2012 Budget AnalysisAmidst posters, fisticuffs and childish pandemonium, President Mahinda Rajapaksa released the 2012 budget. What’s in it?
Rupee devaluation
The Rupee is now trading at about 113 to 1 dollar. So, an American importing Sri Lankan apparel worth Rs.100,000 is now paying $885 instead of $910 (at an exchange rate of Rs.110). Once you start importing millions that makes a difference, making Sri Lankan exports more attractive.
Let’s say you’re a consumer buying tinned fish, however, which we import. I think tinned fish costs about Rs.225 for a big one. So, let’s say they’re selling it for about $2.05. That same can of tinned fish should now cost me about Rs.231.
Sri Lanka imports more than it exports, so it’s unclear whether this depreciation helps or what. It may be necessary, I have a wiki level of knowledge on monetary policy. According to this mises.org, currency devaluation doesn’t deliver economic growth in itself.
Me personally, I always guesstimate the exchange rate at Rs.100 to a dollar, which it hasn’t been for a year. So this will make me even more wrong.
Tourism
The government is both encouraging investment (reducing taxes) and discouraging tourists (imposing taxes). How much revenue will they make with the new visa fee ($20 for world, $10 for South Asia)? As an envelope calculation (650,000 tourists, 25% South Asian), it earns about $11.375 million dollars. Which is not much money for a whole lot of fuss.
They’re reducing the duty of tourism vehicles (Airport taxis and safari jeeps? Buses? could be anything) and talking about making Sri Lanka a regional sports hub.
Taxes
In addition to the de-facto tax of devaluation, they’re going to further tax green gram, peanuts, ginger, and corn to achieve ‘self-sufficiency’. I think self-sufficiency is a foolish goal to force, you just drive prices up, like in Indonesia, and create entrenched political lobbies dependent on handouts. You can support self-sufficiency, but let people have access to affordable food with politicising it. That said, I don’t like green gram
They’re also increasing the tax on ‘luxury’ vehicles (a wide category). People have been inhaling vehicles since the tariffs dropped dramatically last year. I just hope they keep the tax on hybrids down and perhaps introduce some electric vehicles (though this is largely pointless in a country that burns diesel for its main power supply).
Infrastructure
They’re talking about investing Rs.30 billion ($270 million) in provincial roads, Rs.27 billion in rail and about Rs.4.5 billion on bus stuff (engines, buses, routes). While this is good, public transport in Colombo still completely sucks and we need a metro of some sort. It is good that they’re expanding the rail network to Jaffna (with Indian help) and expanding the coastal line.
Mahinda is also proposing building 19 new domestic airports: “Parallel with the expansion of the Bandaranaike International Airport and the development of the Mattala International Airport, Palali and Ratmalana domestic airports, I propose to construct domestic airports in Kandy, Nuwara Eliya, Batticaloa, Trincomalee, Hingurakgoda, Sigiriya, Anuradhapura and Iranamadu, to facilitate domestic air travel. Rs.750 million will be allocated in the next year to commence the construction of 19 airports in Iranamadu, Nuwara Eliya and Kandy.”
Improbable hubs
He’s also proposing making Sri Lanka a hub for sports and international legal arbitration, despite his government’s abject failure in the administration of both. Just look at the money and game losing cricket board and the corrupted court that convicted Sarath Fonseka. I’m not sure these are services anyone wants to outsource to Sri Lanka.
Spending
A lot of spending (Rs.230 billion) goes to the military, though Mahinda says Rs.200 billion goes to basic upkeep, making that sort of a social programme as well. What the country most needs for sustained, equitable growth is drastic improvement to the education system. He cites a problem and a solution, but I really don’t think it’s enough.
Education
On Education, Mahinda mentioned some disturbing figures and a solution. 350,000 students enter schools, but only 25,000 of those eligible enter universities. 165,000 fail their O Levels. His solution was to spend Rs.8,617 million on vocational education and Rs.500 million on... other vocational education.
I just don’t think it’s enough. The solution to a broken university system is to ignore it and send kids somewhere else? What about the kids who are qualified and don’t have space? What about the graduates that have higher unemployment the more education they get?
I don’t think this is very well thought out, or funded. The budget allocates Rs.95 billion for primary and secondary schools and I don’t think it’s enough or well allocated. He’s talking about setting up model schools everywhere, but there are already strong economic forces at play where parents are lying and begging to get into performing schools in cities.
Rather than bucking that just go with it, enable performing schools, shut down non-performing ones and spend on transport to move kids around. Either the government helps, or sticks its head in the sand while parents do it anyways.
In sum
Some good, some bad. It’s not an especially intelligent budget, but it’s not a dumb one. It still continues with the emphasis on agriculture at a time when services are growing, and on the military at a time when the youth are neglected. Sri Lanka is still, however, a growing country with natural awesomeness and I think we’ll do OK.
As additional notes, almost 40% of international financing is from China now, up from 0.5% in 2004. Of the declared Ministry and Department costs, 20% were exclusively on vehicles, and 80% including some spending on vehicles, among other things. Very little went to actual project work.
I must say, it’s a bloody embarrassment that Parliamentarians physically fought during the budget. I think what the UNP did was dumb, trying to interrupt the speech by shouting and holding placards. They’re not a revolutionary youth force, they’re an aging, bleeding party that simply can’t do its job in Parliament and has to resort to shouting or walking out. However, it’s a travesty that they were assaulted. It just reminds you that Mervyn Silva is there and that this government really is a den of thieving lords that only coincidentally benefit the country.
