Budget 2023 and the high cost of corruption

In his Budget speech this week, President Ranil Wickremesinghe spoke enthusiastically of his administration’s plans to turn around the 'down and almost out' Sri Lankan economy. There was a heavy emphasis on taxation with a view to cutting the Budget deficit, new economic zones, commercial hubs and new legislation. He explained the country must make a shift from the liberal economy of 1977 to a social market economy. Ideologically, what President J.R. Jayewardene also wanted a rejection of socialism and essentially a free market economy with social security provided by the state – a happy mix between a capitalist market economy alongside elements of a welfare state. He even thus named the country the Democratic Socialist Republic of Sri Lanka.

But there is one deficiency in this road map. While many pick holes for the heavy emphasis on taxation with a view to cutting the Budget deficit, the President only made fleeting reference to fighting corruption – a battle that must be at the core of any economic reform programme.

In its end-of-mission statement in September this year, the IMF was unequivocal about it being a prerequisite to qualify for a bailout: “Reducing corruption vulnerabilities through improving fiscal transparency and public financial management, introducing a stronger anti-corruption legal framework, and conducting an in-depth governance diagnostic, supported by IMF technical assistance”, is one of its preconditions.

Granted, there is a draft anti-corruption law floating around and a passing undertaking to push it through Parliament, but what is holding back the President? Is it the risk of a mutiny by ruling party MPs with allegations of corruption hanging over them?

What of the many laws the country already has that can be immediately deployed against some of these horrendous crimes? The impediments do not strictly lie with insufficient legislation. Many existing laws do desperately need amendments to reflect global expectations and changes in the way corruption is carried out – more sophisticated, more devious and more serpentine than before. But in Sri Lanka, the problem lies with a glaring lack of political will.

Those who have been handed the people's trust have let the side down. Ordinary people harbour deep scepticism of elected leaders with regard to their honesty. The mutual cross-party camaraderie to limit investigations and prosecutions with the speedbumps leading to convictions does not help. Only President Chandrika Kumaratunga was found guilty of corruption and the breach of the Doctrine of Public Trust, and that too, by way of a case filed by two senior citizens going before the Supreme Court ignoring the need for police investigators and state prosecutors.

Interestingly, the Supreme Court, in determining the constitutionality of the Inland Revenue Bill this week, made a significant statement saying the court is the last bulwark to protect the Rule of Law and prevent any breach of public trust. It said: "Corruption and wastage of public finance must be addressed and violators dealt with according to law irrespective of standing". The operative words seemed; "irrespective of standing".

Procurement guidelines are ignored at will and bid-rigging is rife. If a well-considered tender does go through, trust in the process is so eroded that questions even hang over that. In recent months, everything from coal to gas and fuel purchases has been under a cloud. And one year after Rs 2.4bn was paid to a Chinese company for organic fertiliser, there is evidence that no purchase had been made in the first place.

There are the pending cases: big ones, involving significant public monies. The infamous bond scandal drags on. The recipients of the Airbus bribes – the payment of which was proven in a UK court – roam free, with the case still open in Sri Lanka but in limbo. The Krrish case, investigations into Hello Corp and various other investigations into the illegal acquisition of assets are “pending”.

Then there are doubts over bids to award the elevated expressway from New Kelani Bridge to Athurugiriya to a Chinese company. Thousands of kilometres of highway, even minor roads, were handed out to companies as “unsolicited proposals” without competitive bidding.

Last year, the Government lost Rs 15.951bn in tax revenue after one private company unusually profiteered from a massive sugar tax cut – importing 1,222 percent more sugar than usual – and not passing the advantage on to consumers. Australian police have just charged two former senior managers of Snowy Mountain Engineering Corporation (SMEC) over bribes allegedly paid to Sri Lankan Government officials in exchange for a contract. And so many more.

Corruption adds to costs, and in Sri Lanka, these costs are now massive. Many more cases go unreported because they go unnoticed or the burden of proof is not on those involved. Bribes are solicited verbally and settled in ways that are difficult to detect without thorough inquiry. In fact, waste and corruption are so mind-boggling and endemic, that all the budgetary expectations of the President will fizzle out and the country will get poorer and not richer unless there's a concerted drive to combat bribery and corruption.

Two days after the President read his 2023 Budget, the British Finance Minister outlined his. The measures were no different in a broad sense, introducing the UK’s highest tax burden on the people since 1948 with punishing rises and public spending cuts.

Waste in government spending as ‘the size of the state’ increases is recognised as an issue. International observers say there are unprecedented global headwinds and families, pensioners, businesses, professionals, and workers are all worried about the future. Fiscal tightening is going to be a worldwide phenomenon in 2023.

The world is officially in recession and 2023 is also going to be a rough year but Sri Lanka’s problems are compounded by a few feasting on public finances with impunity and successive governments making no serious effort to stem the rot. The President said there is no need for traditional street protests but when people feel nothing is going to change and there is no hope or confidence that's why the rallying call for 'system change' resonates.

A social market economy, as one finds in Germany and the Scandinavian countries, and even in China and Cuba though the state's intervention varies, cannot succeed in an environment of waste and corruption. The Budget will never deliver what is expected from it under such circumstances.