Economic consequences of opposing what is good and not opposing what is bad

 The current Government and the previous have been great addicts to borrowing to bridge the gap between revenue and expenditure. Society looks down on people who live beyond their means with borrowed money. Well, that is what we are doing as a country

The economic wellbeing of a country will be assured, only if all groups in society support what is good and oppose what is bad. As we have major economic problems, it is important that all segments of society commit to resolving them. If we fail, we will wobble perilously towards a doomsday scenario.

The economic issues 

These are well-documented. Government expenditure is far in excess of its revenue. In terms of conventional macroeconomic ratios, we are moving rapidly into the danger zone. Our foreign reserves have been dwindling and there too we are in the danger zone. We need Foreign Direct Investment to bolster our foreign reserves and that is not happening. The image of our country is tarnished by the many stories of corruption.

Short-term

In the short-term, the truth can be concealed by a thick fog created by borrowing. It is a short-term solution. It does not solve the problems, but protects us from feeling the pain. It is like taking a pain relief tablet. It removes the pain but does not cure the cause and the pain will return.

Borrowing to bridge the gap

The current Government and the previous have been great addicts to borrowing to bridge the gap between revenue and expenditure. Society looks down on people who live beyond their means with borrowed money. Well, that is what we are doing as a country.

To support Government borrowing, the EPF and ETF have been buying Government debt. With a little leverage they could get NSB to do the same.

If we go on like this is for a long time, the doomsday scenario will descend upon us. The Government will find it difficult to pay salaries and pensions, when they exhaust their ability to borrow more. The EPF and ETF will not be able to cash their Government bonds to pay beneficiaries and if the NSB is in the same boat they will not be able to pay their customers who want to withdraw their savings.

Foreign borrowing

We are short of rupees and also short of foreign reserves. The solution once again has been to borrow. As we increase our debts, the rates of interest go up. All loans have to be repaid, and now we need to resort to new loans to pay back old loans! 

It has become quite a struggle to get new loans to repay old loans. If we default on loan repayments, our country rating will worsen. This will severely damage our image and we will find it difficult to raise more loans.

The solution

The solution is to carry out the reforms which will progressively remedy the revenue gap and the foreign reserve problems. In a democracy the proposals for reforms have to go through Parliament. These are having a bumpy passage. 

The Opposition has been in a continuous obstructive mode. Whatever is proposed, is opposed. The economic scenario is such that there is plenty of scope to be critical, because all reforms must necessarily cause some pain. Every lever that can be pulled to solve our problems will cause pain. An increase in taxes, direct and indirect, widening the tax base, and cut backs in Government expenditure will all cause pain.

A responsible Opposition

They should do one of two things. They should support the Government’s proposals, or they should make alternate proposals that will provide the same benefits to solve our problems. If an Opposition does neither, it has to be deemed irresponsible.

Neither the former President nor the other leaders of the Common Opposition have made any constructive proposals to increase revenue or to reduce expenditure or to generate foreign exchange. But they oppose the proposals to solve our problems.

There are some, who are well known to make a lot of noise, like shaking stones in a tin. They are the tin-rattlers. They only make noise. They do not make any constructive counter-proposals.

Foreign reserves

The long-term solutions are Foreign Direct Investments that create revenue streams through exports and the development of current activities that generate foreign income, like tourism. They both depend for success on the image of the country.

During the election campaigns we have painted a picture of corruption. There is now the need to portray a new era free of corruption. We need the Government and the Opposition and civil society to proclaim this in loud ringing tones. Sadly, this is not happening. Not a squeak from the Opposition condemning corruption. Nobody guilty of corruption is in jail. Where is the credibility of a new era free of corruption?

Why?

Why do leaders of the Opposition behave the way they do? Is it a total lack of interest in the welfare of the country? Difficult to believe that this is the reason. Then what is the reason is the tricky question. Probably, a person who goes into politics and succeeds in getting elected has acquired the skills to thrive in the hurly-burly unruly world of politics, but they have probably had neither the time, nor the opportunity, nor the inclination, to understand all facets of our economy. 

If this is correct, then they are probably not able to fully understand the issues and to see the wisdom of what is proposed or the ability to propose something different. In such a context their only constant preoccupation will be getting power. They perhaps believe that the electorate will see them as saviours of the nation if they scream and shout and rattle the tin.

A dangerous political dynamic

When the Opposition exploits the fact that reforms will cause pain and screams and shouts opposing reforms, it in some ways intimidates the Government as they too need to keep an eye on the electorate. This creates the dangerous dynamic of the Opposition making no proposals to solve the problems and simultaneously creates a reluctance on the part of the Government to address the problems in a robust manner.

Times are changing 

All over the world there is a new vibrant younger generation, who are deeply concerned about their future. They are not prepared to just leave it to politicians and insist on exercising their right to debate and advance their views. If need be with some belligerence. Backed by social media, they are the new kingmakers.

The Government should make an intensive effort to make our younger generation aware of the economic problems and the solutions and then light the fuse about protecting their future. The youth will embrace those trying to create a better future and treat with contempt those that obstruct this. If they can light this fuse, the days of the tin-rattlers will come to an end.

(The writer has done this, that and the other, both here and abroad, including a M.A in economics from Cambridge University UK.)