Untangling Budgets

Sri Lanka is once again in the process of passing a Budget, which will have heightened significance given that elections are likely this year as well as historically high debt repayments. The Appropriation Bill, which received Cabinet approval this week, has allocated Rs. 2.2 trillion for debt payments, which will take up most of the Rs. 2.4 trillion targeted public revenue.

Accordingly, this year’s annual State expenditure will be Rs. 4.5 trillion and State revenue, Rs. 2.4 trillion. The State revenue, which was 11.5% of GDP in 2014, has gradually increased after the coalition Government came into power and is expected to be raised to 15.12% of GDP in 2019, the Finance Ministry said in a statement. The Government is also aiming for a very ambitious 3.5% deficit target. 

While the details emerging of the Budget has been positive as it indicates that the fiscal consolidation measures introduced previously would continue to be followed, it is nonetheless important for the Government to establish realistic goals. Sri Lanka has already missed a 4.6% deficit target twice and is likely to see a 5% deficit in 2018. While these are not large misses, it does stretch credulity to think that 3.5% will be possible in an election year.    

Budgets are notorious for being long, complicated and rambling, with little being accomplished at the end of the day. Budgets, when they are complicated, are also difficult to track, particularly in Sri Lanka where transparency at the ministerial and institutional levels remains negligible.    

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 and imports, and implementing pragmatic social welfare nets, need to be outlined in the Budget to give all stakeholders, including the private sector, a chance to base their planning on something solid. 

Many key proposals in the past such as the contributory pension fund, interest subsidy for housing, double tracking of railway lines, private free trade zones along expressway corridors, global marketing campaign to boost FDI, credit scheme to encourage domestic solar power generation, ensuring basic facilities of water, power and sanitation for all schools were among proposals that were either partially implemented or skipped over entirely. 

It is imperative for continuity that at least the best Budget proposals are taken to their full implementation even if it means extending them over several years. 

Keeping Budget proposals simple and targeted is also important because the Government will have a tough year balancing out expectations for populist policies ahead of elections. Policy stagnation and contradictions over the past four years, which eventually manifests in public impatience, will also need to be tackled. Governments have much to gain from being practical about what they can achieve and actually getting those policies done, rather than giving in to the temptation of dishing out public jobs and increasing consumption only to have to withdraw those goodies the moment polls are over. Budgets need to walk the talk as structural changes become more painful the longer they are ignored.