• Budget should conform to the conditions Govt. has agreed with the IMF
• Govt. revenue needs to be increased to at least 13% of GDP – Rs. 4,300 b
• Current tax structure will not permit the Government to reach this goal
• Complicating matters, public servants demanding pay hike of Rs. 20,000
• Proposals remain unimplemented due to weak constitutional provisions
• No post-evaluation procedure by Parliament to ensure implementation
• There should be an independent budget post-evaluation office in P’ment
• Attaining high economic growth should be top priority of Government
• Target of present Government is to make Lanka a rich country by 2048
• Policy inconsistency the biggest problem in attaining sustainable growth

President Ranil Wickremesinghe will present the Appropriation Bill for the fiscal year 2024 in Parliament tomorrow (13) in his capacity as Minister of Finance. However, the fact remains that regardless of which government is in power, the majority of budget proposals go unimplemented year after year despite the fanfare in presentation.

Commenting on this implementation failure, former Deputy Governor of the Central Bank Dr. W.A. Wijewardena said that while there were budget proposals at the beginning, at the end most of them remained unimplemented because of weak constitutional provisions on budget accountability and post-evaluation.

Outlining his expectations for Budget 2024, Dr. Wijewardena, an independent economic analyst, noted that it should conform to the conditions which the Government had agreed with the International Monetary Fund (IMF) for the Extended Fund Facility (EFF). “Hence, at most, the Budget 2024 will be a stabilisation budget oriented towards attaining macroeconomic stability envisaged in the IMF programme,” he pointed out, in an interview with The Sunday Morning.

Dr. Wijewardena further stated that the options for providing some form of relief for the people via the Budget were very limited. “Had the Minister of Finance been free to frame it according to his parameters, some relief could have been provided. But now the Budget must be designed within the framework agreed with the IMF. Hence, it is an alternative between meeting the conditions agreed with the IMF and producing a traditional budget in which a lot of handouts could be given to people,” he explained.

In the course of the interview, Dr. Wijewardena also spoke on the formulation and implementation of feasible budget proposals, ensuring transparency and accountability when it comes to implementation, the key area the Government should focus on to ensure sustainable income in the long term, ensuring policy stability and consistency, and long-term steps for Sri Lanka to move beyond survival and start growing.

Following are excerpts of the interview:

In the backdrop of Sri Lanka’s economic collapse, unsustainable level of debt, and the ongoing IMF programme, what are your expectations of Budget 2024?

The Budget 2024 should conform to the conditions which the Government has agreed with the IMF for the EFF. Accordingly, there is the requirement to increase the revenue of the Government to at least 13% of GDP, which in rupee terms will amount to Rs. 4,300 billion.

This is a high goal for the Government since its revenue in 2023 has been estimated at about Rs. 2,800 billion. This means an increase of about 54% over the revenue level in 2023. The current tax structure will not permit the Government to reach this goal. 

To complicate matters for the Government, public servants have been demanding an across-the-board salary increase of Rs. 20,000 per month to relieve them of the increase in the cost of living by about 90% over the past three years. If this full amount or a fraction of this amount is granted without increasing revenue, the Government will face another hurdle in the form of meeting the goal set for the primary account of the budget. 

The primary account is the budget balance after excluding the interest payments and therefore represents its ability to raise revenue and manage normal expenditure including capital expenditure.

The goal agreed with the IMF is that the Government will generate a surplus in the primary account amounting to 0.8% of GDP in 2024 and 2.3% thereafter annually till 2028. The surplus to be generated in 2024 in rupee terms is about Rs. 26 billion. If the salary increase demanded is granted, it will have to cut expenditure elsewhere or increase revenue to pay for it. Both are options not available to the Government now. 

Hence, at most, the Budget 2024 will be a stabilisation budget oriented towards attaining macroeconomic stability envisaged in the IMF programme. 

While working towards economic recovery, is the Government in a position to give some relief to the people, who have been dealt many heavy blows in the last few years?

The options are very limited in this connection. Had the Minister of Finance been free to frame it according to his parameters, some relief could have been provided. But now the Budget must be designed within the framework agreed with the IMF. Hence, it is an alternative between meeting the conditions agreed with the IMF and producing a traditional budget in which a lot of handouts could be given to people. 

If the latter option is selected, naturally, Sri Lanka will lose the ability to draw on the future instalments of the IMF bailout package. If it fails to do so, all other programmes lined up for rescuing the economy will have to be abandoned. 

What is at stake here is the foreign debt restructuring, fund flows from bilateral sources, and foreign exchange and development support to be extended by the World Bank and the Asian Development Bank (ADB), etc. The implication is, without such flows, Sri Lanka will not be able to maintain the exchange rate at the current level or remove the offensive import and exchange restrictions.

Year after year, regardless of which government is in power, the majority of budget proposals go unimplemented despite the fanfare in presentation. Is Sri Lanka’s budget presentation exercise mostly an eyewash?

What we have experienced in the past is that there are budget proposals at the beginning, but at the end most of them remain unimplemented. This is because the constitutional provisions on budget accountability and post-evaluation are weak in Sri Lanka.

According to the Constitution, the Parliament is the supreme authority for public finances. But that authority has been limited to approving the expenditure and revenue programmes. There is no post-evaluation procedure set by the Parliament to assure itself that all what it has approved has been implemented. 

There should be an independent budget post-evaluation office in Parliament, like the National Audit Office, which should submit quarterly reports on the realisation of budget targets and, if any target has not been realised, the reasons for the same and the remedial action taken. 

A similar report should now be submitted by the Central Bank under the new Central Bank Act to Parliament on its realising the inflation targets agreed with Parliament. I think it is now time to amend the Constitution to make this requirement a law. 

How can we ensure the formulation and implementation of feasible budget proposals?

The present budget formulation procedure is that the Ministry of Finance requests all the spending units of the Government to submit their proposals and fund requirements for the following year for incorporation in the budget. Then, it is reviewed bureaucratically within the ministry and if the proposals are excessive, they are pruned ex parte.

In this process, sometimes feasible proposals may be taken out, while unfeasible ones may get included. There is no central body that should investigate the feasibility of the projects proposed by spending agencies. It is like having a national planning commission which takes the responsibility for the feasibility of the proposals being made. 

How can transparency and accountability be ensured when it comes to implementation?

This should be done via an independent budget evaluation office set up in Parliament and submitting quarterly reports on the state of the budget implementation. 

Once the report is submitted, it should be reviewed by a select committee of Parliament so that it can ensure the transparency and accountability of the action taken by the spending agencies. 

If there is any lapse of accountability, punitive action should be taken against those who are responsible for the same. 

Which key areas/sectors should the Government focus on to ensure sustainable income in the long term?

To ensure sustainable income for people, attaining a high economic growth should be the top priority of the Government. The target of the present Government is to make Sri Lanka a rich country by 2048. What this means is that from 2028 onwards, there should be an annual economic growth of over 8% till 2048. 

The growth area for Sri Lanka is high technology and Budget 2024 should begin to allocate funds for it.  

How can Sri Lanka ensure policy stability and consistency regardless of which government is in power?

The biggest problem for Sri Lanka to attain sustainable economic growth is policy inconsistency. 

Policies are changed overnight without proper analysis or justification. This happens when a new government is elected or when a new president or a minister is appointed in the same government. This happens because there is no proper economic evaluation when policies are chosen. As a result, the new government or new minister is not aware of the rationale behind the new policy being implemented. 

What this means is that there is a serious defect in democratic economic policy governance. This principle is a strong pillar in the social market economy system being followed by the present President as well as the main Opposition party, the Samagi Jana Balawegaya (SJB). It requires that all economic policies should be formulated in consultation with the main stakeholder, the people. If this principle is followed in true spirit without any deviation, even new governments should implement the previous policies ensuring policy consistency. 

What long-term steps do you recommend for Sri Lanka to move beyond survival and start growing?

Sri Lanka’s goal is to become a rich country by 2048. This goal should be accepted by all political parties. Growth requires investment and investment funds come from the savings of the people. If domestic savings are inadequate, the country should tap the savings of the people outside the country. 

In Sri Lanka, private people make a positive saving of about 24% of their income. But the Government, which runs a deficit in its revenue account, makes a dissaving of about 4-5%, reducing the domestic savings available for investment. 

There should be a major change in the Government budgetary policy by generating savings in the Government by curtailing consumption expenditure and diverting such savings for productive investment.

Since the investment requirement is more than 30%, the country should necessarily tap the foreign savings. But they should come from non-debt sources like Foreign Direct Investments (FDIs). 

Finally, how these monies should be used should be decided by a national planning commission based on the country’s development priorities. In this process, budgetary support should be given only to deserving people and not wholesale as it is done today.