Only way out of budgetary crisis is to tell people the truth – Bandula

Bandula Gunawardena

In this interview, opposition parliamentarian Bandula Gunawardene speaks to C.A.Chandraprema about the way out of the looming budgetary crisis.

Q. As regards the forthcoming budget, the factor that looms large in everybody’s mind is the colossal deficit. How do you think the government is going to handle that?

A. The expectations that were given to the people through the mini budget earlier this year have all come a cropper. That is a major political issue confronting the government. Though it was said that public sector salaries would be increased by Rs. 10,000, the fact is that this allowance has not yet been added to the basic salary. So the government has issues about fulfilling this basic promise made to public servants.

Then as regards the project to distribute motorcycles to all public servants, there were some who had even paid the Rs. 50,000 deposit for those motorcycles. When the Mahinda Rajapaksa government was distributing these motorcycles, the new government that came into power pledged to return the Rs. 50,000 deposit. What has happened now is that they have not got back their Rs. 50,000 nor do they have their motorcycles.

Then there was the pledge to give a guaranteed price of Rs.50 for a kilo of paddy, but most of the paddy was sold for Rs. 30-35. It was said that Rs. 80 would be given as guaranteed price for tea green leaf but now prices are below Rs. 50 and tea factories are closing down. It was said that Rs. 350 would be given for rubber now the price is Rs 225 and people have stopped tapping rubber. So there is a question mark over the livelihood of subsistence farmers and smallholders. Then the Mahinda Rajapaksa government gave fertilizer at Rs. 350. Now vouchers are to be given instead of the fertiliser. Furthermore, when land ownership is given to the farmers, those who are unable to pay off their debts can sell their land and settle their loans.

Q. The crisis that the government is facing is one of not being able to manage government expenditure. You were the deputy minister of finance in the UNP government of 2001 which took over from Chandrika Kumaratnga. For the first time in our post-independence history the economy had recorded negative growth but even at that time there was no crisis in government finances like this.

A. That is why we were able to salvage the economy.

Q. Yes, so now how do you get out of the present mess in government finances?

A. You can get out of this mess provided that certain non-populist decisions are made. What is now happening is that the people are being deceived. What will now be proved is that you can’t run an economy on falsehoods. If it was possible to add Rs. 10,000 to the basic salary of a public servant we too would have done it. We did not do it because it can’t be done without some very serious consequences. We can utter falsehoods to get the votes of the people and we can bear the resulting expenditure for a short period.

The payments made to pensioners before the election are not being paid now. That kind of thing has happened throughout our history. Bread was promised at Rs. 3.50 but it was never given. There are certain economic realities. By giving impossible pledges just to become popular, they are now unable to control expenditure. They can’t raise revenue also because they described taxes as a case of ‘robbing’ the people. You can’t run a country without taxes. In any country, the tax revenue should be around 20% of the GDP. Some countries have up to 40% of GDP in tax revenue. It is this money that can be spent on health, education housing etc. You can’t spend if there is no income. If expenditure rises without an income, you will have to take loans to cover the shortfall and the interest on such loans becomes an additional expenditure burden with each passing year. Some people say that it is because the Mahinda Rajapajsa government took loans that this has happened.

That is a lie. The debt crisis was most serious in the years 2002-2004 when the debt to GDP ratio was over 100%. This was brought down to 75 by the time the Rajapaksa government ended. So what we have is not a debt crisis. What has happened here is that various pledges were given to win elections against all economic principles and even against plain common sense. Now they are floundering without the ability to collect revenue because of the very lies that they themselves uttered. The credibility of the Sri Lankan government in the eyes of the multilateral lending agencies like the IMF, World band and the Asian Development Bank has evaporated. Foreign reserves were 8.2 billion USD at the end of the Mahinda Rajapaksa regime.

This went down to 6.2 billion USD. Even this rate is being maintained because of the Indian currency swap of 1.5 billion USD. The minister of finance thinks that the money market is unaware of this. This is a way of shoring up the reserves artificially. The actual reserves have fallen drastically. Recently the finance minister had said that 420 million USD has come into the country as deposits from foreign account holders. Is there any truth in this? Once it was said that the value of the US dollar will be brought back to Rs. 130 within a week. Today the dollar is Rs. 144. The predictions are that the dollar will hit Rs. 150 by the end of this year. Due to the crisis, capital expenditure will be slashed. In 2014, I spent Rs. 600 million in the Homagama Divisional Secretary’s area. Similarly Rs 500 million was given to Kesbewa, and allocations were distributed in that manner countrywide. This year, not a cent has been spent on the Homagama DS area. What this means is that minor development works like roads and water supply schemes have not been implemented. For the first time MPs were not given even the Rs. 10 million decentralised budget for this year.

Q. There is a lot of anxiety in the country within the private sector as well as among the general public over the possibility of drastic increases in taxes.

A. There are only two ways to increase government revenue. One is to increase existing taxes or introduce new taxes the other is to sell off state owned assets. They are going to do both. State owned assets including land is going to be sold after the budget as was done during the Premadasa and Chandrika Kumaratunga governments. Already the Hilton Hotel and Lanka Hospitals have been earmarked for sale.

Q. I saw a breakdown given b y the Pathfinder Foundation according to which if the government sells off everything it has including the Norochcholai power plant and the estates, the total amount that can be realised is just 5.5 billion USD. That’s a pittance. What can you do with that?

A. The politicians who talk about economics have mixed up their millions and billions. They said we were trying to make this country a colony of China. During the entire period of the Rajapaksa government China has invested only six billion USD in Sri Lanka including the Port City. Of this the Port City is on hold so the total Chinese investment is below five billion USD. But the Chinese went to Britain and gave them 30 billion USD. Pakistan got 46 billion. India got 22 billion USD. Foreign Minister Mangala Samaraweera said that Mahinda Rajapaksa has stolen 18 billion USD. Nobody in the government seems to know the difference between millions and billions, so they have no conception of what can be realised by selling off state owned assets. Only a limited amount of money can be realised in that manner. So the strategy is to allow land also to be sold. Freehold ownership of state land is to be given to facilitate this. The last time this was done by the UNP government, ownership of the Galle Fort and a good part of the southern coastline was bought up by foreigners. That is why the Rajapaksa government brought in the 100% tax when foreigners purchase land. They are targeting everything. The EPF and ETF have over Rs. 1,700 billion. They are now trying to turn this into a pension fund out of desperation. There is also the plan to bring all state owned enterprises under one body on the Singaporean Tamasek model and sell off its shares. They are trying to get out of the quagmire they are in through extreme forms of liberalisation. This will of course give rise to a political division in the government because the SLFP simply can’t countenance such measures. One of the most progressive measures introduced by T.B.Illangaratne in 1958 during the S.W.R.D.Bandaranaiake government was the EPF. Can the present leader of the SLFP president Maithripala Sirisena agree to what the government is trying to do to this fund? All privatisations were stopped during the Mahinda Rajapaksa government. Can the present SLFP agree to sell off the remaining state owned assets? We will call upon president Maithripala Sirisena to intervene to protect the basic policies of our party.

Q. When I was in the Ceylon Chamber of Commerce about a quarter of a century ago, I was the Secretary of the Chamber Taxation Sub Committee. In the Chamber’s pre-budget representations every year, the main recommendation was for a lower corporate income tax rate. This private sector dream was realised only during the Rajapaksa government when the corporate tax rates were reduced to about 25%. But hasn’t this also contributed to the present shortfall in government revenue?

A. A high tax regime discourages investment. It was with a view to increasing investments that the income tax rates were reduced. It is true that the government lost some revenue, but investment increased, unemployment went down and so did the poverty levels in the country. Under this government the public servants may have got a pay hike but there are only 1.3 million public servants whereas there are 6.5 million workers in the private sector. The latter have got nothing. Now there is the expectation being created that after this budget foreign investors will come into the country. But no investor in his right mind will even look at Sri Lanka. Because of the super gains tax, we have been labelled as a country that imposes retrospective taxes. The rupee is depreciating daily. Ministers are resigning and squabbling and the government itself is limited to two years. Politicians and high officials are being taken every day for questioning over financial crimes. Dangerous terrorist suspects held under the Prevention of Terrorism Act are being released. That is the picture that a foreign investor sees when looking at the country from outside. Worst of all is the halting of the Port City project and chasing out the Chinese. Britain, America and everybody else are embracing the Chinese, and we are chasing them out! Investors are going to think the government of this country is run by fools. Will another hotel chain like Shangri La chain ever come to this country in this environment?

Q. The IMF team that came here in September put down in writing what they expected the government to do to qualify for an IMF bailout package. Some of the matters raised by the IMF are to be seen in the statement on economic policy made by the prime minister such as the privatisation of state own enterprises. But there were some other recommendations such as stopping the printing of money and increasing the interest rates. But these latter issues have not yet been addressed. The EconomyNext website reported today that another Rs 28 billion had been printed.

A. They raised the ceiling on issuing treasury bills by 400 billion. That is to print money. This is also the government that took the most amount of foreign loans through issuing sovereign bonds within one year. The interest rates were also the highest ever. They first took 650 million USD at 6.125%. Then they took another 1.5 billion USD at 6.85%. So the total amount is 2.15 billion USD in commercial loans in just one year! The IMF told them to increase the interest rate but they reduced it further. The advice given by experienced officers in the Central Bank are not heeded. Important ministers in the government are saying in parliament that the Central Bank figures are wrong and that the growth rate and inflation rate was not accurate and that the actual indebtedness is much greater than what the figures indicate. After hearing that no investor will want to come to Sri Lanka. Any investor will first look at the Central Bank reports and if that document can’t be relied on then no investor can make an informed decision. According to the Fiscal responsibility Act of 2003, true economic data have to be provided to parliament. Last week, data was tabled in parliament under the Fiscal Responsibility Act under the signature of Ravi Karunannayake. Now Minister Harsha de Silva claims that this data is wrong.

Q. Now let’s suppose for a moment that the government finally decides to fulfil the recommendations of the IMF given in September and qualify for a programme. But the IMF gives only balance of payments support. They don’t give budgetary support. So we are still left with the fundamental problem of not having enough money to meet government expenditure. They have to pay the extra 10,000 to public servants and pay the promised subsidies and guaranteed prices. How do you get over that problem?

A. There is only one way to solve that problem. The leaders of this government should come on TV and fall on their knees before the public and admit that they said every lie that came into their minds and made every false promise that occurred to them just to get rid of Mahinda Rajapaksa and beg the people’s forgiveness. They should admit that you can’t run a country like that and appeal to the people to forget the promises and pledges they made. There is no solution in terms of economics. This is a matter between the government and the people.

Q. You can avoid paying the guaranteed prices for paddy, tea and rubber because the farmers are not organised and vocal. But the extra 10,000 for public servants has to be paid. How do you get over that?

A. If you are to get over that one, as I said earlier the only option is for the leaders of the government to fall on their knees before the people and tell them the truth. I have been in parliament since 1989. I haven’t said even jokingly, that public sector salaries should be increased by Rs. 10,000 in one go.

(Source: The Island)