Finance Minister Ravi K’s novel idea of bottom-up approach for budget making

By M. Ali Hassen

Efficient budget management in any economy depends upon information flowing strongly both top-down, imposing macroeconomic constraints and broad national policies and priorities, and bottom up, with information on the costs and benefits and performance of present and potential future expenditures.

Minister of Finance Ravi Karunanayake has come up with a novel idea of bringing in more of our intelligentsia for bottom up approach budget preparations. The objective of this project named ‘Citizens’ Engagement’ in the Budgetary process – 2017 is to obtain inputs from the people on their needs as well to make them aware on budgetary constraints and the development and reform programmes introduced in the budget.

Twelve teams have been appointed from 12 National Universities of the country consisting of professors and other academic staff to conduct a systematic and scientific research at grass root level. The Minister of Finance who met these teams at MILODA in Colombo recently while appreciating the willing participation of these university academic staff said that the government wants to reach the four corners of the country and to give a voice to the voiceless people in order ensure a realistic and futuristic economy.

“We need to bring in the knowledge you possess into budget making as well as certain other areas where there is a lacuna in the policy planning. I see many universities coming up with various proposals. They are good at that particular moment. What the government expect is to stimulate the theoretical knowledge of the intelligentsia blended with the realistic situation to have a national planning to have a strong domestic economy,” said the Minister addressing them at the MILODA in Colombo 

The National Unity Government of President Maithripala Sirisena and the Prime Minister Ranil Wickremesinghe has embarked on a long-term development strategy which aims at achieving sustainable economic development with all pre-requisites for a higher middle-income country by the year 2025. This envisages creating a strong, diversified, resilient and competitive economy that can effectively cope with the challenges of development and easily adapt to the changing market and technological conditions in the national and global economy. But the efforts on the part of successive governments have not brought the desired result that had kept Sri Lanka behind other countries in Asia. That must be the reason for Finance Minister Ravi Karunanayake to this time propose a bottom-up approach in a more systematic and scientific way.

National Economic Priorities 

Now, the National Unity Government has identified five different areas as National Economic Priorities to be implemented within the next five years. Prime Minister Ranil Wickremesinghe in his Economic Policy Statement made in Parliament on 5 November 2015 articulating his priorities had said that the people are concerned about their level of living. Can they enhance their income? Can they give a better education for their children? Can the children find suitable employment following education? Up to now, as a nation, we have failed to provide answers to those questions. We have been unsuccessful.

“But it cannot be sustained in that manner. People are tired of what they have gone through – they seek genuine, real time change. That’s why they elected us to power – to make that anticipated change a reality. They believe that we can make changes for the better and through social economic modifications, we can make their lives better. They believe we can make Sri Lanka the most open and competitive economy in South Asia,” the PM had said.

The five major areas that have been identified to be given the top priority in the next five years under the National Economic Priorities are:

1. Generating of one million job opportunities

2. Enhancing income levels

3. Development of rural economies

4. Ensuring land ownership to rural and estate sectors, the middle class and government employees

5. Creating a wide and a strong middle class

Accordingly, the Government has already announced that line ministries that are submitting their proposals that align with these priority areas will be given required allocations without any restrictions by the treasury.

While setting these priorities in his policy statement the PM quite correctly recalled that in order to achieve these targets, “we need to be conscious of the current state of the global economy. When we became a nation in the lower middle-income bracket, we lose the right to claim financial aid and benefits. Accordingly, we cannot spend more than we earn, anymore.”

As he had mentioned in the past we Sri Lankans were hiding behind slogans and making excuses for the shortcomings which concealed the actual facts further. We the people of this country were made to believe that the country has developed in to a middle income level (which deprived us the facility of grants and soft loans with grace periods) with per capita increased to over $ 3,800 in 2014. According to statistics Sri Lanka’s GDP growth rate registered a constant increase from 8.0 % in 2010 to 8.4 % in 2011 and 9.1 % in 2012 which was perceived as a great achievement but in reality it didn’t bring any favourable change in the living standards of the people which is the yardstick to prove the real economic development.

The policy makers at that particular time tried to simulate this as an economic development. In-fact the development looks at a wider range of statistics than just GDP per capita. Development is concerned with how people are actually affected. It looks at their actual living standards

Economic growth without development

There are several schools of thought that differentiate the economic growth from the economic development. Accordingly, it is possible to have economic growth without development i.e. an increase in GDP, but most people don’t see any actual improvements in living standards. A country may see higher GDP, but the benefits of growth may be siphoned into the bank accounts of politicians. Or else a country may increase GDP through spending more on military goods. However, if this is at the expense of dividends to the public on health care and education it can lead to lower living standards.

Sri Lanka could be perceived as such a country where we have a large military and a large public service when compared with the population and the expenditure on it will be accumulated in to the public expenditure that would increase the level of GDP. Further, during the past regime we had large amount of spending on infrastructure such as sea ports, airports and expressways which hardly had any returns on such development. It is not a secret that during the period of the previous Government there existed an exaggerated GDP growth rate that was fuelled by debt creating public spending spree because almost all the infrastructure development inclusive of some of the rural roadways were made possible with foreign loan of which many of them were at commercial rates.

These days the officials at the Treasury are busy negotiating with officials of the line ministries for allocation of money for their projects and programmes intended for 2017. Apart from according priority to projects that are coming under the purviews of the Government’s economic priority areas the Ministry of Finance itself is busy in making necessary changes at macro level. 

This is where the Minister of Finance Ravi Karunanayake as the architect of Budget making under the unity government has come in with a proposal for bottom up approach where he has obtained the services of academics of 12 National Universities. 

The value of the GDP has increased to Rs. 11,183 billion ($ 82.3 b) in 2015 from Rs. 6,414 billion ($ 56.7 b) in 2010. Sri Lanka has a new phenomenon in its expenditure chain where a sizeable portion goes to social welfare and subsidies. Sri Lanka has variety of such schemes which include expenditures on social welfare, health and nutrition program, support services for education, agriculture, crops and subsidy on interests on loan given to public servants, media personnel and artistes and other schemes such as rural credit scheme, farmers’ loan, relief on pawned jewellery, interest difference on senior citizens’ accounts, etc.

Social welfare expenditures such as Samurdhi, fertiliser and school uniforms which have larger allocations have now been brought under efficient management which led to prune down the unnecessary cost. Now instead of distributing the school uniform material the government started giving money to the student alleviating the middle men and other cost for transport and repackaging. Likewise the cost on the fertiliser subsidy has also come down with an efficient and practical manner in which the farmers are now given money instead of the fertiliser. With the cash grant program introduced in 2016 the allocation in the year 2016 has come down to Rs. 37.5 billion from Rs. 49.57 billion in 2015.

As all these welfare and subsidy schemes relate mainly to the rural masses, the efforts on the part of the Minister of Finance for a bottom up approach is expected to bring in desired result directly to the beneficiaries. The idea of this approach is to have a national planning to have a strong domestic economy with the concept of value for money.

Sri Lanka spends a colossal amount on welfare and subsidies up to over Rs. 382 billion annually, but its value for money is questionable. Sri Lanka inherited a Government of its revenue is not enough for even the debt services. 

So in order to get the real value for money for investment on the rural masses the Minister asserted that the Government looks for pursuing a social market economy. The Minister called upon the academics to ensure for themselves with a systematic research that all capital expenditures bring benefits over the cost, value for money and return on investment. He expects a thought-provoking job and not mere a tinkering job from these intelligentsia of the fame working in our national universities.

This program called Citizens Program will have all 332 Divisional Secretariat divisions as its sample population and will use questionnaires to collect information from five GN division of each DS division on the real needs of the people. The idea of this novel proposal is to plan out public policies to go along with the wish and the real needs of the rural masses as they expected the change when voted Maithripala Sirisena in to the office of Presidency on 8 January 2015.

The Ministry of Finance under the guidance of Finance Minister Ravi Karunanayake is geared up to meet the challenges of the future in this novel way to ensure that the leaders fulfil the needs of the people not other way round. The budget making for year 2017 appears to be, first for a strong domestic economy. If we locally can’t mete out to the expectation of the local planning, then we have to ensure we have the technical knowhow coming from outside. If both these are not sufficient enough then we need to get Foreign Direct Investment, concluded the Minister in advising the academics of our esteemed national universities 

Due to the new Sri Lankan Government’s current policies, the support from the international community and development partners is pouring in by way of various support schemes for a sustainable medium-term program and some features of a new economic landscape for Sri Lanka at the end of the medium-term program would be:

•     A fiscal deficit of 3.5% of GDP by 2020—sustained or lowered over the longer term to ensure the debt-to-GDP ratio continues to fall.
•     An increase in the tax-to-GDP ratio from 10.1% in 2014 to about 17% by 2020.
•     A reduction in public debt to about 60% of GDP by 2020.
•     An increase in foreign exchange reserves of the central bank to about 10 months of import cover by the end of the medium-term.

(The writer is Director of Information, Ministry of Finance.)