Sri Lanka: Budget and fool’s paradise

From what I have seen there is no mention in the budget of any Covid-19 related support, stimulus, or expenditure. The President in his speech referred to the allowance of Rs. 5,000 paid twice to 5.9 M families (total of Rs. 59,000 M, less than 0.5% GDP), and another $70 M for Corona-related expenditure. But nothing about future Covid-19 expenditures in either speech.

by Rajan Philips

The Prime Minister’s budget speech last Tuesday and the President’s address to the nation the next day are both remarkable for their omissions to share with the people the government’s thinking and planning for dealing with the pandemic crisis that Sri Lanka is now going through along with the rest of the world. The budget speech tried to pretend a business as usual present scenario and routinely optimistic future prospects. It said little or nothing about Covid-19 and the government’s plans to deal with it. If anyone thought that the (Covid-19) matter was left to be addressed by the President himself in his talk the next day, that was not to be. The President covered every base (in baseball parlance) in his short political career but barely touched the topic of Covid-19. Why this reluctance to frankly talk about Covid-19?

There is no point in denying or trying to hide the formidable challenges posed by Covid-19 and the difficulties that the government of Sri Lanka and the country as a whole are having in dealing those challenges. No one is expecting the government to come up with a magical national response to the global pandemic. But it is reasonable to have expected that either the President or the Prime Minister would use their national pulpit to apprise the people of the gravity of the situation and the challenges of navigating through it. Nothing of the kind.

Our South Asian neighbours have been more transparent about the coronavirus in their budgets and economic statements. Pakistan and Bangladesh presented their current budgets in June 2020. Neither of them was shy about mentioning Covid-19. In fact, Pakistan called it the “corona budget.” Although criticized by the two opposition parties (PML-N and PPP), the Imran Khan government increased the allocation to the health sector to $156 M (130% increase from 2019), with 90% of it going to hospitals to deal with Covid-19 crisis.

In Bangladesh, the budget confirmed that sufficient funds have been allocated to meet the needs of all ministries to deal with the impact of Covid-19, while increasing the allocation to the health sector. From what was once ‘an economic basket case’, Bangladesh is now among the world’s fastest growing economies with a higher GDP than Pakistan despite having 60 million fewer people (161 M and 221 M). From a high growth rate of 8.2%, Bangladesh is now set to grow at still impressive 5.2% owing to Covid-19.

India finished its budget in February before the pandemic outbreak. But it has since consistently intervened with financial stimuli at both central and state levels. A week before Sri Lanka’s budget, India announced two stimulus packages totaling $60 billion topping up the $266 billion package from May, for a total 12% of GDP. India has also heavily invested in vaccine development for Covid-19 by the government’s biotechnology development. Both Pakistan and Bangladesh have also provided significant stimuli packages to soften Covid-19 fallouts. 

Rewired Thinking 

From what I have seen there is no mention in the budget of any Covid-19 related support, stimulus, or expenditure. The President in his speech referred to the allowance of Rs. 5,000 paid twice to 5.9 M families (total of Rs. 59,000 M, less than 0.5% GDP), and another $70 M for Corona-related expenditure. But nothing about future Covid-19 expenditures in either speech. Admittedly, Sri Lanka does not have too much money to spend on anything. That is all the reason why the government should use any and every opportunity to level with the people and tell them without holding back anything – where the government and the country are under Covid19, and what the government is planning to do about it. Are not budgets occasions meant for such purpose? And when else if not in a global pandemic situation?

The apparent thinking behind the budget has been revealed by Nivard Cabraal, the long-titled State Minister, in a post-budget seminar. As reported in Daily FT, the Minister has announced that the government “could have said it’s a COVID-19 year and looked at austerity measures, but it is not the right moment to do that;” instead, the government opted to be “bullish about growth and (by) tap(ping) into the rewiring of the global economy caused by COVID-19.” This is the only way, according to the Minister, for Sri Lanka to break out of long struggle with “persistently slow growth.” The report also carries the views expressed by Dr. Dushni Weerakoon (Executive Director, Institute of Policy Studies) at the same seminar, but unfortunately not at the same length offered to Cabraal. Dr. Weerakoon “warned (that) the Government could struggle to balance low interest rates with a high budget deficit as well as aim for high growth while fighting a pandemic.” More so, “if COVID-19 infections rise and the Government has to provide more public support in social spending.” This would make debt sustainability and deficit management problematic.

It is mystifying that Mr. Cabraal would suggest that a Covid-19 budget would have involved austerity measures. On the contrary, the debate over Covid-19 economic response is not about austerity measures but about the extent of stimulus measures that governments should be prepared to administer. It is also not quite explicable how the government would tap into the “rewiring of the global economy caused by COVID-19” – whatever Cabraal means by rewiring. The budget offers no specifics about this ‘rewiring’, or how any or all of the budget proposals would be linked to the supposedly rewired global demand opportunities. Looked at it another way, the very non-austere budget is wired to spend in all the wrong areas for all the wrong reasons, at a time when Covid-19 has removed all ambiguities as to whom and where government spending should be targeted.

SJB MP Harsha de Silva, who led off the budget debate for the Opposition could not have hoped for an easier target to attack. As he summed it up the budget would neither kick-start the economy, nor provide relief to the people burdened by economic hardships. Quite rightly, he questioned the allocation of Rs. 330 billion for highways, as if building roads would help suffering businesses and starving people. The allocation, rather mis-allocation, for highways is also an instance of inappropriate assumptions for economic growth in the current pandemic situation.

Funnily enough, the space allocated for mentioning Archaeological and Cultural Heritage Presidential Task Force in the budget speech is sandwiched between Tourism and Foreign Employment. The assumptions of prospects for the future of tourism are not at all funny, however. The $10 billion industry is in serious trouble and cannot be salvaged in any significant way by promoting domestic tourism. The same goes for foreign employment, the cash-cow sector that used to have 1.5 million Sri Lankans employed abroad, mostly Middle East, and bring in $7 billion annually is now in dire straits. There is no discussion of the prospects, let alone projections, for the future of this sector and its broader socio-economic ramifications within Sri Lankan society. If it is the government’s wired thinking that 1.5 million Sri Lankans can be fitted into global rewiring, there is no indication of that thought process in the budget.

Under “Investment in Public Health,” the budget speaks somewhat unclearly “to the new reality would make it unavoidable to be engaged in the day to day activities of the people with the Corona pandemic.” It reports the global total of 55 million Covid-19 cases and 1.35 million deaths, but shies away from being transparent about the situation in Sri Lanka. And somehow an insurance fund will materialize to help Covid-19 victims with contributions from businesses who are also victims of Covid-19. Glaringly missing are any allocations for purposefully expanding the Public Health Services and related infrastructure to deal with the Covid-19 situation. Also missing are the government’s assessment of the current situation and its projections for the future. These gaps are obviously the result of professional disengagement at the political level with the realities of Covid-19.

As if to highlight the level of professional engagement in the government’s Covid-19 response, Health Minister Pavithradevi Wanniarachchi, who is patently out of her depth in coping with Covid-19 response, said in parliament last Wednesday that former Health Services Director General (DGHS) Dr. Anil Jasinghe continues to attend COVID-19 meetings, even though he is now the Secretary to the Ministry of the Environment. Public Health was dealt a big blow when Dr. Jasinghe was kicked upstairs from Health to Environment, and now the Ministry of the Environment is minus its Secretary whenever Dr. Jasinghe is on Covid-19 calls. Why not move Dr. Jasinghe back to Health?

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