Great expectations

This Dickensian-connected headline was triggered by a casual remark on Thursday by Kussi Amma Sera on the forthcoming budget.

“Mahattayo, mey sarey, monawa thiyai-da, budget-eke?” she asked sipping tea from her favourite mug inscribed with a smiling picture of the late Gamini Fonseka, a famous 1980s Sri Lankan actor who was also her favourite star.

“Ravi Karunanayake, mahattaya giyata passe, honda, honda dewal thiyai-da?” she further queried.

Two points emerged from this interesting conversation, more than the gossip that we get to share these days. Firstly, people still believe the budget will help to ease their painful cost of living, and secondly, there is a growing view that the former, under-pressure finance minister was the villain in not reducing the cost of living, though, in fairness to him, it was not entirely his fault.

Since coming into office in mid-2015, the Government has been saddled with a burgeoning debt in the region of three trillion rupees, a spillover from the costly spending of the former regime. While Prime Minister Ranil Wickremesinghe has repeatedly assured that this debt will be cleared in three to four years under ‘sound economic policies’, not many are convinced given the level of corruption that’s creeping into the current regime.

The biggest setback for the Maithripala-Ranil coalition government, even before it got down to brass-tacks was the corrupt Treasury bond deals in February 2015 and early 2016. A damning indictment from the chief prosecutor at the Treasury Bond Commission, as it wound up proceedings this week more than eight months after its appointment, was that the chief culprit, Perpetual Treasuries Ltd (PTL) “is a criminal organisation”.

Explosive revelations that led to Ravi Karunanayake’s resignation included that he was staying in an apartment in which the lease was paid by PTL director Arjun Aloysius and that alleged bribes were given and payouts made to informants by PTL as it sought to control and influence the primary and secondary market for Treasury bills and Government securities, have put to shame the feeble, sweep-under-the-carpet attempt by the authorities to deal with the allegations centering around former Central Bank Governor Arjuna Mahendran and his son-in-law Aloysius. To deflate criticism, the PM appointed a committee of party lawyers to probe the tainted February 2015 transaction and when that didn’t bring the desired result demanded by the public, the Committee on Public Enterprises (COPE) carried out an investigation. Though COPE made startling revelations, it was the proceedings of the Bond Commission that have shocked the nation with some stunning headliners for the local press. Now the nation is waiting with bated breath for the report of the Commission. Will it also end up like the previous two probes, is what the public is anxiously waiting to see.

The realization that the cost of living is causing serious concerns to the public, as the Government juggles with paying off costly loans and trying to sneak in some cost-of-living-reducing steps, emerged in a comprehensive joint poll by the Business Times and the Research Consultancy Bureau (BT-RCB) last week on expectations from Budget 2018 and the performance so far. Another trigger that COL is also affecting the “neither-here-nor-there” middle class came when a friend at another company recalled what his colleague, when asked for a birthday treat, had said: “Only after payday, brother … only after payday”.

“I was quite surprised, since this individual normally has money to kill,” my friend said.

This, then, is the reality. COL is hitting all classes equally, resulting in a slowdown in the economy and a temporary halt in impulse-buying of white goods (electronics and non-essentials) which are reflected in the struggle by many companies to recover payments. Cheques are bouncing and people are in debt to credit card companies.

Not the best of scenarios for new Finance Minister Mangala Samaraweera to present his maiden budget on Thursday, November 9. He is sure to move heaven and earth to offer some handouts to cushion the COL.

Last week’s BT-RCB polls reveal that there has been no improvement in the past year in reducing the cost of living or corruption. People have become very cynical and the not-so-complimentary-to-the-government evidence at the Bond Commission has aggravated the issues facing the current regime, with delays in prosecuting corrupt politicians and individuals in the former regime compounding the crisis.

The following views from respondents in the poll resonate with the widely-held, public perception: “The poor people have virtually become beggars. You need at least around 5,000 rupees per day to manage costs; 1000 rupees has depreciated so much that its value today is 100 rupees; there appears be a reduction in bribery and corruption. However, what is also happening is that only the sprats are caught while the big fish escape; corruption has remained down the ages; that will never change; Bribery? Some accept money in broad daylight!”

While the budget brings about ‘great expectations’, the task before the Government is how to fill a depleted Treasury. For example, worker remittances, the country’s main foreign exchange earner, have been slipping for the third year in succession. Tourist arrivals are only marginally increasing from last year owing to the 3-month closure of the airport, a drop in Chinese travellers and unrest in West Asia. Deadly flashfloods combined with an unusual drought forced the authorities to import rice due to a shortage, eating into foreign exchange reserves.

On the bright side, foreign investment inflows are picking up with $711 million coming in this year up to August, double that received in January-August 2016 of $293 million and are expected to close the year with over $1 billion. Another tranche from the ongoing IMF facility has to some extent cushioned depleted foreign reserves though borrowings to stabilise reserves are not something to crow about.

A recent Moody’s Investors Service statement implies that this is not enough. “Unless reserves rise still further, reserve coverage will weaken and external vulnerability will increase from 2019 when large international debt repayments are due. How the authorities prepare for and manage these risks will be critical to stabilising the external financing position,” it said.

“Progressive” is how Law and Order Minister Sagala Ratnayake described the forthcoming budget at a recent Colombo business forum. His view is echoed by one email respondent in the BT-RCB poll who said that “budgets should deal with macro-economic issues, not day-to-day issues (COL)”.

So, while the budget will try to balance things, particularly the debt situation while providing some concessions leading to the growth of the SMEs, which is largely responsible for economic growth, Samaraweera is unlikely to wave his magic wand and substantially reduce the cost of living.

The policy of incentives and concessions to stimulate private-sector growth which, in turn, would create jobs and thrust more money into the hands of the people, will take time and in this case, most likely one to two years. While it all points out to a growth-centric budget and ‘lots of rhetoric on great expectations’, Kussi Amma Sera and her ilk would be disappointed that their cup of tea or kottu rotti won’t come down (substantially) when Samaraweera opens his black box, three weeks from now.