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Budget 2022: Government targeting next election while misleading public: Vijitha Herath 

20 Nov 2021

  • JVP would have sought dialogue with foreign state lenders on restructuring debt payments 
  • All major infrastructure and development projects must be audited to identify fund utilisation
  • High-tech rice mills and storage facilities for rice and veggies would have addressed rice mafia issue 
  • Retirement age should be reduced in developing countries; more opportunities for youths 
  • A lot of wastage in state spending, which could have been reduced effectively
  • If properly planned, new fertiliser policy would have factored in crop losses and compensation
By Asiri Fernando As the cost of living in Sri Lanka rapidly increases, many communities struggle with the scarcity of some essential food items and lighting their home fires. In many suburbs, people are in queues outside shops, fuel stations, and LPG distributors to secure what they need. The Government claimed there is no food shortage nor fuel crisis, urging the public not to engage in panic buying. However, like the drop in LPG supply, the public’s faith in the Government has also declined. Today, the average Sri Lankan feels the pressure of the combined weight of the Covid-19 pandemic, a worsening economic crisis, and mismanagement unlike ever before. Prospects of a better year in 2022 also look bleak, as the impact from the fertiliser policy change is expected to be felt in the first quarter. It is in this backdrop that the Government tabled the 2022 Budget in Parliament. Many hope that the proposed budget will address multiple crises that Sri Lanka is facing and will help ease the pressure on her people. However, many others remain sceptical that the budget will address these burning issues. In an interview with The Sunday Morning, Janatha Vimukthi Peramuna (JVP) parliamentarian Vijitha Herath discussed the impact of the proposed 2022 Budget. Following are excerpts from the interview: What is the JVP’s view on the 2022 Budget? This is not a development-oriented budget or a welfare budget. It is a traditional budget. It is not progressive or “revolutionary”, as was promised. There are no solutions for the problems that the people face. This Budget does not address the key crises this country faces today. It does not deliver what the public wants. In your opinion, has the Budget provided solutions to manage the debt crisis Sri Lanka is facing? What would the JVP have done differently? The fact is that the Government has failed to provide a remedy for the debt crisis in the Budget. Since this Government came to power, the debt crisis has magnified. In 2020, Rs. 2 trillion was borrowed. In 2021, another Rs. 3 trillion was borrowed. In the proposed budget, they have indicated that the Government plans to borrow another Rs. 3-3.2 trillion (in 2022). Therefore, for the three years of 2020-2022, national debt would increase by Rs. 8.2 trillion. I think from 1950 to 2005, Sri Lanka only borrowed Rs. 2 trillion. This year, state income was Rs. 2 trillion but total expenditure is Rs. 5.2 trillion. The gap is widening. We, as the JVP, see that there is a need for a long-term solution. In the short term, we must honour International Sovereign Bonds (ISBs). We would seek a dialogue with foreign state lenders and come to an agreement on restructuring debt payments and obtain a grace period for repayment. A restructuring of debt is possible if we show that we are serious about economic reforms and revival. We also need to build confidence that we will not go into bankruptcy, and move to improve our credit ratings. This will give lenders and potential investors confidence in Sri Lanka. If we form a government, the JVP will move to implement a two to three-year plan to rapidly increase production and exports. In tandem, we will take concrete measures to reduce wasteful spending and curtail corruption. Then, we can build confidence in Sri Lanka among the lenders and international community. We will conduct a thorough audit of all major infrastructure and development projects to see where the funds have ended up and how efficiently they have been used. This will also help restore Sri Lanka’s image and help build confidence among international markets and investors. We feel that this is a good approach to address the debt crisis and rebuild trust in Sri Lanka. All of this can’t be done overnight; the solutions will be long-term. In terms of prioritisation, what areas do you think should have been addressed differently in the Budget? There are many areas which should have been prioritised but have not been. One priority should have been to help SMEs and give them low-interest loans to improve and add value for exports. Technology is also important. The State should introduce and subsidise the introduction of technology for the agriculture, export, and service sectors. The SLPP (Sri Lanka Podujana Peramuna) spoke of working on Oracle and other tech-driven platforms to run the country during elections. But nothing has come out of it. The Government should have included funds to introduce several high-tech rice mills and storage facilities for rice and vegetables in this Budget. That would have practically addressed the rice mafia issue, which is currently hurting the public and the farmers; we were expecting the Government to address the rice mafia problem through the Budget, but unfortunately, they have not prioritised it. Sri Lanka can improve exports, especially to Europe and the hospitality markets, if there is investment in fisheries and vegetable exports. However, there isn’t much in the Budget on that. Another priority area is tourism. The Government expected to earn $ 4-4.5 billion through it, but the tourism sector has been neglected in the Budget. Also, in terms of reducing import cost and securing energy security, the Government should have looked at modernising the local oil refinery. If a significant investment was made to modernise the Sapugaskanda Refinery and increase storage capacity, Sri Lanka could have earned hundreds of millions of dollars by exporting petroleum products. These are lost opportunities due to poor prioritisation. The foreign currency crisis Sri Lanka is facing is a serious one. Do you think enough has been done through the Budget to improve foreign currency reserves? In a nutshell, our foreign reserves are now down to $ 2.2 billion – even this amount is maintained by foreign loans and swap agreements. The Budget has not addressed this crisis. Internationally, Sri Lanka has been downgraded by multiple rating agencies. Investors feel that we are not stable enough and that Sri Lanka may be bankrupt soon. The debt crisis and foreign currency crisis are linked. Sri Lanka serviced ISBs due in July using foreign reserves.  What strategies does the JVP propose to address the foreign currency crisis effectively?  Our exports and income from tourism have declined. Remittances by expatriates have also reduced to a trickle. We (JVP) would take measures to increase exports and reduce import expenditure. We will also streamline how profits from exports are brought into Sri Lanka. Some of those profits do not return to Sri Lanka. We also need to restore confidence among our expatriates and reduce restrictions on their savings in NRFC (non-resident foreign currency) accounts. Also, a JVP government would promote the local ICT and services sector to international markets. There is a lot of potential to secure foreign contracts in these fields. We can set targets for the ICT sector to reach and give them subsidies based on performance. The Government is planning to change the retirement age in some public services to 65 years. Some senior government ministers have claimed that the civil service is inefficient and is a burden to the State. What is the JVP’s view of this move? We suspect that the motive behind this move by the Government is to reduce paying gratuity and pension payments in the coming few years. This move also contradicts the statement by the Government about the efficiency of the public service. This move robs the opportunities that normally open for youths. Normally, the youths are more energetic and adapt to new systems and technology faster. As a general rule, in a developing country, the retirement age should be reduced, not extended. The public service has become inefficient due to politicisation and the practice of staffing public institutions with party supporters by successive governments over the years. The CPC (Ceylon Petroleum Corporation), Ports Authority, SLTB (Sri Lanka Transport Board), and other institutions with surplus staff are good examples of this problem. If the state sector is given the independence they need and standards are maintained, without political interference, they will not become inefficient. Sri Lanka has had a large budget deficit for several decades. Do you think the proposed measures to reduce state expenses in the Budget will have a meaningful impact?  The Government is misleading the public with the measure proposed in the Budget to reduce state expenses. They boast the reduction of five litres of fuel per minister. If you account for the state ministers as well, at best, this will amount to 350 litres a month. This will only save the Treasury about Rs. 50,000 monthly. This is a joke. The public knows that many ministers travel in processions of multiple vehicles; where is the saving? If peace and the security in the country is assured, why does the Government need to maintain such a high degree of security for ministers and VIPs? Further, the other expenses of ministers have not been touched. I think the five-litre reduction is a small drama played to distract the public from the weaknesses of the Budget. There is a lot of wastage in state spending that could have been reduced effectively. The Government has also not clearly specified how they plan to reduce expenditure of state institutions. The Government also claims that they will reduce the budget deficit to 8.5% of GDP. This target set by the Government is not practical.  The public are complaining of the skyrocketing cost of living and scarcity of food and fuel, such as LPG, for domestic use. Do you think the Government has addressed these key issues effectively in the proposed budget?  A main outcome of the Budget that the public seeks is a reduction of the cost of living. However, this Budget does not address the scarcity of LPG, fuel, sugar, rice, or milk power in the market. People are being forced onto the streets to stand in queues for goods while the Covid-19 pandemic is ongoing. The Budget has taken no concrete action to reduce the cost of living, even though they have stated that reducing inflation is a budget goal. The burning issues of the public have not been addressed. These issues should have been addressed as many communities, particularly the low-income group, are hit hard. In your opinion, does the Budget offer adequate relief for the farming communities that have been hit hard by the sudden change in policy on fertiliser use? The use of organic fertiliser will see significant crop losses. The Government has promised farmers that they will be paid compensation for the losses. However, they have not allocated any money in the Budget for compensation. The Government claims that the Agriculture Insurance Board will make payments, but no additional funds have been allocated to that agency. Furthermore, not all farmers are registered with the board. Also, there is no indication of how much compensation will be paid and how it will be distributed. Many farmers will be left out of what little payments that will likely be made. Our practical experience with the insurance board, from instances like the Sena pest infestation claims, is that only a small percentage of the loss will be compensated. Going by that experience, it is hard to see how the board can give meaningful relief to those who lost crops due to an ad hoc policy by the Government. If the board had done a good job in the past, you wouldn’t have seen farmers taking to the streets in protest. If the Government properly planned out the new fertiliser policy, they should have anticipated a significant crop loss and prepared funds for compensation. Do you think the Government did enough to address the long-standing salary anomalies of teachers and school principals through the Budget?  This is a commendable move by them. The Government has finally given some solutions to the teachers’ wage issues. The credit must go to the teachers and principals; if they didn’t struggle and protest about it, nothing would have happened, like the last two decades. Teachers and educators were branded, insulted, abused, and arrested in the process of getting here. We need to acknowledge that this was achieved through much hardship. This is a victory for the teachers, and it didn’t come easy. Education has been hampered since 2020 due to the Covid-19 pandemic. As a country, have we allocated enough for education in the Budget?  When you analyse the Budget, it is clear that the Government has reduced spending on education. It is also important to note that the amount is allocated to two ministries, which include women’s affairs and vocational training too. Therefore, what will be spent on education alone will be less. We must spend more on education. It is an investment in our future. An investment to prepare our children to face future challenges. It is an investment in future development. Not allocating adequate funding for education is weakening our prospects. If you look at the allocation, the Government forecasts Rs. 18,400 billion GDP. Going by that figure, what is allocated by the Government is less than 1% of the anticipated GDP. The Government is spending only 4.49% of the Budget on education. This Government promised to spend more but has delivered significant cuts. There are several state-owned enterprises, such as SriLankan Airlines, Ceylon Petroleum Corporation, and the Ceylon Electricity Board, that are heavily in debt. If the JVP was in power, what measures would you take to solve this burden on the Treasury?  These state-owned enterprises (SOEs) used to be profit-making in the past. For example, the CPC used to raise about 40% of the crude oil import cost by exporting by-products. Today, SriLankan Airlines records a daily loss of around Rs. 84 million. The main problem with loss-making SOEs is a failure in management. When Air Lanka (SriLankan Airlines) was part of Emirates, it was making profits, but when it became state-run, it turned into a loss-making entity. This is what happens when governments appoint unsuitable, unqualified persons to management positions. These management failures have compounded the debt crisis. There are no solutions to this issue given in the Budget. What will happen is the crisis will continue. Why have these SOEs been paying high salaries to its management over the years? The JVP proposes an audit programme and compliance system to rid these SOEs and others of wasteful spending and corruption. We would also initiate a top-level management reform to recover from this downward spiral. Taxpayers of this country pay for their electricity bill and for fuel at the pump, why should SOEs be treated any differently?  The Government continues to allocate a large sum of money for road infrastructure projects, amidst Covid-19 and the ongoing economic crisis. What are your thoughts on this approach? These are political priorities being enacted. This is a political programme. Funds are to be issued to local government leaders and former local government leaders. What mandate do former local government leaders have now? They are not MPs and not elected. This programme will lead to huge corruption and waste. I feel that such projects are aimed at getting a political edge at the next election.  Why are such road development projects being given priority amidst a financial and economic crisis and pandemic? This is a serious question that everyone needs to ask.  

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