Budget focus

Thursday, 22 February 2018 00:00 -     - {{hitsCtrl.values.hits}}

Even though the political fallout of the Local Government elections has begun to ebb, the reasons for it should not be allowed to be forgotten by lawmakers. As the President and the Prime Minister seek to fast-track implementation of reforms and meet public expectations, there are several key points that must be hardcoded into any policy making process. The first is Budget formulation, and the second is staying true to fiscal consolidation.  

As prominent economist and advisor to the Finance Ministry Dr. Razeen Sally, in a scathing evaluation of the reasons behind the Government’s loss pointed out this week, the economic returns that the public expected when they elected the coalition in 2015 had failed to materialise. Worse, the process was hamstrung by bad appointments and worse policy implementation. In Dr. Sally’s estimation, one of the major points that need to be radically changed was the Budget formulation process of Sri Lanka. 

Currently, various Ministries send in their wish lists, mostly consisting of wish lists of Ministers, to the Treasury, which is then hammered down into a series of policies that are then encased in the Budget and presented to Parliament. This, as Dr. Sally eloquently pointed out, was a ‘dog’s breakfast’ that had little to do with managing the overall economic health of the country or fermenting sustainable development. It has become so ad hoc and illogical, that even the public scarcely pays attention to the Budget, because they know that few of the policies actually get implemented. 

Verité Research, in a recent evaluation of the 2017 Budget proposals, found that less than half of them had been implemented, and transparency of the process was less than satisfactory. A separate Open Budget Survey showed that Sri Lanka was behind all its South Asian compatriots, with the exception of Bangladesh, on Budget formulation and transparency, leaving a huge amount of leeway for the government to do discretionary spending. These lapses in the Budget-making process allow for ill-judged policies, such as the tab-giving to all teachers and schoolchildren, which would have wasted colossal amounts of public funds. Fortunately, the President stopped the effort recently, after Cabinet approved purchasing each tab for Rs. 27,000. 

Many of the proposals in Budgets are done without a cost-benefit analysis, and leave room for corruption and knee-jerk policymaking to creep in because public interest is not at the heart of policymaking.  This is worsened at the tail-end of a political term when Governments, sensing that they are not as popular as they wish, are tempted to garner votes by increasing spending. This kind of fiscal spending cannot be allowed in Sri Lanka, as the Central Bank has already warned. 

As Dr. Sally noted, a crucial step mulled by the Finance Minister is to have the Treasury draw up a draft Budget in the middle of the year, which would lay out the larger targets of the Government in terms of revenue, expenditure and debt servicing, and then invite the various ministries to send in their proposals with a cost-benefit analysis. Such a measure is long overdue and to be applauded, because it would then take the guesswork out of Budget formulation, simplify it, and ensure that what is laid out every November is actually implemented. This is a huge leap in the right direction.