Populist budget ahead of elections

Finance Ministry officials face dilemma because of falling revenue, mounting debts

Finance Minister Mangala Samara we era wants Treasury officials to prepare “a populist budget” setting a poser to officials who say there is falling government revenue, mounting public debt and severe balance of payment difficulties.

Minister Samaraweera’s call is in the light of the impending Provincial Council, Presidential and Parliamentary elections. However, officials say the economic situation has been exacerbated by prolonged droughts, frequent floods and landslides.

In view of the upcoming elections, the Finance Minister is said to be under pressure to direct ministry officials to prepare a populist budget high on subsidies, tax relief and spending focused on rural areas.

The Government has allocated Rs. 60 billion for the ‘ Enterprise Sri Lanka’ programme to create 100,000 new entrepreneurs countrywide while implementing 15 development projects under the Gamperaliya, rural development programme with a financial allocation of more than Rs. 45 billion.

In addition, soft loans amounting to Rs. 10 billion will be provided for

both small to medium enterprises in rural areas to develop their businesses.

These rural development- oriented transformation programmes will be initiated through the 2019 budget.

The Budget will be prepared in accordance with the medium- term fiscal frame work ( MTFF) by adopting a Performance- Based Budgeting (PBB) approach, with the aim of increasing government revenue to 17 percent of GDP by 2021.

The Government also plans to limit recurrent expenditure to 15 percent of GDP amounting to Rs. 2.19 trillion while maintaining Government Public Investment at 5.5 percent of GDP.

The budget deficit will be brought down to 3.5 percent of GDP, while limiting Government debt to below 70 percent of GDP.

With Rs. 2.5 trillion in Government revenue, of which Rs. 2 trillion is to be allocated on debt- servicing in 2019, there would be limited space for public investment projects.

According to budget call- 2019 circular issued by Treasury Secretary R. H. S. Samara tung a, the line ministries will be required to identify priority projects, where resources will be allocated within ceilings.

To ensure the equal distribution of resources for all districts, line ministries are expected to provide detail information of the development projects.

A Public Investment Management Assessment (PIMA) undertaken jointly by the IMF and the World Bank has revealed that one third of the potential impact of public investment has been lost during the management process, and only two thirds of expected outcomes delivered.

Budgetary ceilings to all line ministries and agencies should be based on the available resources, requiring all institutions to prepare their draft budget estimates within the allocated ceiling.

Further, the circular said, the Treasury cash releases would also be linked with the reported commitments and liabilities, requiring Ministry Secretaries and Department Heads to update their commitments and liabilities regularly to the Treasury through the Computerised Inte g rated Gover nment’s Accounting System Programme (CIGAS), implemented with the aim of minimising delays in cash releases and cash flow manage- ment.

The worsening public debt situation in the country is mind boggling as the Treasury estimates a massive US$15 billion in foreign debt service payment during the four years from 2019 to 2022, a senior ministry official divulged.

According to the Finance Ministry estimates, Sri Lanka will have $4.2 billion in debt service payments next year, $3.7 billion in 2020, $ 3.3 billion in 2021 and $3.7 billion in 2022, adding up to a total of $14.9 billion during the four years.

The new Inland Revenue Act is expected to increase government revenue by Rs. 60 billion a year, mainly through opening many direct tax files, as only 18 percent of the population pay income tax, the official said.

Further, the circular said, the Treasury cash releases would also be linked with the reported commitments and liabilities, requiring Ministry Secretaries and Department Heads to update their commitments and liabilities regularly to the Treasury through the Computerised Integrated Government’s Accounting System Programme (CIGAS), implemented with the aim of minimising delays in cash releases and cash flow management