The economy in crisis

Mr. Ranil Wickremasinghe and the United National Front government are in deep trouble even before they take off. The adjoining article on this page on the state of the economy and the two previous instalments published in The Island on Thursday and Friday by a reputed Sri Lankan economist, Dr. J. B. Kelegama, reveals the severe economic crisis this country is facing. During the last six years the PA government has been incurring expenditure far more than earning revenue – revenue meeting only 58 per cent of the expenditure leaving a deficit of over 42 per cent.

Dr. Kelegama proposes cutting down low priority and wasteful expenditure and increasing revenue but even after such cuts, additional measures are called for such as assistance from the IMF by getting it to release the $ 122million tranche that had been agreed on and also persuading donor countries to release loans amounting to $ 700 million that had been withheld because of unsound policies that had been pursued by previous governments.

Like Nero playing the fiddle while Rome was burning, the PA government was determined to go on spending sprees – despite strong opposition by the public – on projects which were clearly unproductive. Building of the Presidential Palace, the Speaker’s mansion, etc., fleets of vehicles used by ministers, government renting out luxury buildings for its offices are some of the excessive expenditure cited by Dr. Kelegama.

It is not only the PA government to blame. Since 1977, with the introduction of the free economy, successive governments have continued indulging in a very high degree of profligacy which the country could ill afford.

The free economy dawned an era of ostentation which the Sri Lankan economy could not withstand. From colonial days buildings, particularly public buildings, were constructed in a manner that they were quite comfortable and only fans were needed to ward the heat off. But today, every potty bureaucrat needs his office or cubicle to be air-conditioned and this undoubtedly has contributed tremendously to the power crisis we are going through. Perhaps it would be worthwhile for energy experts to determine the fraction of power consumed by air-conditioners in government and private sector offices alone.

The free flow of imported consumer goods that flooded the market during UNP times continued – and even increased in tempo – under the PA government despite a deteriorating economy and increasing defence expenditure. These imports have had adverse effects on the economy in more than one way. The free import of automobiles is not only a drain on scarce foreign exchange reserves but has resulted in clogging of roads and even by-ways, in the Western Province and other towns such as Kandy. The continued free import of reconditioned vehicles is now causing a grave health hazard through air pollution. Today, the numbers of those afflicted with lung diseases have increased by leaps and bounds but no effort at all is made to restrict the import of cars. With the economy in such a parlous state and roads being choked with vehicles, why higher duty rates are not imposed on import of vehicles is inexplicable. Public transport is being abandoned. School children no longer travel to school by train of bus, they use hired vans. The extent of this problem can be seen during school holidays when traffic jams are non existent during the morning rush hour.

The Minister of the Environment, Mr. Rukman Senanayake, should take immediate steps to make his ministerial colleagues to restrict importation of vehicles with the objective of reducing air pollution.

Dr. Kelegama points out to the necessity to raise tax revenue. He points out that tax revenue had declined from 17.8 per cent of the GDP in 1995 to 14.5 per cent as a result of tax reduction. The average import duty had been reduced from 9.6 per cent to 4. 5 per cent in 2000.

Increased taxation, however, should not be imposed on the middle class such as the private sector employees who are already forced to cough up a good slice of their monthly salaries in the form of PAYEE while government employees are privileged to be tax free. There are vast untapped resources such as the moonshine industry, which is considered to be the biggest manufacturing industry in the country.

Dr. Kelegama says that the new government would find it very difficult to implement the reforms prescribed by the IMF in March 2001 without creating public unrest and suggests that the government tries to convince the IMF of its difficulties and modify reforms agreed to by the previous government.

These are immediate remedial measures called for but in the long run the government should consider building up the economy not only through the traditional plantation crops and the income from housemaids but by reviving import substitution industries that have been abandoned due to wrong industrial policies.

The economic crisis calls for much more than mere bureaucratic decisions and their implementation. It calls for an enlightened political leadership in the development of both agriculture and local industry.

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