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‘IMF should take SL’s expenditure management issues seriously’

13 Sep 2022

 
  • Economist Anushka Wijesinha says IMF shouldn’t make ‘perfunctory soft attempts’ like 2015/16 programme
  • Notes last time emphasis was on raising tax revenue, less focus on high expenditure
  By Imesh Ranasinghe     The upcoming programme by the International Monetary Fund (IMF) on Sri Lanka should seriously look at the expenditure side of the Government apart from raising revenue and to not take “perfunctory soft attempts” similar to the previous IMF programme in 2015/16, stated Centre for a Smart Future Co-Founder, economist Anushka Wijesinha. Speaking at an event held by Advocata Institute last week, he said the IMF programme implemented in the 2015/16 period by the Sri Lankan Government included a revenue-based fiscal consolidation, where the emphasis was on raising greater tax revenue. However, he said, there were only some soft attempts to manage Government expenditure and restructure State-Owned Enterprises (SOEs). “Introducing statements of corporate intent for SOEs was a sort of baby step toward corporate governance in SOEs,” he said, adding: “I would imagine there would be much more on SOEs than last time.”  However, he said that one area that is not clear with the upcoming IMF programme would be whether the programme is going to target revenue-based fiscal consolidation or expenditure-based fiscal consolidation. “The expenditure side also has to be seriously looked at, instead of making perfunctory soft attempts,” Wijesinha said. The statement issued by the IMF after reaching the staff-level agreement with Sri Lanka stated that raising fiscal revenue to support fiscal consolidation is one of the key elements of the programme. “Starting from one of the lowest revenue levels in the world, the programme will implement major tax reforms. These reforms include making the personal income tax more progressive and broadening the tax base for corporate income tax and Value-Added Tax (VAT). The programme aims to reach a primary surplus of 2.3% of Gross Domestic Product (GDP) by 2025,” the IMF statement said. Wijesinha said that military expenditure by the Sri Lankan Government is one of the aspects that need to be looked at. “The colossal military headquarters in Akuregoda is not yet finished, and it needs billions more rupees to be finished. Now let's wait and see whether billions of rupees are going to be allocated to finish that project, or whether that is going to be allocated to urgent needs such as health, nutrition, education, and to help those most vulnerable this time around,” he said, adding that this is going to be a litmus test on whether the Government is going to work on expenditure rationalisation or prioritisation. In the revised Budget estimates released in May 2022 after the tax increase declared earlier in the same month, the building of the defence headquarters in Akuregoda had an allocation of Rs. 7 billion and the tri-forces had a combined expenditure allocation of Rs. 315.5 billion for the rest of 2022. Last week, Opposition MP Dr. Harsha de Silva said that the Ministry of Finance has Rs. 75 billion worth of bill payments due to construction companies on roads and Rs. 25 billion on military expenses. Sri Lanka’s revised Budget deficit for 2022 is projected at 9.8% of GDP, up from 8.8% of GDP in the original 2022 Budget. The interim Budget for 2022 has forecasted a Budget deficit of Rs. 2,333 billion for 2022, more than the revenue of Rs 2,094 billion. The Government stated a few reasons for the increase of expenditure compared to the original Budget, which included accounting for previously unbudgeted expenditure measures and higher procurement costs due to rising prices in a high/inflation environment. With inflation reaching 60.8% by July 2022 (CCPI-based), increased allocations will be required for social protection measures, considering the rising costs of living, allocations for chemical fertiliser, and higher interest costs.  


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