18 March 2019 12:01 am Views - 306
Budgets provide a succinct view of the Government’s economic plans over one year, and this year is going to be an even shorter one of just over eight months. What does the economic trajectory look like over the medium to long term? Here, budgets can signify a shift or reinforcement of an economic strategy over the medium to long term. However, Budget 2019 for all purposes is and will be seen as an aberration. It is political developments over the next year that will shape Sri Lanka’s economic strategy for the next half decade if not longer.
In the current debates about the Budget and the Government’s economic policies, an important determinant of Sri Lanka’s economic trajectory is again neglected. That is the over-determining role of international actors; particularly global markets, international agencies and the powerful bilateral donors.
The Budget 2019 is neo-liberal in rhetoric, particularly with emphasis on entrepreneurship, urban regeneration and trade liberalisation. However, the thrust of the Budget in terms of the larger allocations and proposals consists of a range of populist measures.
Continuing on the theme of entrepreneurship, many proposals refer to the Enterprise Sri Lanka loan schemes for a range of actors. The question of course is whether everyone can become entrepreneurs? I for one can say that if I was asked to become an entrepreneur and contribute to the economy by taking a loan, I would be an utter failure. It is the misplaced faith in entrepreneur-led production and growth facilitated by finance and trade, which has been a central platform of the UNP’s economic agenda. The other plank of neo-liberal development of all governments since the open economy reforms in 1978 have been urban regeneration with increasingly speculative financial investment in real estate and urban infrastructure.
In reality, however, Budget 2019 is a hangover of the long drought into last year and Rajapaksa’s populist local government election victory in February 2018. That rude political awakening early last year has brought the rural to the fore and the related generation of populist measures. It is the agenda of Gamperaliya rather than Enterprise Sri Lanka that is the priority in this Budget with large allocations to build community infrastructures around the country. Indeed, a short drive into any region cannot escape the sight of a Gamperaliya project whether it be of a rural road, a religious structure or a sports facility. Elections over the next year will tell if this robust electoral strategy will work or not, but the rural populist thrust of this Budget is clear.
A welcome continuity in Budget 2019 from 2018, is the focus on the North and efforts to address the indebtedness crisis. Here, I must disclose that I am not an impartial observer of these developments with respect to Northern reconstruction and debt relief.
The small projects that were initiated to address the war-torn economy in the North last year with a focus on rebuilding livelihoods and rural regeneration through the co-operative movement are again reinforced in the Budget for this year. The Palmyrah Fund announced to address the social and economic issues in the Northern and Eastern Provinces is another significant step; it provides an opportunity to address the special needs and problems of the war-affected people. Whether the capacity exists to make a success of these long awaited regional development initiatives will only be known in a few years.
Another significant initiative undertaken by the Government is debt relief piloted in the North and slowly expanding to the rest of the country. In order to arrest the tide of predatory microfinance loan schemes devastating rural women, a number of measures are in the works. An interest rate cap on microfinance by the Central Bank late last year, a partial debt write off for some women trapped by microfinance loans in the twelve drought affected districts, continuing efforts to provide concessionary loans to indebted women, and the building of an alternative co-operative credit system in the North are aspects of an initiative that may finally address a problem that has ravaged rural economies in many countries.
Over all, if the Budget is tentative in its economic thrust, what are the undercurrents of the economic development trajectory in Sri Lanka? I argue that Sri Lanka’s neoliberal development agenda is continuing; with big banner donor projects and through stealth by economic reforms pushed by international actors.
The debt trap of foreign loans have ensnared Sri Lanka into unquestioningly accepting every international development project. These donor projects focused on infrastructure build-out and economic reforms are not grants but rather loans that have to be paid back. However, there is little to show that the returns on investment from such projects will be beneficial to the country. The first set of culprits are the triad of international agencies dominating Sri Lanka, consisting of IMF, World Bank and Asian Development Bank (ADB). Whether it is the current UNP Government or the past MR regime, these agencies consistently determine the economic reform and development agenda. From trade liberalisation, privatisation of state owned enterprises, expansion of financial markets to the larger number of donor funded projects in sectors such as education, healthcare and urban development, these agencies consistently push their agenda over the long-term with vigilance. And to reinforce that trajectory are the competing geopolitical interests of bilateral actors such as China, India, Japan and the US. Even more significant in the mix are the global financial markets to which Sri Lanka owes its future through the large levels of foreign market borrowings.
"IMF, World Bank and Asian Development Bank (ADB), whether it is the current UNP Govt or the past MR regime, these agencies consistently determine SL’s economic reform and development agenda"
Scale is important to assess the economic development trajectory. For example, public investment characterised by capital expenditure by the Government estimated for 2018 in this Budget Speech was Rs. 625 billion. And days after the Budget announcement, Sri Lanka floated US$ 2.4 billion (Rs. 430 billion) in sovereign bonds in the global financial markets to roll over past foreign loans. Furthermore, a large number of donor projects for a range of sectors and infrastructure investment continue on the order of US$ 100 million (Rs.18 billion) to US$ 1 billion (Rs.180 billion) in multi-year development projects. My argument here is that even as we scrutinise the allocations in the Budget, we often fail to analyse the substance and consequences of both the high level of foreign debt and the economic changes that come with such external engagement.
On the national front, until the Provincial, Presidential and Parliamentary elections are over, these times of uncertainty will continue. Our challenge is to bring in economic justice critically into debates not just about the Budget, but also in the elections that will determine future economic policies. In this context, we cannot afford to neglect the external debt trap and donor development agenda that may well determine the national possibilities for charting the economic path after the election cycle.