Budget Prepared With Optimism – Ajith Nivard Cabraal
By Aruni Mallawaarachchi
The Budget proposals are very important. They were prepared amidst a lot of challenges and were designed so to make the country move forward, says, Ajith Nivard Cabraal, State Minister for Money & Capital Market and State Enterprise Reforms and Former Governor of the Central Bank.
Excerpts of the interview:
What is your view of the budget proposals?
A: These budget proposals are very important. I can say that they were prepared amidst a lot of challenges. It was designed so as the country can move forward. I look at it with a very optimistic view.
According to the Janatha Vimukthi Peramuna (JVP) this is a pathetic budget. The Samagi Jana Balavegaya (SJB) and United National Party (UNP) say that it is not people-friendly. What are your views about this feedback?
A: If they say the budget is bad, it must be perfect because they were always against the country’s good. They expressed similar views during the war where they claimed our economic management was wrong. They were against all our proposals. But all of our moves were successful. The growth rate was very healthy in our period. That proved our economic policies and decisions were right. Therefore, we do not panic about their responses.
Do you mean that you are satisfied with this budget?
A: The budget has planned to provide massive relief to the people. For example, only 42% of people have pipe-borne water at present. We try to increase it to 95%. Isn’t it a relief to the people? We will offer 100,000 public sector jobs to the youth in the lowest income group. When we visit villages, the parents request jobs for their sons and daughters. The people who accuse us think that relief is lowering the price of dhal by five rupees or increasing the salary by Rs 100. We cannot develop the country with such petty-minded thinking. We must analyse the problems critically and bring about solutions. I believe that the budget contains proposals for long- term relief to people. I am satisfied with them.
The WHO says that we will have to live with COVID-19 for at least two more years.
A: Yes. It is a global pandemic, and we have to face it. Many of the concessions provided can be used to achieve this. We met many challenges in the past also, although we did not have the COVID-19 pandemic. It is nine months now for COVID-19. The world economy has collapsed. We have to face such challenges. The economy must be pushed forward while fighting COVID-19. We will not lockdown the country, although there are challenges. We were able to record 6% growth during the war and anticipate that level of growth now as well.
Only Rs 159 million is allocated for the health sector in a time we face many problems. It is less than what was set aside in 2019. People say they cannot be satisfied with it.
A: I think each rupee must be productively used. The allocations may not increase productivity in the health sector. We have to see the outcome of the investment. If we can achieve a better outcome, the allocations are efficient. We expect via this budget that each public institution will do their maximum. If low allocations can yield better results, that is the crucial factor.
The Opposition says the allocations are not sufficient to solve the salary problems and other problems in the sector.
A: What does the Opposition want? Do they want to waste money or to get maximum results? They must understand that we have no competition to spend money. We have a competition to get the best outcome. We must try and focus on efficiency in sectors so far we depended heavily on investments. The reason is they are used to showing expenses as an outcome. However, we did not see the real outcome from that in the past five years when they were in government. Even the per capita income decreased. They have done nothing but talk.
People say that the prevention of the epidemic must be prioritised over the building of roads, bridges and jogging paths.
A: Health is not only spending on diseases. Facilities must be provided to people for their wellbeing. Exercising regularly is essential. People must focus on nutrition too. All these facets deal with health. There is prevention also in the world. Even regarding COVID-19, prevention is better than cure.
The government expects to earn Rs 1,961 billion in 2021. Although it is a good proposal, is it realistic amidst the economic downturn we are going through?
A: It is a good question. We must first understand that 2021 is a different year and cannot be compared to the other times. This year the entire world is affected by the coronavirus and lockdowns are taking place everywhere. Even the airports in many countries closed. Nothing could be done. The economic depression continued.
In the first few months of 2020, only a Rs 906 billion income was generated. How can we achieve the target of Rs 1,961 billion income amidst the crises?
A: 2021 is a different year. It is time many countries in the world understand the stability created by us and start to work with us. Nations like China and Japan have started to invest in Sri Lanka. We hope to bring massive investments to Sri Lanka in 2021. The macroeconomic factors are stable now. The interest rates have been reduced. The rupee is stabilised. Therefore, 2021 will be entirely different from 2020. It will be entirely different from the failed era between 2015 and 2019. We will move ahead on a different path. The economy will improve and the income will increase. Therefore, we must think of 2021 afresh. We will err if we try to think of 2021 based on 2020. The officials who studied all these factors made these proposals. We are sure that we will be successful in achieving targets.
The growth rate in the first quarter of 2020 is minus 1.6%. But you anticipate 6% growth in 2021. How can it happen?
A: Although we have minus growth this year, the same will not happen next year. In 2014, the economy recorded 7% growth. It reduced, and likewise, it can increase too. We are confident that we can achieve 6% growth in 2021. Study the Central Bank annual reports. We achieved 6% growth. Before that, the growth rate was 3%. In cricket, sometimes Sangakkara hits 200 in one match and is able to score only five in the next. In the last five years, a failed group pushed the country into an abyss. The people gave a two-thirds majority to the present government trusting that we can remedy the problems that they created.
There were several expenditure proposals too?
The government’s estimated total expenditure is Rs 3,500 billion. How will the government generate income for such expenditure?
A: We have cited these statistics clearly in the budget. We cannot hide these facts because we must reveal them according to the law. If we want some amount as a loan, we must obtain it without exceeding the debt ceilings. We have arranged everything. We will levy taxes as a part of the income. The other income is non-tax, including the dividends from various ventures. The other way is obtaining loans. These are the flows of income.
The government has focused on increasing tax income. This creates a problem for the people. Will the government impose more taxes on them?
A: Not at all. There is a weakness in terms of revenue collection. Not only the percentage of taxes but also the way the collection is done. We have given instructions to the authorities to coordinate the Inland Revenue, Excise and Customs and streamline the collection process.
Taxation is according to their revenue, and tax revenue declines with the incomes. Therefore, the economy must be managed to encourage income generation. We can levy custom duties only when a good or service is imported into the country. All these taxes mature with the economy. If the economy is collapsing or slows, the tax collection also declines. As we expect, the State revenue will increase in the next year. However, we do not extract taxes from people inhumanely.
The government says the tax income will be based on foreign trade. How can you rely on international trade in the context where imports and exports are restricted?
A: We decided to restrict imports last March. The reason was that our foreign reserves were declining. When I left the post of Central Bank Governor, we had deposits amounting US$ 8.2 billion. We expected to increase that to 15 billion by 2015. But when we took over the rule of the country back in 2019, the deposits were at US$ 7.3 billion. It was difficult for us to bear the shock of COVID-19 due to the decline in foreign deposits. That is why we imposed import restrictions. Now, we have gradually relieved many of the limits. Last week, Minister Weerawansa wanted me to scientifically analyse the raw material we need to import. We will hand over that report soon. We will give priority to produce what we can grow or manufacture in the country. Meanwhile, we intend to increase our foreign deposits.
Does the government expect to obtain Rs 3,500 billion in loans in 2021?
A: We will limit foreign debt. By the end of 2014, the percentage of foreign debt in the country was 42%. The balance 58% was domestic loans. The previous regime increased foreign debt to 50%, although they boast about doing the opposite. Now we have to turn the tide again.
Will donor countries agree to our conditions? Will we have to bow to their conditions?
A: When a country’s dependency on foreign debt goes up, the vulnerability also increases. We have focused on minimising this vulnerability. We give priority to domestic loans and focus less on foreign debt. The foreign debt is only for settling previous foreign loans. Between the 15-months beginning from April 2018 to June 2019, the government obtained US$ 6.9 billion at 7-8% interest. In the nine years I was the Governor of the Central Bank. We took only US$ 5.5 billion worth of foreign loans. The country will be dragged into an abyss if we obtain loans irresponsibly like that.
There are allegations that the allocations for education are not sufficient. The Opposition says the government has given priority to physical development than to education.
A: What problem did they solve within their five years in power? We will not wait to resolve the problems. The cleverness is not allocating funds but spending them productively. We must monitor whether the money is channelled to the right place at the right moment. One of the responsibilities of my Ministry is to monitor projects. We have 289 projects that we must monitor. We have targets in education. We will focus on school education, higher education, vocational education, as well as pre-schools.
Some say that the money allocated to establish urban universities in each district is not sufficient and say these proposals are a joke.
A: The number of students who enter university is decreasing. There are some vocational and other educational institutes which are nearing closure. Some are already closed. We can convert them to universities, and we do not need to acquire land and build new infrastructure. These allocations are only for the first year. If the accusers think that we will start all the universities within the first year with that allocation, they have erred. We cannot complete such a mega project within a year. We have to spend several years doing so. Some people only do simple math and ask how we implement the proposal.
A contributory pension was proposed for repatriated Sri Lankan expatriate workers. A similar proposal was made in 2013 as well but not implemented. Will you do it this time?
A: We will implement this proposal this time. We hope to allocate part of their remittances to implement the pension fund. That is our proposal. We will implement it with the advice of specialists in the insurance and pension fields.
Some politicians say that the increase in the retiring age may cause an injustice to those contributing towards the Employees Provident Fund. Do you have any other plan behind this proposal?
A: They just say these things because they must find fault with the budget proposals put forward by us. They must point out the injustices of this proposal clearly and logically if there is any. The retirement age was decided in 1948 as 55 years when the life expectancy was 65 years. Now life expectancy is over 79 years. People live about 24 years more after retirement. The country has to maintain them because they have lost their livelihoods. Further, they are mostly healthy. Therefore, I do not think that there is any problem in increasing the age of retirement to 60.
Non-staff grade public officials were granted permission to engage in other jobs. Is it because the government cannot afford to maintain them?
A: The senior academics of universities have two years sabbatical leave, and some get it twice. They use it fruitfully to engage in another job. It is a good opportunity to engage in another sector and gain experience. I don’t think it is wrong. It will result in more efficiency.
The government has proposed that the income fraudulently earned by some people be invested in the projects proposed in the budget.
A: Yes. If someone has earned money fraudulently without paying taxes, they will keep it to themselves. It will not be useful to the country and we brought this proposal to prevent it from happening.
Some political parties accuse this government of encouraging money laundering.
A: They say such things because they must always criticise. Otherwise, they do not have a basis for such allegations. Isn’t it good that people who have earned money evading taxes invest that money in some way instead of hiding their ill-gotten gains? They will have to bring money in the usual way.
Have you received adequate allocations for the plans of your Ministry for the upcoming year?
A: My Ministry monitors all the projects in the country and reports on them. There are 299 projects which involve one billion rupees. Some of them do not have timeframes or have a budget. Our responsibility is to put them on track. If we do it properly, the country will gather momentum and will achieve a significant growth rate.
The second point is rebuilding the collapsed financial institutions. We will use plans and tools for that. The third measure is activating Sri Lanka’s capital market. The credibility has increased in terms of our stock exchange. We will convert it to a hub that brings investment to the country. Our small and medium scale businesses gain strength from this.
We need to increase the efficiency of State enterprises. We have about 400 State enterprises. We must manage them to benefit the country.