Ambitious targets with no proper plans a major pitfall in budgets: Verité Research

Continued setting of overly ambitious budget targets with no clear plan for meeting them was identified as a major flaw in Sri Lanka’s budgeting process in an online discussion hosted by Verité Research. As an example, it was pointed out that the primary deficit target of 0.7% for FY 2023 requires a minimum revenue increase of 68% which would be a monumental increase in revenue achieved only once before in the country's history in 1978. 

World Bank Development Economics former Senior Director Prof. Shantayanan Devaranjan, emphasised that such unrealistic budget promises combined with budgetary practices that fail to deliver, are likely to result in a serial defaulting situation for the economy.

Verité Research hosted an online discussion titled “Avoiding Pitfalls of the Past” on the Sri Lanka Budget 2023, which is due in Parliament next month. 

The discussion aimed to address Sri Lanka’s past pitfalls in planning, process and policy, particularly pertaining to past budgets while also focusing on how best to steer through the upcoming IMF program.

Verité’s analysis identified three key process pitfalls in Government procedures - (i) Sri Lanka’s failure to obey fiscal standards, (ii) the unconstitutionality of certain taxation policies and (iii) the lack of transparency in the national budget. 

This included the fact that 48% of expenditure proposals in the 2021 budget still remained undisclosed, creating a critical lapse in transparency which needed to be addressed in the future. Transparency was also discussed in the context of the IMF Staf-Level Agreement, of which the details have thus far remained unknown to the public. 

Senior Research Analyst Raj Rajakulendran highlighted that key research for the failure of Argentina’s IMF program in 2018 was the lack of ownership and accountability on it.

Controversial changes made to tax policy in 2020 were identified as a major crisis catalyst. The other significant policy pitfalls identified included the revenue lost through failure to collect certain taxes introduced in the 2015 interim Budget such as the mansion tax and the casino entry levy and the excessive amount of discretion given to ministers. 

It was pointed out that excessive discretion of ministers has had disastrous consequences and increased corruption vulnerabilities. A particularly notable example is the Special Commodity Levy reduction on sugar imports, which alone resulted in a revenue loss of Rs. 46 billion. 

The event featured presentations by Verité Research Executive Director Nishan de Mel and Verité Research Senior Research Analysts Raj Rajakulendran and Sumini Siyambalapitiya. The expert panel included World Bank Development Economics former Senior Director Prof. Shantayanan Devaranjan, University of Peradeniya Chair Professor Prof. Dileni Gunewardena and KPMG Sri Lanka Tax and Regulatory Division Principal Suresh Perera.