ISSN: 1391 - 0531
Sunday November 4, 2007
Vol. 42 - No 23
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Budget blues

The all-important Budget is to be presented in Parliament on Wednesday, and according to the country's Constitution, a Government can fall if the majority of the 225 members vote against it. This would automatically trigger another Parliamentary General Election, and it is therefore understandable, that given the composition of the present House, political posturing and horse-dealings are going to be the order of the day, and night, behind the scenes from now.

The Government, only too aware of the dangers a defeat portends, has been bringing all possible price increases before the Budget - and keeping some for later.

They have also forged a marriage of convenience with some minority parties, the SLMC, the CWC and the UPF in what some term a 'hodgepodge', others a 'rainbow' (depending how you look at it) coalition, but politics being so fickle, these marriages can go bust before the ink on their MoUs dries.

The political and economic conditions of today are hardly conducive to the presentation of Budget proposals that could get the country out of the fiscal mire we have got ourselves into. It is easier to move into worse situations that burden future generations, than to take unpopular measures that contain expenditure and increase revenue. Given the Government's recent actions, much cannot be expected by way of fiscal discipline. In fact financial mismanagement has characterised this administration during its brief tenure in office.

The growth potential in 2008 is shaky owing to the inflationary conditions in the country, the lack of business confidence, political instability, the continuing war (despite this week's euphoria of the Thamilselvan death), rise in international prices of fuel and other essential import items and a slowing down of the global economy.

Besides the likely depression in growth next year, the trade deficit is likely to reach US$ 3,000 million, the public debt around 100 percent of GDP, inflation touching nearly 20 percent at 19.6 percent currently. These are hardly the signs of a healthy economy. And the Budget deficit and fiscal mismanagement are important underlying factors in bringing about these dismal conditions.

Most economists agree that many of the problems the country faces today are due to poor fiscal management. In recent years, the annual Budget deficits have been responsible for the inflationary pressures in the current year and addition to a large public debt.

The fiscal deficit is currently running at over 8 per cent. No doubt, as in the past, by the magic of a pen the 2008 fiscal deficit will be brought down to a lower amount. Yet it is now common knowledge that the Budget estimates of revenue are not met and what is much worse, the expenditure overshoots the mark.

At the expense of repeating ourselves, fiscal irresponsibility has characterised this administration, and even the previous administration under the same dispensation. In the current economic and financial context, the expectation of a Government would be for it to be frugal and to cut down unnecessary expenditure. Instead, the Northern insurgency is used as an excuse for public expenditure extravagance. For instance, the 2008 budgetary allocations for the Office of the President will be doubled to more than Rs 5.75 billion -- with about Rs. 1.43 billion of this going for a new category called "development activities". Nowhere are any details of this "development activities" given. In fact, such wide powers are given for expenditure to be moved from one purpose to another that the details of expenditure are quite irrelevant. Financial extravagance and wastefulness is the order of the day. And Parliament, the sole repository of public funds is being asked to say "OK" to this.

The spiralling cost of living that has burdened the poor in particular is attributed to the insurgency and the rise in international prices. This is no doubt partially correct. Is it also a red herring to distract people from the inability of the Government to manage its finances in the context of an ongoing war and the external shock of rising international prices?

In such a context, what is expected of the Government is the reining-in of expenditure within admissible limits to contain the fiscal deficit and reduce inflationary pressures. Instead, it continues to be a big spender and borrower at high interest rates from international financial markets, readily pawning future generations in the process.

We await the Budget proposals to see whether action is taken to contain the deficit and return the country to a path of fiscal discipline. We have our serious doubts. Given the pre-Budget Appropriation Bill estimates, the fiscal conduct of the Government in the past two years and its displayed financial irresponsibility, this is too much to expect.

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