Sri Lanka’s new administration headed by Prime Minister Ranil Wickremesinghe is gearing up to present a new, relief-based budget, around next month, replacing budget 2022 – for the first time in history since independence.
The Finance Ministry will prepare the new relief budget as the previous budget for the fiscal year 2022 has become unrealistic and unproductive at this critical moment of economic crisis coupled with recession and social unrest, ministry sources said.
The economic mess and decrease in revenue as well as the drop in productive activity had been created as a result of the COVID-19 pandemic, subsequent lockdowns along with financial mismanagement and poor policies which affected economic growth, a former Treasury Secretary said.
An alternative budget is technically just like the full budget; it contains a complete set of accounts, including expenditure and revenue. The estimates are presented for the whole year like the full budget, he explained.
It can present revenue proposals and make major tax changes or introduce new taxes, he said adding that it is not constitutionally prohibited.
Almost all the budget estimates, revenue and expenditure proposals have become unrealistic and impossible to achieve under the present socio-economic crisis.
According to the details given in budget 2022, revenue is expected to grow by 46 per cent to Rs. 2.3 trillion in 2022. Several new taxes and tax increases in surcharge tax on profits, social security contribution, and financial VAT were proposed in this regard.
Even if the projected contribution from the new revenue measures (Rs. 333 billion) is considered realistic, the rest of the revenue base would need to grow by 24 per cent in 2022 – at least double the expected nominal GDP growth – to achieve the revenue target, a senior Treasury official disclosed.
Therefore this estimated revenue growth of 46 per cent was unrealistic and cannot be achieved under present man made economic crisis situation, he added.
It has now become a mission impossible to make relatively high allocations for defence, road development, and generally high levels of capital expenditure over allocations for education, healthcare and skills development proposed in the budget 2022, he said.
The expected real revenue forecast for this year is Rs.1.6 trillion compared to the estimated revenue of Rs.2.3 trillion in budget 2022, Finance Ministry data shows.
The new administration is taking action to increase the borrowing limit to Rs. 4 trillion from the present credit limit of Rs. 3.2 trillion. This proposal will be presented in parliament for its approval soon.
The former (Mahinda Rajapaksa) -led government has spent Rs. 1.95 trillion by the second week of May and the cash balance for the rest of the year is Rs. 1.25 trillion. It has been observed that budget 2022 has failed to focus on the management of external debt, the lack of a clear plan to regain access to international capital markets, and the related implications for dollar liquidity in the banking system.
