Why did FUTA base its demand on 
GDP and not government budget?

September 12, 2012, 12:00 pm , The Island

I am at a loss to understand why FUTA based its demand for extra resources for education on GDP and not on the national budget which allocates funds annually to different sectors, based on the government’s inter-sectoral priorities, and resources available to it from tax revenue and loans, both foreign and domestic.

I do remember how at the time I was appointed Secretary of the Education Ministry in 1980 we were on a shoe-string budget for education, with hardly enough to meet our minimum recurrent expenses and virtually nothing for capital expenditure. The government that was elected to office in 1977 had what were described as its four ‘lead projects’ (Mahaveli diversion, Katunayaka Free Trade Zone, Prime Minister Premadasa’s Million Houses’ Programme and the Project to move Parliament and the administrative capital to SJP), and we were asked to wait until these expenditures tailed off in the late eighties for any increase! The actual allocation for education in 1980 was 7.06 % of government expenditure making it an uphill task to provide even the necessary teachers or undertake urgent maintenance work to buildings. By the end of the decade, however, the provision for education had gone up to 10.62% of the government budget.

Similarly, it is common knowledge that defence expenditure took a large part of the cake in more recent years, taking resources away from other sectors. But what is worrying is the drop in the resources allocated to education after the conclusion of the war, as shown in the following figures, particularly in the context of wasteful expenditures and mega projects undertaken/contemplated by government some of which seem to be of questionable value.

[Figures taken from Central Bank publication ‘Sri Lanka Economic Data 2011 - Vol. XXXIV’]

There is no doubt that FUTA has tagged on the demand for a hugely enhanced allocation for education to gain wider support for their trade union struggle which they have succeeded in getting, but basing its demand on the GDP raises a whole lot of problems. I am no economist but with the smattering of economics I have, I am aware that the GDP or Gross Domestic Product is a measure to estimate the value of the total worth of a country’s production and services within its territory by both its nationals and foreigners during the year that has just ended. It is not the GDP but the GNP or Gross National Product which takes account of all inflows of incomes from SL citizens abroad as well as outflows from foreigners here. Since both these are calculated at the end of the year they are post facto computations, and at the time allocations for government expenditures are made these magnitudes are known only as forecasts which may often go wrong due to reasons beyond our control, much more than in the case of the national budget where there is a possibility of moving resources from one sector of expenditure to another depending on exigencies.

Moreover, there are different manifestations of the GDP (same with the GNP) which often baffle the layman and even confuse those with some knowledge of economics, such as GDP at Current Market Prices (also referred to as the Nominal GDP), GDP at Constant Market Prices (also referred to as the Real GDP), GDP at Current Factor Cost Prices and GDP at Constant Factor Cost Prices all of which represent different magnitudes. For instance, our GDP at Current Market Prices in 2009 was Rs. 4913 billion while the GDP at Constant Market Prices for the year was Rs. 2448 billion – less than half the former sum!

According to my economist friend Usvatte (we studied economics together at Peradeniya in the mid fifties and took different paths thereafter) the FUTA demand for 6% of GDP to be spent on education would mean 25% of all government expenditures (The Island, 22/8/12). He has computed this to mean raising government expenditure on education to Rs. 363 billion from its current level of Rs. 121 billion. This does not seem possible unless we strike oil, if not gold, within the next few years and therefore an increase of 6% of GDP for education seems a futile demand to make in the present context, while not denying the fact that there are countries spending 20-30% of total government expenditure on education (See table 3.2 in World Bank publication Treasures of the Education System in Sri Lanka, 2005). One wonders whether the economists among university teachers had not brought these facts to the attention of the brains’ trust of FUTA!

Eric J. de Silva