Getting fiscal policy right

Tuesday, 10 February 2015 01:07 - - {{hitsCtrl.values.hits}}

The country is emerging from a dark age, during which the National Budget and taxpayer’s money was treated like a virtual slush fund for the ruling dynasty and its hangers on. Accountability, fiscal responsibility, rational monetary policy and good governance was not in the lexicon of the ruling cohort and their bureaucratic and political collaborators. Policy was directed by political expediency, astrologers, who on their own admission, ex post facto, were afraid of telling the truth of what the stars foretold, due to the fear of physical assault, and corrupt bum sucking “ass liquors”. The painful task of auditing the national accounts and getting to the bottom of the real parameters of the crisis has started. Legislating on the National Audit Commission and the Right to Information Law are in hand under the Maithripalanaya’s 100 day program. In the meantime, we have to get fiscal policy right. An interview by a former Secretary to the Treasury, suitably edited to make it relevant for today, is reprinted below to indicate the parameters of what has to be done.

Fiscal and monetary crossroads The nation stands at a fiscal and monetary crossroads. The individual who ran monetary policy with some incompetent cohorts at the policy level has had his passport withdrawn by the Bribery Commissioner. The Chief Justice has been interviewed by the Police Criminal Investigation

Department on his alleged role in a political coup. Emerging out of this dark scenario, there seems to be a chance of liberation. Fiscal policy, at the official level, is at last in the competent hands of an experienced professional who isn’t bombastic. At the political level the head is an experienced businessman, a welcome change from the self-professed ‘Gamay Bhaiya’! Don’t get me wrong, I agree totally with Robert Knox, that you wash the mud off a Lankan villager working in a paddy field and he is fit to be King. But there are always exceptions which reinforce the rule! ‘Resplendent Lanka’ once more? Monetary policy is now in the hands of an experienced professional banker. The National Audit Commission, the Constitutional Council and the Independent Commissions for the Public Service and the Police and Judiciary, etc., will at least bring in a respect for the Rule of Law and principles of good governance including the Dasa Raja Dharma. The Right to Information Act must be exploited in full by a motivated civil society to keep politicians and official on the straight and narrow. There is the outside chance, against all historical and legacy odds, that Lanka may once again actually achieve the status of being the

‘Resplendent Lanka,’ if not that of ‘Serendipity’ or ‘Granary of the East’ of the past! Or a high-tech hub of South Asia of the future – if not the late lamented ‘Wonder of Asia,’ that of the infamous five hubs! The price of liberty But remember, “The price of liberty is eternal vigilance”. The space must be provided for civil society activists to play their essential role in society – no white vans! Mistakes must be exposed and admitted. Flaws must be corrected in time. Frauds and criminal acts are prosecuted to the full force of the law, quickly and completely. The misled put back on the correct track, pulled by their ears if necessary! The law must rule. Bribery and corruption must be crushed out of sight. Performance must be transparent. Information freely available, subject to genuine public security concerns, of course. Freedom of speech provided and defended. At the same time the law of defamation respected. There is no freedom of the wild ass – or even the Mannar donkey. As his Holiness the Pope has recently pointed out, in the context of the Parisian Charlie Hebdo related issues on religious freedom and free comment, there are responsible, reasonable, moral and legal limits to freedom. Nothing in this world is unlimited or unconditional.

We have seen in the recent past the full vindication, in operational terms, unfolding, in all its plethora of manifestations, before our own very stunned and dumbfounded eyes, Lord Acton’s timeless dictum – “Power corrupts, absolute power corrupts absolutely”. No sane person, in his right mind, would request an encore! (The writer is a lawyer, who has over 30 years of experience as a CEO in both State and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)

Treasury Secretary should be above politics

The job of Treasury Secretary is possibly the most stressful job in government, asserted former Treasury Secretary Charitha Ratwatte. In an interview with The Bottom Line, he pointed out that ever since the 1972 Constitution brought the Public Service under the control of the cabinet of ministers, political interference “has been a given”. Handpicked for the post of Treasury Secretary during the UNP regime, Ratwatte took over at a time when the country was on negative growth for the first time in its recorded history. “There is a strong case for revisiting the accountability rules to involve politicians, when they may have clearly directed the decisions which are subject to review,” he asserted. An Attorney-at-Law, Ratwatte has over 20 years of experience in government service. He served in positions such as National Youth Services Council Chairman, Youth Services Director General, and Deputy Commissioner General for Essential Services, Commissioner General for Essential Services GOSL and Managing Director of the Janasaviya Trust Fund. He also served as the secretary to several ministries, including the Youth Affairs and Employment Ministry, Youth Affairs and Sports Ministry, Reconstruction, Rehabilitation and Social Welfare Ministry, Policy Development and Finance Ministry, amongst others. His business experience is wide and varied, and includes posts as chairman or director in many institutions. Ratwatte has also served on many international boards and as a consultant to international organisations such as US AID, United Nations Volunteers, UNDP, World Bank and NORAD. A prominent social and political activist, his legislative experience is impressive. He was involved in the drafting of several acts, including the National Youth Services Act, Tertiary and Vocational Training Act, Manpower Mobilisation Act, Fiscal Responsibility Law and Youth Corps Law, amongst several others. Ratwatte pointed out that since being Treasury Secretary is a position of trust, one has to be “above politics”. Ideally the only task of the Treasury Secretary should be fiscal management, he emphasised. Following are relevant excerpts of the interview, first published six years ago on 13 February 2008:

By Marianne David Q: You were handpicked for the post of Treasury Secretary during the UNP regime. Can you recall the main challenges you faced and how you overcame them? A: I had worked in government from 1977 to 1994, when I reverted to the private sector, in assignments ranging from Director General of Youth Services, Commissioner General for Essential Services, Managing Director of the Janasaviya Trust Fund ( it operated under the name of National Development Trust Fund – the Credit window of the Fund is now operated by the Sri Lanka Savings Bank, still serving Micro Finance Partner Institutions after project closure) and Secretary to six different ministries. So I was not new to government service. The main challenge was that the country, for the first time in its recorded history, was on negative growth, had a huge deficit, high inflation, had six-hour power cuts, the exchange rate was out of control, had a bloated government and was at war. All these issues were systematically addressed. Q: What were the key initiatives you would recall as being most significant during your tenure and why? A: The government being able to get a peace process started, bringing down inflation and the interest rate, holding the exchange rate steady, cutting the deficit, controlling the numbers on the government payroll and restoring power supply. Q: How would you describe the job – does it come under severe political pressure or is it a fulfilling experience? A: It is possibly the most stressful job in government. Ever since the 1972 Constitution brought the Public Service under the control of the cabinet of ministers, political interference has been a given. It was fulfilling to watch how the economy responded to the economic fundamentals being corrected and growth bouncing back. Q: How did you balance political interest versus accountability in the backdrop of being answerable to Parliament on prudential fiscal management? A: Secretaries to ministries are the chief accounting officers to the Public Accounts Committee and to Parliament. The Auditor General does an ex post facto compliance audit, for which public officers are accountable. In today’s political context it would be sensible to revisit this Anglo Saxon concept of accountability for tax payers money, and involve the accountability of politicians for orders, instructions and decisions given by them. Also, a comprehensive management and value for money audit would be much more useful. Other institutions for financial management, such as internal audits, tender boards and technical evaluation committees should be allowed to work at optimum. Where public expenditure exceeds tax revenue by such a large amount as in this country, and the expansion of government seems unstoppable, it is not practical to talk about ‘prudential fiscal management’ within today’s financial governance structures. Q: People always feel that because the Treasury Secretary is held accountable, even politicians’ faults are landed on the Treasury Secretary, including trade union problems. Is being Treasury Secretary a terrible job? Do you think the Minister should be held responsible instead? A: As I have said – it is probably the most stressful job in government. The relationship with the minister depends on the people you have to work with. As I have said before, there is a strong case for revisiting the accountability rules to involve politicians, when they may have clearly directed the decisions which are subject to review by audit. Q: Is being Treasury Secretary a balancing act? In your opinion, how should a Treasury Secretary conduct himself? A: It is a position of trust; you are responsible for taxpayers’ money, loans/grants given by taxpayers of other countries and borrowing, which have to be repaid by taxpayers. You have to be above politics. Q: Of late the Treasury has come under severe attack for mismanaging the economy, especially the fiscal issues, and not improving the macro economic fundamentals. This government appears to be focusing on high spending. Is it a fair criticism? A: Where the difference between government revenue and government expenditure is so high, it is not practical to talk about fiscal responsibility – especially when we have a huge welfare bill, heavy cost of government, are financing a war and have high debt service. Q: It was during your tenure that the Fiscal Responsibility Act was introduced. Ever since, successive governments have failed to achieve the annual targets. Can you explain why? A: In retrospect, with hindsight, the Act should have had more teeth; for example, a balanced budget provision which needed a two-thirds majority to override. Q: As former Treasury Secretary, in your opinion what are the most pressing issues the economy is facing at present that need to be addressed? A: Bring inflation, which is a tax on the poor, down; bring the deficit, which is a tax on unborn generations, down; bring down interest rates to enable entrepreneurs to borrow at reasonable rates and create employment. Since we are a ship to mouth economy, dependent on imports and exports, hold the exchange rate at a reasonable amount. Q: Could you list the core challenges that the Treasury is facing at present, as well as in the medium term? A: Curtailing wasteful expenditure at all levels of government, holding down the size and cost of government, increasing revenue, and targeting welfare expenditure better. Q: What are your views on the independence of the Treasury secretary? A: The Treasury Secretary should be above politics, appointed by the Public Service Commission, duly appointed by the Constitutional Council, in compliance with the 17th Amendment to the Constitution, from a short list submitted by the government. Indeed, this should apply to all senior posts in the public sector. Ideally the only task of the Treasury Secretary should be fiscal management; all ancillary tasks such as supervising State banks, making bombastic speeches at public forums, etc., are a distraction. The Treasury Secretary should not serve on the Monetary Board, to allow the Central Bank to carry out its statutory duties unhindered. Q: There is speculation that the government may bring in someone from out of the public sector as Treasury Secretary. Should the job of Treasury Secretary be reserved for senior and capable public servants? What are your views on bringing someone from the private sector? A: This is fundamentally a governance issue; you need someone in that post who will do the right thing, the right way, at the right time. It does not matter whether his/her experience is within government or business. It must be a person who is willing to listen to all points of view and take a timely decision, for which he or she alone is finally accountable. There is no magic wand.

Getting fiscal policy right

Treasury Secretary should be above politics

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