By R.M.B Senanayake
The defeat of Mahinda Rajapaksa on January 8 was hailed by democratic opinion here as well as abroad as a victory for liberal democracy and for the values of freedom over arbitrary government. But our people who are more impressed by grand displays of power rather the freedom they enjoy want to see the spending power of the government, never mind if such spending comes from borrowed money- mostly borrowed from foreigners and which have to be repaid. The days of reckoning when we have to pay back such loans have not yet come. The people seem to have grumbled about the lack of infrastructure spending by the new government. Reacting to this criticism the government has decided to allocate Rs 300 million for the construction of rural roads, displaying a correct sense of priority instead of on impressive urban infrastructure.
The government must decide how they want to raise money if they want to carry on their government instead of going for an election. Otherwise it will expose itself to similar criticism perhaps more stridently. How can he raise sufficient government revenue without introducing taxes? The taxes introduced y the Minister of Finance in the recent budget have not yet been passed yet. The present government headed by veteran politician, Ranil Wickremesinghe, knows what should be done but he finds himself at a loss on how to proceed unless the President co-operates with him.
On the external front the current account of the balance of payments continues to run at a deficit indicating that we are paying out to foreigners more than what we receive from them. It means running down our Foreign Exchange Reserve unless such Reserve is simultaneously increased by foreign investment inflows. In this respect, the UNP has a better chance of attracting foreign investments than an SLFP Government. But politicians of the SLFP are impatient to obtain power since they form the majority in Parliament. But if it were to happen, a sudden outflow of foreign money could bring on a currency crisis. The SLFP has never shown much talent or ability in governance and particularly in the economic governance of the country. If they were to take power a currency crisis cannot be ruled out considering the continual erosion of our Foreign Exchange Reserves.
But it is said that our GDP has been maintaining the recent growth although it has slowed down in this year’s first quarter though the official figures are not yet available. The Sri Lankan economy grew by 7.7 per cent in the first half of 2014, reflecting increased domestic economic activity and rising external demand. It probably maintained a figure of 7.4% for the year. But the sustainability of growth depends on the source of economic growth. During the Rajapaksa government the growth came mainly from government infrastructure investment using funds borrowed from China. But infrastructure investment cannot be carried out for too long when the country is small. It will also depend on our capacity for foreign borrowing. Our net external debt has been growing faster than our GDP. There is of course no immediate danger of a foreign debt crisis since our Aggregate Foreign Debt is still only 34% of our GDP. Some countries have exceeded 100% when there are danger signals. But we have not taken any action to increase our exports of goods and services and increase our debt repayment capacity. Our current account in the balance of payments continues to be in deficit although last year it reduced slightly. But we cannot run current account deficits in the balance of payments indefinitely and must take corrective action. Until then foreign funds must be attracted to fund the deficits. It is best if the foreign funds flow into direct foreign investments in the country rather than into portfolio investments like the debt and stock markets. In short we are dependent on continued attraction of foreign investment flows to maintain our living standard, particularly in paying for the imported goods we consume. Meanwhile, per capita GDP in US dollar terms also increased to US dollars 3,625 in 2014 from US dollars 3,280 in 2013 moving forward the country within the middle income per capita trajectory.
Some people point to the high borrowings of the present government and newspapers blare out headlines about the increase in government borrowings. They were however silent when MR borrowed and spent wantonly.
The economy left to itself has progressed and it shows that left to itself without too much interference by the State it could do quite well. Politicians like to believe that it is their efforts that contribute to growth. But it is not so. In fact their contribution is often more negative than positive.
But this doesn’t mean that there is no role for the government. No progress has been made with regard to the working out of devolution of power to the regions. Since we are a plural society and since politics dominate the allocation of funds to regions and electorates it is necessary to entrust more power over finances to the Provincial Councils. There is really no role for MPs to become spending units of the government. They are elected to be legislators not to look after the needs of their electorates. This erroneous conception of the MP is deeply rooted in the mindset of our people judging from the debates conducted on the Sirasa TV. This conception of the MP is the product of SLFP misrule after 1956. It is instead the role of those elected to the local authorities. This issue was debated and settled in England almost a century ago.
The MP’s role is as a member of the legislature and not to look after the parochial interests of his voters. Some MPs from the governing party (or parties) become government ministers with specific responsibilities in certain areas, such as Health or Defense. But their role is not to look after their electorate. But our public doesn’t understand this and go to their MPs to invoke their support to resolve their problems with government authorities, a pernicious practice which leads to the interference of the MPs in the administration and thereby undermining public administration.
The SLFP began the practice of allocating public funds to MPs to be spent by them in their electorates. This is not a practice suitable for a democracy. Public expenditure must be entrusted to Public Authorities not to individuals- whether MPs or otherwise. This is .a practice unheard of in the liberal democracies of the developed world. It is an open invitation to financial malpractices and the prime minister should resist the demand for such financial allocations to individuals who are not public authorities.
Devolve power to the PCs or confine them to the North and East
There is a strong case for devolution of spending power to the authorities at the grass roots level and that through the intermediate level of Provincial Councils and Pradeshiya Sabhas. It could make the central government allocation of funds to the different provinces more fair and equitable. There is a Finance Commission provided by law which is to be entrusted with this function of allocation of finances. Why is this Commission ignored in the distribution of funds? Such allocations would lead to better satisfaction among the regional and local authorities. The technical capacity of the local authorities should be expanded instead of adding to the staff and facilities of the central government agencies at the local level. A more rational allocation of funds from the Central Government would help to reduce income differences between regions and districts.
In the developed countries competition between regions and between local authorities lead to better public services as people compare their own council’s performance with that of the more efficient councils. This provides an incentive for all councils to improve their services as they get compared to other more efficient councils. Efficiency in their working should be our aim for it promotes economic growth with less usage of resources.
A local authority will also be more conscious of the environmental impacts of their policies and they being closer to the people cannot avoid the issue of environment if it adversely affects the people. When it is the Central Government that is responsible they find it more difficult to hold it responsible. The local authority level will also be able to decide more rationally between a project which is labor intensive (suitable where there is unemployment in the region) or capital intensive.
Another reform that is needed is to do away with the present case by case approvals of projects and instead to lay down a negative list disallowing any project which could fall into such list. Any project not included in such negative list will then automatically qualify and there will be no need for case by case approvals. We need to reduce bureaucratic red tape and controls and permit greater freedom for businessmen and entrepreneurs to invest their moneys. This will not only hasten the progress of new projects but it will also reduce corruption and graft.
www.island.lk
No comments:
Post a Comment