BUDGET 2018: ‘NEED SOLUTIONS FOR DEBT OVERHANG’
Continuing the investment on development, as well as stabilizing the economy on the basis of sound fiscal management will be the main focus of Budget 2018. It is time to reform the Sri Lankan economy. The country had borrowed heavily and the debt overhang was distorting all budgetary activities. In an interview with the Sunday Observer Minister for Special Assignments Dr. Sarath Amunugama said, one of the most important areas to stabilize the economy is to ensure that there is a regular flow of foreign funds to the country which can take the form of loans, and Foreign Direct Investments (FDIs) and most importantly, higher incomes from indigenous exports.
Q: What will be the main focus of Budget 2018?
A: The main focus of the Budget would be to continue the investment on development and stabilize the economy on the basis of sound fiscal management. The Sri Lankan economy has to be reformed. We have borrowed heavily and the debt overhang is distorting all budgetary activities. Normal budgetary activity relates to the collection of income and the allocation of income under various heads of expenditure. Usually, there is a gap which is called the budgetary deficit, in which the expenditure outstrips the income.
That can be maintained in manageable proportions. But, when you add this huge debt, it becomes not a simple matter of balancing the Budget, but adopting various strategies so that this debt overhang does not distort the normal budgetary process. So, every Sri Lankan Budget from now on will have to seriously consider and find solutions to this debt overhang.
Q: Will there be any plans in the Budget for boosting the SME and the export sector?
A: One of the most important areas to help stabilize the economy is to ensure a flow of foreign funds to the country. It could be in the form of loans, less harmfully, Foreign Direct Investments (FDIs) and also by higher incomes from exports. A weak point is that our traditional foreign exchange earners are not doing too well. For example, there is a drop in foreign remittances which has been the number one foreign exchange earner for Sri Lanka.
Secondly, the sales from tea, rubber and coconut on an even keel or dipping slightly; thirdly our non-traditional exports and fourth, our tourism. So, in this bleak situation, the only determining factor is the earnings from tourism. I feel, we should make a concerted effort to do three things.
One is to ensure that foreign remittances keep rolling into the country without all sorts of media and political adverse implications which tend to reduce the remittances, apart from the local problems that arise because of the destabilization in the Middle East. Secondly, we must make a big effort to promote tourism. Unfortunately, latest figures indicate, we are hitting a platoon.
This calls for more Government intervention and giving a bigger role to the private sector in tourist development. Most of all, we have to get FDIs not through the BOI because that is a disastrous failure, but through investment joint ventures particularly, with Hambantota, Mattala and other joint ventures.
Many people don’t realize that unless we get that influx of foreign currency into the country through joint ventures, they would have to pay for everything, their food packet, bus and train tickets and entertainment.
They would have to pay by way of inflation, higher taxes, increasing food prices, if they are not prepared to have joint ventures in these white elephants.
So, whatever people may say on the street, if the ordinary man has to maintain his standard of living, it is necessary that these white elephants are made into productive earning entities.
Q: The Finance Minister has said, the Government wants to increase direct taxes and decrease indirect taxes such as VAT in the long term. What are the Government’s plans in this regard?
A: Usually, this is not very difficult. If we have 5 to 8 percent growth your wealth in the country is growing. For the last 15 to 20 years we have been saying there is an economic growth. It is not reflected in the Government’s revenue. So there is a contradiction somewhere. We are now a Middle Income Country (MIC). That means, there is GDP growth, but the money is not reaching state coffers. Either there is large scale corruption or theft, and institutions collecting revenue for the Government are riddled with corruption and fraud.
So the money that should have come to the Government is going into private hands. That has to be stopped. There is tremendous distortion in the Government’s reserves. If there is an increase in the wealth of the country as depicted in the GDP growth, then this corruption has to be stamped out. Otherwise, the burden gets passed on to the poor consumer. So, the first step would be to see that revenue accrues to the Government.
Q: What are the plans to reduce the country’s debt burden which has happened mainly due to excessive borrowings by the previous regime?
A: The main approach is to go into joint ventures for all these projects for which we have borrowed heavily. When we borrowed no evaluation had been made to ensure whether it would ever pay for itself. It is clear it would not pay for itself. Hambantota was a disaster and no ship would come to Hambantota and no planes would come to Mattala; and sufficient vehicles will not ply on the Highways. So all these big ventures at the very outset, were not economically viable.
That does not mean the country should not do that.
The country needs the infrastructure. But, if they are not economically viable, we must find a solution to make them viable. Otherwise, the tax payer and the citizens have to pay. In Sri Lanka, the citizen does not know that he is paying through his food parcel or plate of rice for all these high rolling projects which are not feasible in economic terms.
The only way to make them feasible is to bring in direct investments as we have done in Hambantota, Mattala and other places. Many of those are called vanity projects, i.e. projects done to boost the vanity of the rulers. Every ruler has had vanity projects. The only good projects in the past were the agriculture sector investments by the late Prime Minister D.S. Senanayake’s agriculture policies, Mahaweli projects, Chandrika wewa and Udawalawe project under the SLFP. They are good investments because the returns have come. All others are necessary but vanity projects. The Government must make them profitable.
The public is deceived, alleging that land is being sold to foreigners, which is utter nonsense. The land is here. Nobody can sell lands. We have companies administering them and making a business out of that. If the Government or the people don’t want that, then of course they have to pay more for their food packet.
Q: Internationally, Sri Lanka is to sign Free Trade Agreements with China, Singapore and several other countries. What would be its impact on the national economy?
A: Sri Lanka’s future depends on whether we can trail a policy which cashes in on our geostrategic position. We have to be the hub of South Asia. We have to trade our geostrategic position to make it a hub for sales in the region.
Unless we have these trade agreements, we cannot open up big markets such as, India, China, Pakistan and Bangladesh. Otherwise nobody would invest in Sri Lanka. Domestic economy simply cannot work in the modern world, because everything is going on scale. Even the local market is now adjusting to the tourist traffic.
Q: There are allegations of corruption even in projects started by this Government such as, the Central Expressway. What are the steps being taken to address this issue?
A: Corruption is the same whether it is done by the previous, present or a future Government. Corruption means the project for which the country is paying is not brought into fruition at the cost it was estimated. The balance is taken out somewhere else, and the people would have to meet the higher cost. So corruption is not only somebody pocketing money from the country but directly affecting the living standards of the people. It is necessary that we have safeguards. In my opinion the legal process is slow and the people are fed up that the Government is not doing anything about previous as well as present corruption. Today, in the newspapers, most of the pages are about corrupt activities. So I think, very soon, Sri Lanka will get the title, as the most corrupt island in the world.
Q: What is the impact on the SLFP with the present split in the party, are there any efforts to unite the two factions ahead of the crucial LG and PC elections?
A: There are no two SLFPs. There is only one SLFP. President Maithripala Sirisena is the leader of the SLFP. Former President Mahinda Rajapaksa handed over the mantle to President Sirisena. Former President Rajapaksa attended several SLFP meetings chaired by President Sirisena as Leader of the party. Now they say they are going to set up a different party. But as far as the SLFP and the hand symbol is concerned, we are the legitimate entity. So if someone forms another party for whatever personal gain, they would have to face the wrath of the voter for having split the party. We have not split the party.
Q: As a senior Minister, are you happy with the performance of this Government or do you think a change of roadmap is necessary?
A: In politics, you can never be happy. If you take the last Government, everybody said they were very happy. Things were happening. Roads, harbours and airports were being built and sil redi being distributed. Everybody was happy but what happened at the election? It was a wrong assessment. In politics, we have to always say the people are not happy and try to do something. We can do and plan much more. I think during the last two and a half years, we have had to be much more rational in our approach.