Budget’s focus on human development, soft infrastructure is a philosophical shift: Eran

Public Enterprise Development Deputy Minister Eran Wickramaratne 
Pic by Pradeep Dilrukshana

The 2017 budget presented by Finance Minister Ravi Karunanayake a couple of weeks ago has drawn flak from the masses but a nod of approval from economists, analysts, etc., who have been calling for fiscal consolidation. As opposed to the previous two budgets of the good governance administration, budget 2017 contained a very little short-term relief to the people by way of price reduction of essential goods, customary salary hike for public sector and so on. Politicians who represent the opposition call this a budget shoved down our throat by the International Monetary Fund. As a whole, polarizing views are being expressed about the 2017 budget and Mirror Business met with Public Enterprise Development Deputy Minister Eran Wickramaratne to find out his take on the budget. Wickramaratne, before stepping into a career in politics, was a highly respected senior banker and was considered a corporate leader with a vision and unwavering integrity. 
Following are the excerpts of the interview.

In a nutshell, how would you describe the 2017 budget?
I would say it is a budget that has individuals at the centre of it. So, it is really talking about human development. Often, when people talk about development via the budget, it is about roads, buildings, highways, but this budget is about soft infrastructure, largely. The philosophical shift is in that area. 
Would you agree a good proportion of the budget was from the previous?
There are certain things that are a continuum of the previous programmes and rightly so. Just to stand back from the budget proposals and to see what the philosophy was, it was a medium-term plan. If you look closely at that, it was based on a knowledge economy. It was based on obtaining innovativeness, a green economy and sustainable development. When you look at the outcomes expected, it is the creation of jobs, higher income jobs, strengthening the rural economy and giving the people ownership of land. By that you widen the middle class in the country. Those were the outcomes expected from the objectives set. That was what underpinned the budget and that is why there were lot of focus on youth, women and knowledge, to combine them with the innovative economy, exports and so forth. 

Taking the current economic status into account, where we are trying to improve international trade, uplift human resources, attract foreign direct investments (FDIs), amongst other ambitions, are the proposals put forward best suited to help the government reach the objectives spelt out in the prime minister’s five-year plan? Is it in sync?
Yes, I would say so. The budget had to make some choices. It chose the younger generation. In that, it said to give school students protection. For that, an insurance scheme was introduced. Then the budget said that if you look at the 1000 schools, the basic facilities are not there. Last year or so, money was separated and the programme reached completion for 420 schools. There is an increase there.
When taking into account job creation, it is looking to create higher income jobs. Higher income is in the area of technology and science. The budget has picked 3,500 schools to create computer labs where each facility will have 50 units. 
Then it talks about creating a culture. We need to create a culture of learning and innovativeness. For 175,000 students tabs would be given. This will also be extended for 28,000 teachers. This creates a certain ecosystem. It went further and said that if you go the normal O/L and A/L routes to university, only 26,000 will receive education in a government university. This we look to double in 2020. If you go to a private university, also we are going to help you with your education via loan schemes. If you don’t go that route and go through a vocational training, there too a loan would be extended. 
The philosophy in this is that our centre of attention is the student. It is not who gives the education but what is important is the student. 

You pointed out the budget aims to boost innovation. Could you elaborate on this?
Yes. For example, if you are from a university and have an idea and want to test it, often there is no way around this. To try these ideas, they need capital. For them, we will give a loan of Rs.1.5 million, interest free, payable 10 years later. That was one. 
To look on the emphasis on science, we also separated money for the innovation accelerated fund to commercialize innovation and to establish a biotechnology park. Funds are also allocated for an advanced electronic design centre at the Moratuwa University. This is just to show the emphasis has shifted to young people and to science and technology. 
Another important area is that when we look at the budget, we looked at the workforce. From the workforce participation, 53 percent of those above 15 years are in that cluster. If you take countries like Indonesia, it is 68 percent, Nepal 83 percent, Bangladesh 71 percent, Thailand 72 percent and Vietnam 77 percent. So our workforce is small.
If you take female participation, Indonesia is 51 percent, Nepal is 80 percent, Vietnam is 73 percent and Thailand is 64 percent. Sri Lanka’s participation is only 35 percent. This is a concern. On the one hand, if you look at the O/L an A/L classes, there are more women than men. If you look at university, there are more women than men. Recently, when focusing on the vocational training side, I find that in some places, women are getting ahead. So why isn’t that translating into the workforce? Partially the reason for that not being translated is that women, when they get married and have children, priorities shift. They struggle 
to balance. 
Then we need to create an environment that makes it easier for them to participate. Amongst other efforts, we are trying to create daycare centres. Even at the divisional secretariat level we are proposing to do that. In addition to that, we are looking at reforming the law. That is to look at flexible working hours and helping to work from home. So we are looking to change the rules of the game to increase women’s participation in the labour force. 
Throughout the year we heard much on the need to improve the education sector. But we saw a significant reduction in the allocation for the same. How can that be justified?
That is not entirely accurate. The way it was calculated last year was different. So, we were not comparing apples with apples. 
In the budget, it is said, “…amidst severe fiscal constraints we faced last year, due to the undisciplined fiscal management of the previous government, we allocated in 2016, almost three times that of the allocations made in 2014. However, the Education Ministry has been able to utilize only around Rs.38,850 million at the end of the third quarter of 2016. We took careful stock of the situation and therefore allocated almost Rs.90,000 million for 2017. While I admit that allocation for 2017 is less than that of 2016, it is nevertheless 70 percent more than that of 2014. I will also be proposing the provision of an additional allocation of Rs.17,480 million to further strengthen the development in the education sector.”
So it’s not just the allocation but utilization as well. There is enough money. Everywhere you go in Sri Lanka you will say that education has got a lot more after the current government walked in.
You pointed out that the utilization of the budget did not reach its full capacity. Doesn’t that translate to poor execution of plans by the authorities?
Yes, there is an issue there. But you need to remember that all these plans are executed through government machinery and bureaucracy. And, in that, there is much to be improved to make it more efficient and increase absorption rates. It’s not a thing we can correct in the short term. It will take a while to improve the efficiency of the system. And this is not just in education but across all sectors. A lot is to be done to transform those. 
While we are still on the subject of education, alongside extending tabs, there are other priorities that need to be met. Don’t you agree teachers and resource persons could have been allocated higher pay? Doesn’t that help in providing quality education?
There is no question that teachers in this country are underpaid. The issue our government faces is that almost 100 percent of government revenue goes to service debt obligation. The previous government had taken debt like nobody’s business. From 2019 to 2022 we have to repay between US $ 3.2 to 3.7 billion each year. We are not out of the woods and need careful management. So we have a problem on our hands.
As our government came in, we increased the pay of government servants to fulfil an election promise. So, we can’t keep that going. If I were to ask the wider question, we need a more efficient government service, which means we will need to remunerate the people in the government service more, need to spend a lot more on training. That also goes with the fact that we can’t have excess numbers in government service. We can’t have it 
both ways. 
We saw a number of tax revisions proposed, could you outline the implications of the same on the (1) business community (2) public?
On the taxation side for corporates, there are three belts, the 14 percent, 28 percent and 12 percent. There is no major shift or change in taxation of corporates. What our focus is going to be on is widening the net. There are still companies that don’t pay and there are also professionals who don’t come into the net. Widening the net is one. 
If we are talking about tax in general, there is a need to minimize the leakage. Currently 87 percent of revenue comes from three institutions, the Sri Lanka Customs, Inland Revenue and Excise Department. The COPE will be presenting to parliament in January on this issue and how it can be minimized. I chaired the committee. So we will be presenting that report. Revenue had fallen to the dangerous levels of 10.5 percent of gross domestic product (GDP), we have reversed it now to about 13.5 percent but we need to be around 20 percent. We have to move away from the debt trap there is no question revenue has to go up. The other is that our exports need to go as a percentage of GDP. 
Are you satisfied with the proposals put forward to improve the public enterprise performance? Was it as expected?
The government has separated money for public enterprise reforms. The budget is not a big determinant there. There are about 240 state-owned enterprises (SOEs) and 55 of them are deemed to be strategic by the Finance Ministry. Of these enterprises there are losses of about Rs.636 billion. Our focus is that we should minimize the losses. Our view is that the tax payer is paying for that and is it fair for the tax payer to pay for it. For example, SriLankan Airlines cannot be funded anymore. The issue we run into when reforming SOEs is that the people who work there resist change. We need to take a wider view on that. There are other stakeholders, which include the citizens and consumers. While the reforms are ongoing, there needs to be a just solution for those who are employed. First principle is that all the stakeholders must be considered. We have started with the airline. Then we will look at the smaller banks and plantations. In the latter, we can’t just regard them as plantations, as the rubber trees and tea bushes. We need to leverage them as assets.
We are planning to bring a Public Enterprise Act into parliament next year and this calls for the establishment of a public enterprise board. The board will be given the responsibility to depoliticizes and run these boards in a seamless manner. There will be no room for influence. So Eran Wickramaratne’s ability to bring into boards family and friends is out. Fit and proper people will be appointed. They will be given commercial key performance indicators (KPIs). The outcome will be that the board and management will have direct responsibility. 
Taking your attention out from the budget before I close, a tussle is observed between the Finance Minister and Central Bank. From outside, it looks more the Finance Ministry wants to take over some responsibility. What is your take on that?
The Central Bank came into focus recently because of issues of management. When I mean recently, I am not only referring to the bond issue of 2015/2016 but also issues from 2009. Its management has been questioned. Its credibility has been questioned over a period of time. Criticisms thrown at it is largely for those reasons.Having said that, the Central Bank is an independent institution and its independence must be jealously guarded. The Central Bank is the regulator and its powers to regulate must at all times be defended. The principle is that.