Economists say Budget backtracking will cause uncertainty

By Charumini de Silva

Backtracking on Budget 2016 will cast uncertainty over the likelihood of substantial economic policy reforms in the coming year, according to a senior economist.

“The major concern for 2016 is what the budget deficit means for Government borrowing, especially in a volatile external environment expected next year,” Ceylon Chamber of Commerce (CCC) Chief Economist Anushka S. Wijesinha told the Daily FT. 

He went on to say that the new increases in expenditure will add to the budget deficit, amidst already ambitious revenue targets.

Since Finance Minister Ravi Karunanayake presented the Budget on 20 November, the Government has amended several revenue proposals, including an increase in fees on vehicle emission tests and valuations and vehicle permits for public servants. On Friday, the Government extended fertiliser subsidies for plantation crops, a day after dozens of paddy farmers wearing loincloths protested against a subsidy cut. 

However, Wijesinha explained that perhaps the postponements of planned capital investments, which were not ideal, could help balance this.

Karunanayake told Reuters the revisions would not affect the revenue target. However, many analysts say the resulting fall in revenue and increase in expenditure could swell the deficit.

“We will also have to carefully watch what the rating agencies have to say,” Wijesinha stressed.  

Senior economist Dr. W. A. Wijewardena said the Government had failed to deliver pledged financial consolidation.

“With many necessary revisions being brought back to the budget proposal, Budget 2016 has not gone forward; instead it has gone backwards,” he said. 

Clarifying his point further, Dr. Wijewardena said that the revisions has reduced the Government’s revenue and increased expenditure, thereby further expanding the deficit. 

Finance Minister Karunanayake, presenting the amendments, said the amendments would result in a difference of Rs. 35.5 billion ($ 247.78 million). The budget deficit is estimated at Rs. 740 billion.

“But there won’t be any change in the budget deficit target as we will manage this difference by better financial management,” Karunanayake told the Parliament according to a Reuters report.

It said the Coalition Government aims for a budget deficit of 5.9% of gross domestic product, after missing the 2015 goal of 4.4%. This year’s budget deficit is expected to be 6%.

The Reuters report also said the revisions to the 2016 Budget could raise concern over Sri Lanka’s efforts for fiscal consolidation as the Government is expected to start negotiations next year for an IMF standby arrangement. The amendments were made after trade unions and farmers protested against some long-term austerity measures.

Amended 2016 Budget gets P’ment passage with strong majority

The amended 2016 Budget was passed in Parliament on Saturday with a more than two-thirds majority with 160 in favour and 51 against in the 225-member Parliament.