Budget accountability

The news cycle for the next few weeks will be dominated by Budget 2019. Many will be the analyses, the praise and the criticisms that will be directed at the latest Budget. However, there is a serious need to look at how the previous Budget was implemented, both in terms of policy and expenditure, to fully complete the budget process. 

Budgets are typically complicated in Sri Lanka, with too many policies jammed into a document with little consistency to back them up. The implementation is usually haphazard and inconsistent, with deficit and revenue targets routinely missed. The disbursement of funds by the Treasury is not clearly mapped according to the Budget, and often has significant differences between what is specified in the Budget and what is actually spent. 

The numbers are kept under wraps to the extent they are not even revealed to the Committee on Public Finance (COPF). According to COPF Chairman M. A. Sumanthiran, Treasury officials were reluctant to cooperate with the Committee and provide the material needed for their work; instead they provided data that was difficult to be compared. The different sets of data, as well as the complicated way they are compiled, make it a time consuming task to compare disbursements of funds, progress on specific projects, and how they are aligned with specific Budget proposals. 

This is perhaps the most contentious when State Owned Enterprises (SOEs) are involved. Just ahead of the Budget for 2019, think tank Advocata released the latest edition of State of State Owned Enterprises, which showed that the Government does not even possess a complete list of SOEs, and accountability mechanisms remain largely non-existent.     

The report pointed out the internal control, monitoring, and governance frameworks seem inadequate to deal with major problems. Of the 400-odd SOE entities, regular information is only available for 55. Even obtaining a complete list of entities proved to be a challenge. Financials are routinely late, and only a minority obtain ‘clean’ audit reports. Of the 55, only 11 had published an annual report for 2016 by the time the Department of Public Enterprises compiled its Performance Report for 2017. 

Underperformance appears common; according to the Department of Public Enterprises, the 55 largest delivered a net Return on Assets (ROA) of only 0.64% in 2017. The combined losses among the loss-making entities reached Rs. 87 billion in 2017, compared to Rs. 42 billion in 2016. Some are in deep trouble. The Petroleum Corporation carries a negative equity. Sheer incompetence and corruption have pushed SriLankan Airlines close to financial collapse. Central budget support to SOEs amounted to Rs. 41 billion in 2017.

A trend for SOEs to be incorporated as limited liability companies allows politicians to bypass Treasury or budget restrictions, and evade parliamentary accountability. Complex corporate structures provide a convenient shroud for abuse. A review of the reports of the Auditor General and the Committee on Public Enterprises paints a dismal picture of systemic failures of governance, leading to gross misappropriation of public funds. These losses are staggering, and in some cases the negligence is downright deplorable. For example, the COPF found that new vehicles were procured every time the Minister changed, and there was no record of the previous vehicles, but when pressed, officials admitted to giving the vehicles to other Ministry officials, rather than simply reusing them. 

Without better management of public finance, Sri Lanka will never reduce corruption, wastage and mismanagement.