payments with only four per cent left for anything else. Bonds and other foreign loans are raised, often to pay back earlier loans.

So far Sri Lanka has raised a cumulative total of just US$7 billion in foreign direct investments in the past 30 years, a figure that is raised in a single year by any other thriving Asian capital. The budget analysis from the three sources – polls and the panel discussion – significantly revealed the need for good governance and transparency in public sector undertakings to build confidence, not only for foreign investors but local investors too.

Economist Sirimal Abeyratne said the government appears to be trapped in its own system (high spending, high budget deficits, low revenue) and difficult to find a way out the system. “The Mahinda Chinthana is good but implementation is going the wrong way,” he said.

K. Romeshun, a poverty analyst at the Centre for Poverty Analysis, made a salient point on infrastructure. “The emphasis is only on national roads (mega highways) but connectively from the village is missing. Are they connected to the highways?” he asked.

He said the Budget 2012 promise of housing for shanty dwellers is yet to materialize.

The Business Times has set the trend in the need to organize public discussions mid-year and even quarterly on the budget performance compared to budget discussions being held soon after a budget is presented. And we hope this process will stimulate more discussions of a similar nature and a possible report card on the 2012 budget performance just before the November budget is presented. After all it’s the people’s right to know what the governing party is doing with their money, not only at the end of the year but every step of the way.

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