Budget 2008 Breaking New Ground

Budget 2008 can push the rural economy of Sri Lanka to a higher growth trajectory and has laid a firm foundation for the country’s development, says Prof Bernard Dissanayake in an interview with Dharma S. Samaranayake

Q: What are your views on 2008 Budget?

A: The Budget 2008 was introduced under very difficult and severe economic constraints and highly changed political atmosphere. No other Budget since 1948 has been introduced under such constraints and external shocks.

Q: Can you explain ?
 

A: Yes, politically the Government faced a difficult situation in Parliament at the end of the second reading. Fortunately, the Government won with a good margin supported by many minority parties in Parliament expressing confidence on the Budget. The Opposition parties, had their ulterior motives and their own narrow political agendas.

People at large were indeed happy that Government won the day. The opposition parties that voted against the Budget on 19th fell from grace. The people feel that these parties acted in their narrow political interests forgetting the larger issues of national interest.

Q: What is your economic assessment of the Budget of 2008 ?

A: My overall view of this Budget is that it attempts to break new ground and formulate a strategy for economic development process on a broad base introducing planned regional development in areas and regions hitherto neglected or marginalised or both.

It has attempted to move away from m popular consumer pampering for vote catching and instead addressing the national issues development and social progress.
 

Besides this strategic move the Budget has not cut any welfare measures and expenditure on health education and utility services. The Government appeared to have taken a visionary view of the economy and the society, besides the day to day issues and problems.

The Budget is essentially an annual plan of the government’s expenditure and its revenue proposal for the ensuring year. In the expenditure plan the current expenditure and its projects related capital expenditure, indicate the Government’s thinking on welfare and development strategy. Revenue proposals also reflect similar considerations.

Retention of subsidies and avoidance of excessive taxes and duties on certain goods and services is how the Government looks at the broader issue of equity as growth.

This Budget has not imposed high taxes on essential consumer goods and continues to retain subsidies on same critical inputs like fertiliser and fuel. This clearly indicates the policy for growth with equity consideration.

Budget making in prevailing conditions is a complex task indeed. Sri Lanka right now is facing what economists call external shocks. The rapid rise in crude oil and gas prices in the international market has a perverse effect on prices and costs in the Sri Lankan economy.

Secondly the rise in prices of essential imports of milk food, wheat flour and sugar resulting from supply constraints overseas has brought about a cost push inflationary pressure in the domestic economy via import prices.

This in addition to rising energy costs in the country. There is the on going conflict and the need to incur large expenditure on military operations and defense matters. Confronting these problems and formulating a Budget is not easy.

The Sri Lankan economy has developed over the last three decades. There is very little space to manoeuvre and very little flexibility either to craft easy solutions. The economy has become excessively dependent.

We appear to have mastered the art of developing a dependency syndrome in the economy and society without developing a sustainable growth process to reduce dependency and strength for within and make the economy’s resilience stronger over time. In short we developed a weak structure within.

Q: Can you explain this dependency syndrome that we are in ?

A: The term syndrome comes from the medical profession. It is a disease condition, physical or mental. In this case it a psychological problem related to what we perceive as need satisfaction and development needs. Let me explain this point.

We came out of colonial domination and gained independence in 1948 and now even after 60 years of independence we carry a colonial mindset. Deep down in most of us don’t we carry a perception and therefore performances of “Kalu Suddha”.

Hence our attachment not only to foreign goods but also to foreign development models, foreign advisers and of course foreign aid. Hence is it surprising that we end up excessively depending on foreign imports excessively for our sustenance without building means to pay ?

People tried to change the system in 1956 electorally by changing the direction by public policy. The attempt was aborted by assassinating S.W.R.D. Bandaranaike, the leader who stood for change and subsequently putting road blocks preventing the process of change taking place by interested groups who wish to keep Sri Lanka dependent and deceived.

Those groups were aided by local political elements whose colonial ancestry was too overbearing. They did not allow any fresh, innovative thinking on development.

The intended process of change was halted in 1977 under a new government which opted for a liberalised open economy expecting to grow faster and eliminate unemployment and poverty and other inequities in society.

The new government adopted an export-led growth strategy, copying the economic model of Asian Tiger economies of the Far East. Export processing zones in Katunayake and elsewhere in Colombo district were implemented. All these were expected to push the economy of Sri Lanka on a higher growth path within an open economy.

For a time things looked rosy indeed. The boom conditions that prevailed mostly in Colombo and in few large towns, created an aura of affluence for a section of urban community in Colombo leading to an illusion of consumerism among people who earlier faced shortages of goods. However this newly found affluence was without a solid economic base to support.

This is largely because the export-led growth strategy was ill-conceived or badly designed and implemented. Before exports led to growth, imports of all sorts flooded the local market killing the local industries and overtaking exports by leaps and bounds. Hence the so-called growth was limited to Colombo and major towns.

Under-development and poverty continued in most other areas. The boom was short lived up to 1992, and with equally ill-conceived political management of the Government that came to power in 1977 led to, if not created, the communal riots of 1983.

The development process slowed down considerably and the country was pushed to major conflict situation that dragged on for almost three decades. Given this history the economy became increasingly dependent for its sustenance on foreign aid and assistance.

The economy did not develop strength to withstand the changing world economic conditions. We got used to borrowed affluence with no vision in sight to develop the country. Thus we have come to witness a dependency syndrome refereed earlier.

This is almost getting back to the colonial economic system, the only difference is that we manage it and bear the cost. Some call this neo-colonialism. Whatever name you want use to describe it the fact remains that we are an dependent on others for survival.

This state of affairs has brought about an import dependent consumption pattern. This model of development continued till 2004/2005 political change.

Q: So what is your assessment of the Sri Lankan prospect for development and how can Budget 2008 contribute to enhance these prospects ?

A: The prospects for development and a prosperous economy in Sri Lanka were always there with us; The island’s location and its geography, the resource base the people and their native intelligence and desires for development and resilience.

What was lacking is a visionary leader like Dr. Mahathir Mohamed. Dr. Mahathir had a vision for Malaysia namely the vision off 2020 to make that country the most developed nation in South East Asia. We now have that kind of leadership in Sri Lanka but for this leadership to produce good results we need a good followership too.

There should not be political bickering, jealously, hatred and terrorism. Conspiracies must be exposed fully and brought to book. I believe that Sri Lanka’s development has been lopsided and therefore the vast majority of people and regions had not participated in the development process productivity.

Budget 2008 attempts to break new ground and lay the essential foundation for a new strategy of development. I think the present leadership is dead serious on bringing about a change in the national economy by taking development to neglected regions in the South, East and finally the North.

In all these projects and plans involving vast areas of rural economy, the link is market development. The market is the least understood variable in Sri Lanka’s development plan. The Budget can push the stagnant rural economy in Sri Lanka to a higher growth trajectory. I am certainly quite hopeful for Sri Lanka’s development.

The interviewee, is a senior consultant at SLIDA. He is an Associate Professor, Marketing and Management, at the University of Al Ain, UAE.