Budget permutations

Friday, 12 November 2021 00:00 - - {{hitsCtrl.values.hits}}

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 meanwhile is usually not clearly mapped and often there are significant differences between what is specified in the Budget and what is actually spent.

But even this context, the upcoming Budget is likely to be among the most challenging ever to be presented. While the 2021 Budget was an anomaly in the sense that it came just as the world was coming to terms with an unprecedented pandemic, Budget 2022 has that plus a far worse economic crisis to contend with. Budget 2022 will need to both address the challenges to growth posed by the pandemic and also set in place policies to help Sri Lanka out of the morass it has dug itself into by living beyond its means for decades.

The ongoing foreign exchange crisis has exacerbated the Government’s fiscal issues, while its record levels of money printing has seen the deficit balloon. Over time, we have seen Government expenditure rise steeply, but income through means such as taxes drop sharply. Budget 2021 proposed a consistent tax policy over five years that promised to revive the economy and support local businesses, though the effectiveness of the measures taken so far remain to be seen.

Much of Budget 2022 is expected to go towards debt servicing, with the rest of the expenditure set to be largely utilised by the Ministry of Defence. This is both unsurprising and disappointing, as once again this will come at the expense of the healthcare and education sectors; the Ministry of Health is set to see a 4% reduction in budget allocation, while the Ministry of Education will see a paltry 1% rise. Considering the manner in which the health sector in particular has been stretched during the course of the pandemic – itself stemming from consistent gutting over the years – this seems callous, to say the least. The ongoing trade union action taken by principals and teachers seems even more vindicated in this context.

What seems likely to be nowhere in sight, at least from what can be gathered from the Appropriation Bill, will be any form of fiscal consolidation that aims to control the burgeoning fiscal deficit in the country. Finance Minister Basil Rajapaksa has also gone on record saying that this will not be a welfare budget. Indeed, judging by what we know so far, it’s clear Sri Lanka spends far less on its people than many of its neighbours, including even countries categorised as low-income.

What this means is that there is a significant amount of pressure on the Government to put in place competent revenue raising measures. Though that doesn’t take away from the need for key reforms, including State-Owned Enterprise restructuring, improving exports, improving imports, and implementing pragmatic social welfare nets need to be outlined as well, so as to give all stakeholders, including the private sector, a chance to base their planning on something solid.