Budgets in the time of elections 

Budget 2019 has finally been passed after many months of delays, including a Constitutional crisis and a Vote on Account. The latest Budget has been viewed as one mixed with election promises and several key reforms but its implementation will be challenging. 

For starters, there is little time. Most Budgets have a full year, but this Budget will only have about seven to eight months. On top of that, the Finance Minister has indicated he will implement policies in previous Budgets such as liberalisation of shipping, which is likely to be highly contentious. There are also proposals to make significant legal changes and increase economic competitiveness, which will require coordinating with public institutions and State-owned enterprises (SOEs) with their powerful unions challenging.  There are also external problems such as sorting out Sri Lanka’s complicated power sector. No matter what red tape is rolled back, unless basic requirements such as power is met, investors will be reluctant to invest in Sri Lanka. Power is also central to many crucial Government infrastructure projects such as the Light Railway, which will add considerable demand for power. It is a common fallacy of the Ceylon Electricity Board (CEB) to request the public to reduce power consumption during droughts. The reality is that Sri Lanka is energy poor and has been for decades. Except for a selection of Colombo residents and businesses, most others use energy sparingly due to high cost. If the power issue alone is solved, that would improve the local business environment significantly.

In addition, 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.  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.

What all this underscores is the need for the Budget to prioritise the most important economic and political agendas and then actually achieve them because a Budget is essentially the catalyst for a policy agenda.  Sri Lanka, with its significant debt and governance issues, can no longer afford to have budgets that do not walk the talk. Key reforms, including State-owned enterprise restructuring, improving exports, improving imports, and implementing pragmatic social welfare nets, need to be rolled out or Budget 2019 will be judged at the polls.