In the midst of economic challenges and calls for stringent reforms to get the country back on track to face the forex crisis, the prices of commodities have soared causing much hardship to the public, especially those in low income groups.
As a measure to relieve the people from burden, the Government unveiled a massive relief package of Rs. 229 billion, with special focus on those who face the most difficulty, starting with the public service which received the bulk sum. This is a move to safeguard the people who will need to tighten belts in the months to come due to predicted shortages in commodities.
Although some economic analysts criticise this move as a rash decision in the midst of a forex crisis, the measure can be considered a move to provide immediate benefits for the people to get by in the present economic scenario. According to some analysts, the relief package is an encouragement for the people to commence income-generating ventures and become self-sufficient in food.
Finance Minister Basil Rajapaksa sounded confident when he addressed the media briefing on Monday (3), adding that the Government would have no issue in settling the US$ 500 million international sovereign bond payment due in less than a fortnight. As such, the relief provided would not affect the Government plans on loan settlements.
Budget allocations
Finance Minister Basil Rajapaksa added that funds for the relief package have already been allocated by the Budget, and that additional expenditure is not incurred. The package accounts for 1.2 percent of gross domestic product, and will be re-allocated from the Rs. 3.9 trillion budgeted for 2022. Also, relief is provided without levy or tax. It covers about 2 million people who are on income support.
Accordingly, a monthly allowance of Rs. 5,000 will be provided for all public servants, including teachers and principals. This is apart from the salary increase with the recent rectification of salary anomalies. Over 1.45 million public servants, including those employed in statutory bodies will benefit from the relief package.
Apart from public servants, Government pensioners will receive a monthly allowance of Rs. 5,000 for one year with a total allocation of Rs. 87 billion for this, benefitting over 600,000 pensioners. The relief package also covers differently-abled soldiers of about 42,655 who will be given the allowance. The Samurdhi beneficiaries currently receiving an allowance of Rs. 3,500 a month will be given another allowance of Rs. 1,000 from this month, as per the relief package, while other Samurdhi beneficiaries not falling under this category, will receive more allowances proportionately.
Agriculture
 Prof. Ranjith Bandara |
President Gotabaya Rajapaksa earlier pledged that farmers will be compensated for harvest losses. As soon as the Government came to power, it granted a certified price of Rs. 50 per kilo for paddy. Considering the current plight of farmers, the relief package promises an additional Rs. 25 per kilo, totalling Rs. 75 as the guaranteed price for paddy purchased by the Government. This is due to the prediction for the harvest to go down by 20 to 30 percent in the coming months due to Covid and fertiliser issues. Ensuring that the public would not have to bear the burden of increased prices to farmers, the Finance Minister said the rice prices in the market will not see a hike as relief was given to farmers as a subsidy.
The relief package will provide estate employees, registered with the Employee Provident Fund (EPF), a concessionary price of Rs. 80 per month for 15kgs of wheat, down from Rs. 120 in the market.
Home gardens
As a measure to encourage local food production and for the people to become self-sufficient to successfully counter challenges of a possible food shortage, Finance Minister said a grant of Rs. 5,000 will be provided for cultivations in home gardens of less than 20 perches and Rs.10,000 for home gardens of not more than one acre.
He said the relief would cover over 1.8 million and 2.2 million home gardens that come under the first and second categories. The program will be monitored by the Divisional Secretaries with the support of Grama Sevaka officers. A mechanism is also in place to assess the progress of cultivations, upon which home garden owners will be paid a similar amount to continue their cultivations after six months from the first payment. The allocation for this is Rs.31 billion, according to the Finance Minister.
Providing further concessions to vulnerable groups, the minister added that essential food items and medicinal drugs will be exempted from taxes, without causing harm to local producers. Certainly, this would be a relief to senior citizens who have already suffered from low interest rates for their savings and most requiring life saving drugs which saw price hikes in the past few months.
In addition, the Finance Minister said the Cabinet of Ministers has requested the Labour Minister to discuss with employers on the possibility of providing a salary increment to the private sector employees as well.
Timely action
Commenting on the relief package, Member of Parliament and former Senior Professor at the Department of Economics, University of Colombo, Prof. Ranjith Bandara said this is a timely action as certain factions in society have been affected due to the economic condition in the country. He said this is not a phenomena experienced only in Sri Lanka but common to the rest of the world especially due to the Covid pandemic.
“Over the past 40 years, we have never seen such a rise in the price of essentials. Food, fuel, and gas are all on the rise. Therefore, the Government has felt it is important to provide relief to those who are in need of support,” Prof. Bandara said.
For example, he said public servants, pensioners, Samurdhi beneficiaries and farmers are benefitting from the relief package. The Finance Minister has requested the private sector also to consider reasonable salary revisions. “I was told that certain private organisations have already taken positive steps to increase benefits for their employees,” Prof Bandara said.
He added that the minister should be appreciated for recognising the people’s struggles.
Inflation
Countering criticism that the relief package would contribute to further inflation, Prof. Bandara pointed out that people would first need immediate relief to face sudden shocks.
“If there is an accident, doctors would need to take immediate action to save victims. Likewise, the relief package addresses immediate concerns and the consequences such as inflation can be managed. We can have a greater positive impact on society with the relief package.
Inflation may not be as serious since the Government has already taken positive steps to improve productivity, expand the agricultural field and open up new industries, encouraging people to invest and promote the production economy covering the entire economy as a whole.
Therefore, theoretically, one could argue that when the money supply is increased, inflation would be inevitable. But in this case, it is different as the Government is trying to promote production to expand the GDP. Therefore, inflation would be easy to handle. In the short run, there could be a tendency. But I’m sure, in the medium and long-term, there won’t be such a negative impact on our economy,” Prof. Bandara said. Those who criticise the relief package also argue that since this is within the budgetary allocations of 2022, some other sectors would suffer a loss due to reallocations. However, Prof. Bandara said this is a misunderstanding.
Sufficient funds
“The Government has enough funds to support this program. Last year, certain state-owned institutions, on the request of the Finance Minister, were able to save some Rs. 58 billion and some other organisations have kept 2021 budgetary allocations intact as we were amid the Covid pandemic. Spending was minimal as a result,” he said.
On the other hand, he said the Treasury can adjust financial allocations to meet this kind of emergency.
“Some have said the Government is bankrupt. This is not correct. The Government was able to raise funds to meet the necessary requirements for special expenses. If the funds are in need, the Government can even go to Parliament with a supplementary Budget. Therefore, some of these arguments are mere politically-motivated statements,” Prof. Bandara said.
The Opposition has slammed the Government’s relief package saying that it is merely a temporary measure to suppress dissent by dangling carrots. Prof. Bandara said it is a passion of certain fascist elements in the country to criticise whatever the Government does to come to power.
“They will never be able to come to power. They are not even near it. All they could do is criticise and try to make the Government unpopular. This was their strategy since the 60s. The Samagi Jana Balawegaya (SJB) leadership was not even able to ensure support in his electorate, Hambantota. He was forced to come to Colombo. Although he was able to hold high positions, he couldn’t make much impact.”
“Unlike the Opposition leader”, Prof. Bandara added “We promised certain things and we have delivered. The people know that nobody else could have faced the challenges over the last two years as well as this Government. We witnessed how the previous Government failed in taking care of public interest and how badly they managed the economy. The same parties are asking for the people’s mandate to run the country. This is just a dream and will remain so,” he said.
