At a glance, if all popularist pledges given in the election manifesto put forward by the common opposition candidate are to be implemented, it would need at least Rs. 200 billion and even under a situation where the government revenue does not decline, there is a danger of the budget deficit rising up to 8% of the Gross National Product, points out the Pathfinder Foundation in its latest economic review.
The Pathfinder Foundation while analyzing issues on economic policies states that even if focus is drawn towards the pledges under the 100 day programme, there would be a grave decline in government revenues with the removal of the fuel tax (a loss of around Rs. 40 billion per year) and the reduction of taxes on essential goods and services. Even now it is nearly as low as 11% of the GNP where as it is around 20% in countries similar to Sri Lanka, states Pathfinder.
Similarly, increasing the salaries of government sector employees would increase the government’s retrospective expenditure by some Rs. 17 billion. If the proposed interim budget does not contain measures for new revenue, then the situation created by the decrease in revenue and the increase in expenditure would definitely increase the budget deficit, the report saIf there are no such avenues for revenue, the already risky credit rating of Sri Lanka would turn more unfavourable and would necessitate more loans from outside, adds Pathfinder.
It has also pointed out to the unfavourable conditions that may arise internationally after April 2015, if the UK Federal Reserve increases its interest rates and the European Central Bank and the Japanese banks go towards a program of buying bonds, then the foreign loans which may increase the instability of the international capital market would impact unfavourably on the expected dividends.
If there is a decline in government funds, there are possibilities of the conditions on Sri Lanka’s loans becoming stricter and if more & more dependency is shown on local loans then it may increase the interest rates and also deny the participation of the private sector, Pathfinder warns.
However, while expressing his views to adaderanabiz.lk, Finance Minister Ravi Karunanayake said that details cannot be revealed on the interim budgetary proposals to be introduced on 29 January and that it is still possible to fulfill the pledges given by halting corruption and malpractices and the funds thus saved.
He also reiterated that his government would never allow the budget deficit to increase or inflation to rise and would provide opportunities for economic development by maintaining the interest rates at around 10% and opening up more avenues for loans.