March 7, 2019 (LBO) – Prominent UNP politicians are coming to the forefront to laud Finance Minister Mangala Samaraweera and his budget proposals as people friendly and positive drivers of the economy. The Finance Minister himself described the budget as ‘caring and values driven’ at a recent post budget seminar.
Despite what are good intentions, and a reputable team at the finance ministry, it is doubtful that this budget will move the needle in terms of the economy or electoral politics.
Perhaps the most relevant comments on the budget were made in the Daily FT’s post budget forum and were reported in the FT as follows:
“The Government has already taken action to address cash flow in the economy, as the Treasury has released Rs. 60 billion to settle outstanding payments to contractors, while the Central Bank has relaxed the Statutory Reserve Requirements (SRR) on two occasions, releasing a further Rs. 150 billion. Therefore, a total of over Rs. 270 billion has recently been injected into the system.”
The economy is at stall speed with growth running below 4% and businesses and citizens feeling the pinch. The government needs to get cash to the people who will spend and drive the economy. The time for fiscal discipline is certainly not now with low economic growth and an impending election.
If the Finance Minister wants to do his part to help his party win the upcoming presidential election, he needs to do more to stimulate the economy. The Rs60bn released from the treasury to settle outstanding payments to contractors is a start. The government should make arrangements to pay all its outstanding bills immediately. This will provide immediate stimulus to the sputtering economy.
The Minister should also look at increasing payments to the most vulnerable of the nation’s citizens, the poor. Samurdhi benefits and also estate worker wages should be significantly increased. These payments are likely to be directly spent on local goods multiplying the stimulative effects on the economy.
Now is also not the time to be raising ANY taxes. Budget concerns can be dealt with after the elections when the economy is on stronger footing. In fact the Minister should look at temporary tax reductions with an aim to stimulate the economy and alleviate the hardships of the people.
It is not too late for the Minister to act. Although some of his advisers and the IMF would like him to be a penny pincher, its time for him to open the wallet and spend, particularly if he wants to be around to give the next budget speech in 2020.