ISSN: 1391 - 0531
Sunday March 23, 2008
Vol. 42 - No 43
Columns - The Sunday Times Economic Analysis  

Who would disagree with the JVP on public expenditure?

By the Economist

The JVP’s current views on the government’s expenditure are right on track with the thinking of international agencies, economists and all right thinking people. They have become strange bedfellows with the JVP. The JVP has expressed their criticisms of public expenditure more forcefully than economists and international agencies. Their tone and temper may be different but their view is in accordance with the views often expressed in this column that fiscal discipline is crucial and that wasteful and unnecessary expenditure should be slashed.

The JVP has continually denounced the wasteful expenditure of the government both within and outside parliament. They have not received any answers from the government. The government has adopted the attitude that dogs can bark but our caravan moves on. The Government moves on to spend more and more regardless of the impact on the country’s economy. This is a serious predicament in the economy as it causes enormous economic strains and imbalances.

The JVP has continuously criticised both the extent and waste of government expenditure in recent months. They have questioned the prioritization of expenditure. They have lambasted the government for numerous kinds of large expenditures in a context when several economic and social priorities remain unfunded. They have rightly pointed out the inflationary impact of such expenditure and identified the current inflation to be fuelled by such expenditure. They have argued quite rightly that these expenditures are a burden on the ordinary people of the country.

A telling example they have brought out is this: “Who wanted another airline? What we need is not another airline but buses for people to travel to work”. Can anyone dispute this logic? In a stringent fiscal situation, when the government has no funds to provide essential medicines to hospitals, facilities to rural schools, fund social service programmes, improve the railways, fill the pot holes on the roads, repair bridges and attend to a multitude of basic needs, the government is expending huge sums of money on exhibitions, foreign travel of ministers and their entourages and running an airline at continuing losses. The JVP continuously points out the obesity of the cabinet and the consequent large expenditure. These wasteful expenditures are fuelling inflation that is daily becoming an increasing burden on the poor.

What the JVP is saying is ‘Economics for Babies’ that adults in high places choose to ignore. Have the large number of economists that the President has mobilised as an advisory team pointed out these facts and advised His Excellency to cut down on these expenditures? Are they cognizant of the serious consequences of these expenditures? Perhaps they have advised the President in polite jargon that their advice has quite easily been unheeded. The language and examples of the JVP are strong and well-suited to the dire straits in which the country’s public finances are in. Advice in phrases such as, “the budget deficit must be kept to manageable proportions” or “the public expenditure should be aligned to its revenue”, are soft advice that easily falls on deaf ears. Regrettably, even the loud rousing of the JVP appears to fall on deaf ears. The warnings of international organisations monitoring the economy, local think tanks and of eminent economists are likewise ignored.

The agreement with the JVP on this single issue does not imply that we can agree with their general economic perspectives and policies. In fact the JVP is quite confused in their policy stance. This is especially so with respect to the role of the private sector, privatisation and trade liberalisation. While indicating that they are not averse to the private sector, they still appear to harbour the view that the commanding heights of the economy should be in state hands. They are not only against privatisation of any more public enterprises, but often indicate their opposition to privatisations that have been done by the SLFP and UNP in the past. Very recently they criticised the government for having handed over the estates to private management. They have made similar statements from time to time against privatisation.

In this context of their thinking, one wonders whether they would nationalise some private enterprises were they to come to power. It is of course very clear that they do not want any public enterprise, however inefficiently they are run and whatever losses they incur, to be privatised. Their opposition to reforms and privatisation has had an adverse impact on public expenditure as well as affected the government’s pursuance of good macro economic policies. It has also affected the country’s capacity to borrow on concessional terms.Another key area where the JVP appears unable to change its stance in spite of economic realities, is that liberalisation of trade has done much good to the economy.

They still appear to view protection of industry and agriculture as a strategy for economic development. This is despite the harsh experience of many years of inward looking policies that brought the economy to a static state of economic growth, accentuated the foreign exchange situation and caused enormous hardships for the poor. They have still not grasped the truth that a small country like Sri Lanka with its very limited resource base cannot develop without gearing its production for exports and deriving the benefits of specialisation in those commodities for which it has a comparative advantage.

There are many other areas of economic policy too, where they cling on to moribund ideas on economic development. Suffice it to mention one more misconception of the JVP. The decline in the share of agricultural output in the GDP is looked upon as an adverse development. This goes against the proven experience of economic development where the share of agriculture declines as an economy diversifies and grows. In fact the future of the country lies in the development of industries and services. This does not mean that agriculture could be neglected. It still has a role to play in contributing to growth, increasing rural incomes, reducing poverty and improving rural household food security. Yet, its share in national output must decline. The concept that there should be balance with each sector contributing equally to the economic output is a horrendous misunderstanding of the process of economic development.

Nevertheless we come back to the issue that triggered this discussion. The JVP ‘s forthright criticism of the government’s expenditure on wasteful exploits is sound. And the strong manner in which it expresses this opposition to such government expenditure can be espoused by all right thinking persons. It is not only the war that is bloating public expenditure. Many other expenses are also contributing to the fiscal deficit and distorting priorities in public spending and fuelling inflation. The JVP’s forthrightness in condemning wasteful public expenditure must surely resonate far and wide.

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