Economists’ views on management of State expenditure | Sunday Observer

Economists’ views on management of State expenditure

5 March, 2023

It is the view of those at the helm of Government that a System Change is already on the way.

For example, the Government has decided to end subsidies for LP Gas, fossil fuels and electricity. The Government is also in the process of managing State expenditure and raising State income above State expenditure. Economists contacted by the Sunday Observer expressed their opinions on these issues.

Prof. Wijithapure  Wimalaratana Thera, President of the Sri Lanka Association of Economists

We had a system of subsidies that the country could not afford. The result was that many State sector organisations recorded losses. We ditched modernisation and industrialisation. The Government is now making an effort to correct these historical wrongs. However, sufficient steps have not been taken to reduce the waste and unnecessary expenditure in many State sector organisations. Many dividends available to the people have been curtailed.

But the upper classes still have their privileges. The people can tighten their belts only to a certain extent. More attention should be paid to curtailing Government expenditure. Instead of doing that, the prices of many essential items have been raised. This is an additional burden on the people. Thus all loss-making State-Owned Enterprises (SOEs) must be privatised.


Dr. Priyanga Dunusinghe, Senior Lecturer, Department of Economics, University of Colombo

The actual price of LP gas, electricity and fuel were not reflected in the market for a long time. The Government gave subsidies to the public and these institutions recorded huge losses. This loss was covered by taking loans. The advantage of these subsidies mostly went to people with means, who were economically more capable in any case. Now the Government has adjusted these prices so that these institutions can run without losses. The Middle and Upper Classes lost the subsidies, which should be directed only at the sections that need them.


Prof. Wasantha Athukorale, Faculty of Economics, University of Peradeniya

There are many ways in which State income can be increased. There are many instances of inefficiency in the State system. For instance, the expense for a SLTB bus per day is Rs.21,000 whereas for a private bus it is only Rs.9,000. The CEB is another similar loss-making institution. We should end this inefficiency. If that happens, profits can be made even within the existing pricing structure. Today, the people have to bear the burden of inefficiency of State organisations. These organisations need to be reformed. That does not mean increasing the prices of their services or products per se. It does not matter if prices are raised if they provide a good service to the public.


Prof. Navaratne Banda, Dean of the Faculty of Economics, University of Kelaniya

Subsidies were given to get the votes of the people. This was described as a welfare system. That is why we have faced this crisis. But then, we had enough funds back then. So we could afford the subsidies. But this was a deception. The IMF wants us to curtail the subsidies. The only way to do that is to put that burden on the people, which will contract the economy.

It is by putting the burden on the people that we are going to correct historical mistakes. It is not fair to increase the prices of these essentials at a time like this when the prices of everything has gone up. The people need some relief.

The people are not responsible for the power crisis. Even the IMF has not told us to burden the people like this. There is a lot of corruption in places like the CEB and now the people literally have to pay a price for that. There are many segments that do not pay taxes.

They are not taxed, while the common masses are. Today, what is happening is not taxation but exploitation. Taxes must be fair to all.


Senior Prof. Sirimal Abeyratne, Faculty of Economics, University of Colombo

The Government has a lot more things to do. Loans were used to bridge the deficit of loss-making institutions. Now the prices have been raised to a level where they do not have to make losses. However, no steps have been taken to reduce expenditure, increase competition and reduce waste and corruption. Everything has fallen on to the consumer. For this program to be sustainable, reforms have to be carried out in terms of reducing expenditure.

Waste and corruption have to be reduced. The tax net has to be widened. Many countries use technology for collecting taxes. We do not have such a system. Thus we cannot raise State revenue to an optimal level. Now what has been done is to catch those who get fixed salaries in the tax net. But we have to go for a wider, more rational system for this to be more successful.


Sumanasiri Liyanage, Professor of Political Economics

The importance of energy cannot be measured in terms of pricing alone. Any changes in these sectors affect all segments of the economy. Many investors like to invest in countries such as China and Vietnam as their power (electricity) rates are rather low. The Government is just following IMF dictates.

It is wrong to increase prices of fuel by taking into account production costs alone. They have to be adjusted according to the needs and status of the national economy. We have to consider how industries using electricity can cope with the higher rates. Moreover, waste and corruption have to be ended. The economy has collapsed due to us following wrong economic fundamentals.


Tania Abeysundera, Chairperson, All Island Traders Association

The public does not tell the Government to formulate policies with elections in mind. We are now experiencing the effects of doing so all this time. But this is happening even now. The officials responsible for this mess are still there. They cannot shirk that responsibility. As business persons, we have never told Governments to provide subsidies. A conducive environment should be created for businesses to thrive based on transparent and sustainable policies. It is wrong to say that the country is bankrupt. The economy has been contracted forcefully.The SME sector is facing a crisis.