What to look for in the presidential manifestos

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Nishtha Chadha

The 2019 presidential election campaigns are well and truly in full swing. As rallies pick up across the country, candidates have begun to announce a series of strategies to develop the country, improve living standards, and expand employment opportunities. While a range of promises have been bandied about, this week’s manifesto releases mark a critical juncture for candidates to inform citizens about where their priorities actually lie for the next four years.

Tax cuts, government subsidies, jobs, and social security have all been popular promises on each candidate’s list. The rhetoric is certainly attractive, especially as youth unemployment remains persistent at 21% and the national cost of living is on the rise, with inflation hitting 5% in September. Though there is undoubtedly a need for urgent reforms to improve the average Sri Lankan’s standard of living and access to prosperity, it is prudent to ask the question: How do these promises measure up to Sri Lanka’s current economic situation?

The economic landscape

A number of risk factors currently plague Sri Lanka’s growth trajectory. Although the economy has managed to recover relatively well from the Easter Sunday terrorist attacks, GDP growth is still expected to decelerate to 2.7% in 2019. This is well below the regional average, which is currently forecasted at 5.9% for the year.

The decline of economic growth is in line with global trends, as global GDP growth decelerates and trade and industrial production stagnates. South Asia’s performance is of particular concern, as it concedes its place as the fastest-growing region in the world to East Asia and the Pacific.

Sri Lanka’s economic landscape is reflective of this decline, as the nation’s budget deficit increased above 6% of GDP in the first half of 2019. Sri Lanka’s public debt-to-GDP ratio presently sits at 82.9%, and is expected to increase up to 83.6% in 2020 according to World Bank estimates. This is provided that the current approach to fiscal consolidation continues and no new, uncharacteristic debt is incurred. Even under this conservative estimate, forecasts suggest that Sri Lanka will be the second-most indebted country in South Asia by 2020, with its public debt-to-GDP ratio at more than 20% above the regional average.

Declining export growth and volatile investment across South Asia have further contracted revenues, leading to increased rollover risks. This slowdown in economic activity is likely to constrain job creation and income growth, as well as impede the pace of poverty reduction. Indeed, this is in stark contradiction to the promises currently being relayed by presidential hopefuls and raises serious concerns about what implications the implementation of these measures would have on Sri Lanka’s national economy. Citizens need to be wary of baseless promises that don’t have substantial, long-term priorities at their heart.

What to look for

Sri Lanka needs to consolidate its economic position if it intends to achieve the prosperity it desires, regardless of whose leadership it is under.

This begins with increasing public revenue and tightening government expenditure. Years of ad hoc policies and fragmented government investment into largely unproductive sectors, has resulted in constrained growth and irrational spending across government departments. This has led to large-scale borrowing from international funding partners, and hence, the proliferation of the nation’s current debt crisis. If candidates want to mitigate the risk factors associated with Sri Lanka’s current fiscal position, they need to get Sri Lanka’s spending under control.

Continued fiscal consolidation measures need to be supplemented with long-term expenditure frameworks, which align public expenditure with national growth priorities. Long-term fiscal planning could also serve to increase foreign investment in Sri Lanka, by bolstering investor confidence and reducing the economic impact of political volatility. State-owned enterprises (SOEs) also need to be reformed to reduce their burden on an already debt-ridden Treasury. In 2018, SOE losses amounted to Rs. 156 billion, approximately 9% of total tax revenue, and this figure only seems to be on the increase. Stronger governance and accountability measures are essential to improving SOE performance, and should be a high priority on any candidate’s policy list.

In addition to this, any intended tax reforms must be informed by evidence-based policy and evaluation methods aligned with strategic priorities and fiscal consolidation measures. While there is an obvious need to expand Sri Lanka’s tax base, tax policy amendments must also address the needs of lower income households and ensure sufficient safeguards to limit the burden on Sri Lanka’s most poor and vulnerable. Shifting from indirect to direct taxation methods could be an avenue worthy of pursuit. An active effort must also be made to pre-emptively address the impact of an ageing workforce population. Pension payments currently account for 9% of recurrent expenditure, at Rs. 194.5 billion in 2018. With growth levels already in decline, there is a critical need for the government to encourage longer careers and increase labour force participation across all sectors of society.

Sri Lankans are certainly desperate for change in this election, but this will only happen when politics moves on from being a dinner table conversation to an informed, strategic decision. Citizens need to be informed about more than just the candidates they are electing, but also the policies and priorities they stand for.

Manifestos can present a good gauge of these priorities, but can also be leveraged to hold the incoming president to account. The responsibility here lies with the public, both to vote based on an informed decision, and to demand action on the policies they base their vote upon.