Treasury Secretary Dr. P .B. Jayasundera said the budget for 2013 was being formulated under trying conditions with a severe drought destroying crops and reducing hydro power generation to 18 percent, increasing the country’s reliance on more expensive fossil fuels and coal to generate electricity, and the global economic slump expected to impact Sri Lanka’s external balance and revenue; but perhaps the biggest challenge faced by the Treasury was the country’s citizens (both individuals and corporate) not understanding the budget.
"People do not understand the budget and this makes life difficult for us at the Treasury," the top bureaucrat said speaking at the 9th Annual Sujata Jayawardena Memorial Oration organised by the Colombo University Alumni Association at the Sri Lanka Foundation Institute on Wednesday.
Apart from a Central Bank report on the economy called the ‘September 15 Report’, the President in his capacity as Minister of Finance and Planning, has held discussions with a wide range of stakeholders in order to gather information for the 2013 Budget, which was expected to be tabled in Parliament on November 08.
"He has visited 18 districts, gathering views from local government officials, women and children. He also met with the various business chambers of the country," Dr. Jayasundera said.
"What makes the whole process of preparing budgets difficult is that people do not understand the budget. They all seem to think the budget is the government’s way of evenly distributing its unlimited resources. Everyone is looking for extra concessions and extra government allocations.
"No one has told us the country has too large a budget deficit. No one said why not control the expenditure so that other areas can receive a little more in allocations. They all gave the President a new shopping list for the Budget 2013. But, where do we find the money? This makes life difficult for us at the Treasury," Dr. Jayasundera said.
As if to prove his point, a comment on the Treasury website posted by a citizens states: "Hope this budget would give some relief on vehicle import TAX??"—A remark expressing individual concern but callous disregard or ignorance, or both, considering the balance of payments crisis the country is in the process of getting out from.
Unless lifestyles and attitudes changed, the government would have to concede to the political demands made by the people. "So maybe for a few more years we would have to continue like this," Dr. Jayasundera said.
He also highlighted serious deficiencies in the country’s private sector.
"Markets do not work in drought stricken areas. Markets work only in rich areas, so the government has to do everything the market will not do. So until attitudes change the government will have no option but nurture the people, but without disturbing the broader fundamentals in the budgetary process."
Dr. Jayasundera said the government was committed to reducing the budget deficit to 5 percent of GDP in a few years time (6.9 percent last year), reduce the debt to GDP ratio further (96.9 percent in 2000, 78.5 percent in 2011) and maintain economic growth at an average of 6 to 7 percent.
He also said the government was keen to alleviate poverty but noted youth unemployment was the highest among graduates, an indication that the education system needed deep commitment towards reforms. He blamed the government, university dons and student leaders for acting in an irresponsible manner and creating a situation which could well have been avoided.
Economists have for along identified the country’s fiscal performance as the root cause for many of the persisting macroeconomic problems the country was still grappling with. The Institute of Policy Studies once said fiscal indiscipline was the bane of macroeconomic stability in this country. Since the end of the conflict in 2009, the government has made considerable improvements in reining in runaway deficits, but before this, governments have always grossly overestimated revenue and underestimated expenditure and later shaved off public investments to meet ever mounting current expenditure, a fact many economists had highlighted over the years in The Island Financial Review.
As pointed out in a recent article in these pages, economists are still sceptical the government would make a serious effort to contain budget deficits now that the IMF programme had concluded and crony capitalism was increasingly making itself manifest. But the biggest obstacle to fiscal discipline was the attitude of the people. A respected economist, Dr. Muttukrishna Sarvananthan earlier this year told The Island Financial Review, "Who cares about the budget deficit anyway?"
According to latest available data, the budget deficit reached 5.5 percent of GDP during the fist seven months of this year (full year target 6.2 percent) as government expenditure growth raced ahead twice as fact as revenue growth.
Total revenue as at end July reached Rs. 564.4 billion, an increase of 12.85 percent from a year ago. Total expenditure reached Rs. 981.7 billion, increasing 25.13 percent from a year ago.
Tax revenue during the period January to July 2012 amounted to Rs. 490.4 billion, growing 11.93 percent from a year earlier. Recurrent expenditure grew 19.40 percent to Rs. 695.3 billion while capital expenditure or public investments grew 41.64 percent to Rs. 286.4 billion.
The budget deficit as at July 2012 reached Rs. 417.3 billion, expanding 46.72 percent from a year earlier.
Government debt management too has veered off course.
Total outstanding debt of the government reached Rs. 6,161 billion as at end July 2012, the Central Bank said last week, growing by Rs. 1,027.6 billion during the seven month period this year. According to the 2012 budget, the government’s borrowing limit for the full year was Rs. 1,104 billion.
According to the 2012 budget, the government’s debt requirement for 2012 was Rs. 776.2 billion from domestic sources and Rs. 327.8 billion from external sources. However, by end July 2012, the domestic debt component grew by Rs. 381.6 billion from end December 2011 while foreign debt surged by Rs. 646 billion.