Columns - The Sunday Times Economic Analysis

Prioritising social protection without sacrificing economic growth

By Nimal Sanderatne

At times of national crisis such as this, the government’s economic policies and administration must focus on ensuring that those affected have adequate food; their destroyed dwellings are repaired and restored; likely epidemics in the aftermath of the floods are minimised; the livelihoods of the people affected are restored and the damaged infrastructure is repaired. These are certainly mammoth tasks requiring large amounts of finances and efficient administration. Policies to protect the large numbers affected by the current floods and destruction in several parts of the country must take precedence over other activities of the government.

The manner in which this devastation is handled should ensure minimal impediments to economic growth. Finances should not be squandered and misused. They should not go into the hands of persons unaffected by the calamity. The floods should not be used as an excuse for bad economic management and incurring of wasteful expenditure resulting in further worsening of the public finances. It is an occasion for careful use of public money. The challenge to ensure that those affected are adequately served and protected while at the same time the public finances are managed prudently is a demanding task. The challenge of disaster management is to ensure relief to people affected, reconstruct and repair infrastructure and ensure food security, while maintaining the momentum of economic recovery and growth.

Urgency, priority and needs

The urgent necessity of protecting the affected population is recognised by the government. The President has given instructions for the initial allocation of funds and would allocate more funds as the needs manifest themselves. The multifaceted problems that would arise have also been recognised and several ministries are gearing themselves to mitigate the problems: agriculture, irrigation, health, housing and construction, among others.

The initial task is to provide food and basic necessities including temporary accommodation and sanitation facilities to those affected. This is no easy task as nearly one million have been seriously affected and whole regions have been devastated.

The government has mobilised the army, navy and air force to undertake the initial rescue operations. Medical services have been strengthened in the flood affected areas where epidemics are likely in the aftermath of the floods.

The government’s promise of repairing and constructing housing is one that must be implemented. The repair of irrigation tanks, minor irrigation reservoirs as well as irrigation channels is another priority.

Farmers’ plight

The Agriculture Department has a huge task in resuscitating agriculture. The destruction of the Maha paddy harvest means that farmers have lost their source of income. This would have to be made good by giving farmers an income support based on their area of cultivation with an upper ceiling. The Department of Agriculture would require making the determination of compensation entitlements. The proper determination of compensation and effective targeting of income support payments are in practice difficult and often distorted by inefficiency and corruption.

Farmers have lost their capacity to cultivate the next season with seed paddy from their own fields in the crop destroyed regions. The Department of Agriculture has a vital and difficult task to ensure adequate seed paddy of the right variety for cultivation. The Department’s own seed development capacity is limited even at normal times. Obtaining adequate seed supplies in the current conditions of low production and high prices are a daunting task. Economising on seed use by shifting from the traditional method of sowing to row seeding and transplanting could save on seed usage. However, especially in the Eastern Province, farmers practise a method of excessive seed use as a means of weed control and for obtaining higher yields. Converting them from this method would be difficult.

Efficient and effective administration

At a time of crisis such as this the efficiency of the administration is decisive. Sri Lanka has had a record of excellent administration at crisis periods. Among them are the notable instances of coping with the chaos of the 1958 insurgency, the floods of 1958 and the Tsunami of 2004. There were the spectacular achievements of the railroad reconstruction in record time by the Sri Lanka Government Railway workers and many instances of successful housing construction by community-based organisations. There have also been widespread accusations of Tsunami aid being siphoned off to private purses.

In contrast to the successful experiences, the Samurdhi programme targeting is defective. Many recipients are not the intended beneficiaries: the numbers benefiting are way above the number of the deserving poor and many of the needy do not get the benefits. The assistance to flood victims should not replicate this experience. Better systems of determining the needs and ensuring the beneficiaries are those affected must be made certain as it will have a significant bearing on the extent of the relief, the cost of the programme and the recovery of affected regions.

Financing expenditure

The costs of providing income support, credit for cultivation, reconstruction of houses, and repair of the irrigation network, roads, bridges and other infrastructure would be high. These are not budgeted expenditures. These additional costs could result in an increase in the fiscal deficit that generates additional inflationary pressures. How could this adverse macroeconomic impact be reduced?
Unnecessary expenditures should be cut down and redirected to priorities established by this crisis. Agencies working in affected areas should prune their existing budgets and direct them to the priorities arising from the floods. Where current expenditures are inadequate, budgets have to be in creased by a general cut in the overall budget so that expenditures are kept within an overall envelope consistent with macroeconomic stability.

Some part of this expenditure would be met by foreign aid from international agencies and governments. To the extent that the world community comes to the country’s assistance, government expenditure would not be strained. Realistically foreign aid cannot be expected to finance the bulk of expenditure in rehabilitating people, repair of infrastructure and reconstruction of the devastated areas and homes of the large numbers that are affected. Substantial government expenditure would be needed since foreign aid can only finance the foreign exchange component. Local expenditures will need to be financed by cutting existing votes as well as transferring funds from low priority areas. Since ministries and agencies will be reluctant to reduce their voted funds, a person of high authority needs to support the relief effort and cut down other inessential expenditure.

The current situation is a challenging one for fiscal management. The easy way out is to use the floods as an excuse for increasing the fiscal deficit. This will postpone further the stabilization of the economy and weaken economic fundamentals to the detriment of sustained economic growth. How can this be averted? Most of the additional expenditure should come from pruning unproductive and wasteful expenditure and slowing down activities that are not of immediate utility. There is much scope for pruning conspicuous expenditure of the government. The flood damage provides an opportunity to ensure that public expenditure is better managed so as to enable the new priority spending and overall public expenditure to be more aligned with government revenue.


The Government should appoint a senior officer with a good track record for disaster management who has the authority to coordinate the various agencies and departments to achieve the relief and post-flood goals. Such coordination is essential owing to the urgency of the operation as well as its inter-ministerial interventions. A task force led by the President, and consisting of the secretaries of finance, agriculture, irrigation, retail trade, among others, has to be brought in for this effort.

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