Eleven percent increase in total expenditure | Sunday Observer

Eleven percent increase in total expenditure

The Appropriation Bill 2018 presented in Parliament recently by acting Minister of Finance and Mass Media, Eran Wickramaratne indicated a 11 percent increase in total expenditure in 2018.

Reportedly, total expected Government expenditure for the year 2018 is Rs. 3,982 billion, while the total estimated Government revenue is Rs. 2,175 billion. As per Budget Estimates 2017, the total expenditure of 2017 was Rs 3,628 billion.

Sectorial segregation

As per the Appropriation Bill 2018, the expenditure allocation for Ministry of Defence is the highest, with a total allocation of Rs 290 billion, which is a 2 per cent rise when compared with Rs. 284 billion allocated in 2017, according to Budget Estimates 2017.

The 2018 allocation includes a recurrent expenditure of Rs. 260 billion and a capital expenditure of Rs 30 billion. The expenditure allocation for Ministry of Finance and Mass Media is the second highest, with a total allocation of Rs 227 billion, which is a 81 per cent fall when compared with Rs. 1204 billion allocated in 2017, according to Budget Estimates 2017.This is a greater fall than the projected 33 percent fall indicated in the Budget Estimates 2017. The 2018 allocation includes a recurrent expenditure of Rs 190 billion and a capital expenditure of Rs 37 billion.

The total allocation for the President is Rs 9.9 billion, which is a 55 per cent hike when compared with Rs. 6.4 billion allocated in 2017, according to Budget Estimates 2017. The 2018 allocation includes a recurrent expenditure of Rs 2.7 billion and a capital expenditure of Rs 7.2 billion. Total allocation for the Office of the Prime Minister Rs 1.7 billion, which is a 41 per cent hike when compared with Rs. 1.2 billion allocated in 2017, according to Budget Estimates 2017. The 2018 allocation includes a recurrent expenditure of Rs 0.9 billion and a capital expenditure of Rs 0.8 billion.

Parliament has a total allocation of Rs 3.2 billion, which is a 56 per cent increase when compared with Rs. 2.05 billion allocated in 2017, according to Budget Estimates 2017.

The 2018 allocation includes a recurrent expenditure of Rs 2.5 billion and a capital expenditure of Rs 0.6 billion Total allocation for the Ministry of Disaster Management is Rs. 5.8 billion, with Rs. 0.9 billion recurrent expenditure and Rs. 4.8 billion capital expenditure. Compared to its counterparts of Rs. 4.6 billion total expenditure allocated in 2017, this is a 26 per cent increase, which is a positive response in light of the projected 25 per cent cut of total expenditure for the year 2018, indicated by Budget Estimates 2017.

As per budgetary estimates, 35% of the expenditure was allocated for disaster mitigation process, while a higher fraction of 46% was allocated for provision of disaster relief.

The Ministry of Health, Nutrition and Indigenous Medicine has a total allocation of Rs 178 billion, which is a 11 per cent increase when compared with Rs. 160 billion allocated in 2017, according to Budget Estimates 2017. Also, the allocation is one percent higher than the projected 10 percent increase for the year 2018, indicated by the Budget Estimates 2017.

The 2018 allocation includes a recurrent expenditure of Rs 134 billion and a capital expenditure of Rs. 44 billion. Ministry of Higher Education and Highways has a total allocation of Rs 182 billion, which is a 12 per cent increase when compared with Rs. 163 billion allocated in 2017, according to Budget Estimates 2017.The 2018 allocation includes a recurrent expenditure of Rs. 32 billion and a capital expenditure of Rs. 150 billion.

Ministry of Education has a total allocation of Rs 125 billion, which is a 63 per cent increase when compared with Rs. 76 billion allocated in 2017, according to Budget Estimates 2017.

The 2018 allocation includes a recurrent expenditure of Rs 62 billion and a capital expenditure of Rs 40 billion.

This is a positive response in light of the projected 8 per cent increase of total expenditure for the year 2018, indicated by Budget Estimates 2017.

Ministry of Transport and Civil Aviation has a total allocation of Rs 42 billion, which is a 18 per cent decline when compared with Rs. 51 billion allocated in 2017, according to Budget Estimates 2017.

However, it is a lesser decline than the 32 per cent reduction in allocations for the year 2018, projected by Budget Estimates 2017. The 2018 allocation includes a recurrent expenditure of Rs 18 billion and a capital expenditure of Rs 24 billion. A large fraction of the expenditure allocated for Ministry of Finance and Mass Media is utilized for debt servicing. According to budgetary estimates, in 2017, 60 per cent of the total expenditure was used for debt servicing.

Debt and budgetary deficit

Sri Lanka is currently in a debt trap with a budgetary deficit of 5.4 per cent. At the same time, exports have declined by 2.7 percent (Yearly basis) by February 2017 and imports have increased by 12.5 percent.

A nation’s government expenditure is financed either through taxation or through borrowing.

Therefore, when the expenditure increases, since Sri Lanka is in a debt trap, generating revenue via taxation is a more viable solution for the country.

Therefore, when the expenditure increases, this increase has to be supported by a complementary increase in the tax revenue. However, Sri Lanka has one of the lowest tax revenues to GDP ratios in the world, with the ratio being 14.3 per cent by 2016.

The new Inland Revenue Act (amended) was introduced with the purpose of increasing this revenue generation process. Ministry of Finance, Deputy Secretary to the Treasury, wsaid that as a result of this new Act, the total incremental tax revenue is projected to be raised by 0.7 per cent to 0.8 per cent of the total GDP of the country. This is in line with International Monetary Fund recommendations, which say that new Inland Revenue Act should pave the way for a durable fiscal consolidation based on revenue mobilization.

Challenges

Deputy Minister of National Policies and Economic Affairs Dr Harsha de Silva said that to achieve stable economic growth, in the context of political economy, a peaceful, stable democracy is important.

“Therefore, in addition to economic reforms, it is important to bring in political reforms which protect democratic rights and foreign policy reforms which ensure the sovereignty,” he said.

Dr Harsha further said that for a sustainable economy, a knowledge based, social market economic model is necessary. “This requires more funding for education, higher education and skills development.

However, revenue that could be used for funding these needs is currently used for debt servicing,” he said.

According to State of the Economy 2017 report published by Institute of Policy Studies (IPS), during the first half of 2017, tax revenue has increased to an estimate of 13 per cent of the GDP. Accordingly, the fiscal deficit is 5.2 per cent of GDP. According to the IPS, Acting Executive Director, Dushni Weerakoon, Central Bank (CB) tightening the monetary policy in response to the rise in credit growth has resulted in squeezing of the excess liquidity. “The Government borrowing from domestic markets has decreased and interest rates have stabilized over the past six months,” she said. Weerakoon further said that credit growth of the private sector is decelerating from a relatively high level of 17 to 18 percent when compared to a 4 per cent GDP growth.

She added that during the first half of the year, credit growth of the public corporations have picked up. However, there is a need for ongoing fiscal policy in order to avoid systematic risks. “CB currently displays US$ 7.7 billion of official reserves. Also, the net foreign direct investment flows has increased during the first half of the year, compared to the past two years. Foreign investments indicate an increase to 6 per cent from the 2 per cent indicated at the beginning of the year,” she said. Weerakoon added that although export performance has increased to 6.5 per cent during first seven months of the year, there needs to be caution due to import expenditure growing rapidly, as a result of increase of oil prices. State of the Economy 2017 reports that import expenditure was at 9.2 per cent at the first seven months of 2017, with trade deficit expanding over 12 per cent. “GDP growth is slowing to very low levels, and remained 2 per cent at second quarter of 2017. This is contributed to be the loss in agriculture due to prevalent weather conditions. At the same time, agriculture only contributes to 8 per cent of the GDP.

This low growth is also contributed to by the larger growth in GDP in construction, real estate, and mining and quarrying sectors, which are non- trade sectors,” she said.

Weerakoon further said that external debt servicing is likely to hit 30 per cent of GDP by the end of the year.

Solutions

State of the Economy 2017 recommends quick fixes and deeper reforms.

Quick fixes include policy consistency and predictability, streamlined investor approval process and border tariffs.Deeper reforms are structural reforms in labor market, education and land policy that would contribute to medium term growth.

There is also the need to address child poverty, non-communicable diseases, improving natural disaster management and addressing food insecurity. 

Comments

CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Image CAPTCHA
Enter the characters shown in the image.