In his brilliant account of our current economic situation, delivered at the Liberal Party discussion on Economic Reform, Indrajith Coomaraswamy spent some time in discussing the budget deficit, and why it is particularly worrying in the current context.
He noted that the current account of the balance of payments has been in deficit since 1957, while the current account of the budget has been in deficit since 1987. He made it clear that it is not a new phenomenon that government has been borrowing to meet some of its recurrent expenditure and all of its capital expenditure over the last 25 years. But he also noted why Sri Lanka needs now to be even more worried than before about living beyond its means.
A budget deficit is a principal source of instability in the system. High budget deficits lead to inflation by creating excess demand. The inflation differentials between Sri Lanka and its competitors and trading partners that result exert pressure on the exchange rate. But, given the high import component in our basic consumption bundle, it is politically difficult to maintain a flexible exchange rate policy.
Indrajith explained how Sri Lanka had been able to live ‘beyond its means’ for so long, namely that we received a lot of aid, along with concessional loans. But now that we have graduated to lower-middle-income country status, we no longer have much access to Development Assistance. So we now depend much more on foreign commercial borrowings. As a result the share of commercial debt within our stock of external debt is increasing, which means external debt servicing is increasing. We should be concerned then that our total debt stock is 79% of GDP, in contrast with peer counties which have a median figure of 36%.
All this means we really must cut down on our budget deficit. But there seems to be no understanding of this at Cabinet level, and so month after month we get supplementary estimates for even greater expenditure.
I suppose that this is understandable though, given that the enormous size of the Cabinet is one of the chief contributory factors to the deficit. Sri Lanka is surely the only country in the world in which Ministries are created in order to keep Parliamentarians happy. The idea that Ministries are intended to produce beneficial results for the public is not something anyone in politics now would take seriously. Rather, the assumption is that they are about perks, about vehicles and jobs for constituents and self promotion.
I was astonished to find, for instance, when I was Secretary to a Ministry, that the Media Unit of the Minister’s private office consisted of over a dozen individuals, for whom fuel had to be provided so they could cover all his activities. The coverage occasionally made it to the newspapers, along with coverage of fifty other Ministers, but essentially what they produced was of interest only to themselves and the Minister. I did try suggesting to the Secretary to the President that Media Units for each Minister were an unnecessary expense, and he agreed, but of course cutting down on such would be impossible.
How did what is essentially a circus take over what should be serious executive responsibilities? While obviously all Members of Parliament want to be Ministers, in Sri Lanka the assumption that they all need to be arose because of the provisions of the 1978 Constitution. Given the impact they have to make to ensure re-election, Members need the perks of Ministerial office. My Minister then had to provide jobs for people in a whole District, not merely a Constituency, and create an impression in the whole area, which is why his media Unit chased round the District behind him at vast expense, while doubtless 50 other media units were doing the same in other Districts.
All this goes along with establishment costs that add up, given the rentals and utility and communication bills that have to be paid, in addition to staff. When I decided to close down the office I had used as Adviser on Reconciliation, because not enough work was being done to justify the expense, I was told that the Rs.50,000 rental that had been charged was a negligible amount compared to other such expenditure. Saving on the establishment costs then for the at least 20 Ministries which the country could well do without would make a considerable contribution to reducing the budget deficit.
It would be argued though that this is politically unrealistic, and that, unless the President keeps his Parliamentarians happy, his government would be in danger. This is nonsense in the current context, given the massive majority he enjoys and the fact that he can dissolve Parliament if he needs to, a fate that no member of his government would want. In fact this is the perfect time to take tough decisions, for the President has over 3 years of his current term, and is still undoubtedly the most popular politician in the country.
But at the same time there is no reason why he cannot keep his Parliamentarians happy while also cutting down on expense. The need to multiply the resources available to them would be avoided if the electoral reform to which government is pledged is carried out swiftly. Then, instead of perks based on multiplying establishments in the form of Ministries, the decentralized grant could be increased so as to allow Members to engage in meaningful developmental projects in the much smaller area they would need to satisfy in a future election.
This would not only make sense for the country, it would also make political sense, for economic problems will only increase if reforms are not put in place quickly. I am sure that, provided individuals did not feel discriminated against, the majority of those in government would agree to streamlining, provided the type of compensation I have mentioned were also made available.