UNP MP Bandula Gunawardane, who served as Deputy Finance Minister during Mr. Ranil Wickremesinghe`s last tenure as prime minister, used a home-spun idiom to describe the 2007 budget presented on Thursday to parliament by President Mahinda Rajapakse wearing his finance minister`s hat. Gunawardene, a politician with a firm grasp of economics, has the gift of making insightful comments in easy-to-understand Sinhala. He called the budget a `wood apple swallowed by an elephant`. Rural people as well as urbanites who delight in visiting the national parks and other jungles know that when jumbo, who relishes the divul fruit swallows it whole as he is wont to do, the inside of the fruit is digested in the stomach and the intact shell is ejected with the dung, round and whole as it was hanging on the wood apple tree.
As naturalists know, what happens is that the elephant`s digestive juices penetrate the pervious shell of the fruit and digests the pulp leaving the hard shell intact. Once that process is completed jumbo ejects the hollow shell through its rear end. So the point that the opposition MP, belonging to a party that is pledged not to defeat the budget (even before it was aware of what it would contain!) has made is that last week`s budget is no more than an empty shell. Gunawardane fired the first shot. Given its current faction-ridden condition, the UNP will find it hard to speak with one voice and there may well be other points of view, portfolio seeking and otherwise, within its ranks. Nevertheless, the president can be reasonably sure that the greens will not make common cause with the JVP, already on record saying that the budget is no more than a `fairy tale,` to defeat it and force a dissolution of parliament. Leave aside the UNP, not even the JVP would want that!
Rajapakse, in a style reminiscent of President Ranasinghe Premadasa, dispensed with the budget presentation ritual last Thursday. The speech began at 4 p.m. instead of at 2.30 p.m. as usual, and he did not waste his breath reading out a long preamble on the state of the economy. This was distributed among MPs, the media and invitees and the Chintana man only read out the second part of the speech incorporating the all important proposals. That saved a lot of time all round. The proposals too did not have the traditional announcements like hikes in arrack and cigarette prices, these having been done pre-budget. Some sops were thrown to public servants and pensioners comprising an all important vote bank. There was also relief on taxation of interest income of retired middle class people struggling to make ends meet in the context of ever rising prices and a more generous tax-free limit on terminal awards to retiring private sector personnel who have no pension to fall back on. These were no doubt commendable and welcomed. But what was significant in the budget speech was the stress placed on building the country`s deteriorating infrastructure with special emphasis placed on roads, power and ports.
This is essential work and the authorities hope that overseas investment and donor support can help fund this endeavour. But the Colombo government cannot borrow cheap in world markets any more. Today we bear the second highest borrowing costs in Asia and given the security picture, the international rating agency Standard and Poor`s, cut the country`s credit outlook to negative from stable. That was in April this year and the picture has since deteriorated. What the Sun God, holed in his lair in the Wanni, will say in his forthcoming Martyr`s Day speech (or do before that as widely feared) is anybody`s guess. Not even an incurable optimist will expect good news from that front. Thankfully, there has been no default of loan obligations by the country and we are not in any blacklist for the time being. But for how long we can keep our head above the water is a moot point.
A former civil servant, R.M.B. Senanayake, who contributes a weekly column to our business pages and makes no secret of his right wing outlook, has in a budget analysis we run today faulted the government for chasing growth while neglecting the macro-economy. The loudest economic trumpet the government has been blowing in recent months relates to GDP growth. While achievements on this front are commendable, helped no doubt by a smiling weather god giving this country unseasonal rainfall as well as seasonal rains that have helped agriculture and hydro power generation, inflation continues to run high. This budget too, like its predecessors, has pledged to rein inflation which has speeded from canter to gallop. The money supply too has been increasing at an alarming rate and Senanayake has expressed the fear that the government will resort to what he has called the `most dastardly tax` by printing more money. The very fact that the implementation of the Fiscal Responsibility Act has been further postponed fuels these fears.
If the country can get its infrastructure sorted out, as promised, we will be moving in the right direction. However, early signs of donor impatience on the lack of progress on the peace front are already evident. There is room for optimism that GDP growth projections can be sustained. Less so promises on dampening inflation. Nevertheless the country has muddled on for many years despite the war, inept political leadership, profligacy in government expenditure, a bloated public service into which more recruits are being added (as signaled in the budget) and much more. The chances are that this process will continue unless the opportunity offered by the SLFP ? UNP MoU to present a deal the Tamils cannot refuse is seized and the long festering ethnic problem healed notwithstanding Velupillai Prabhakaran and his LTTE.