Business Times

2010 Budget created very bad precedent, says senior economist

The failure to prepare the 2010 Budget was a very bad precedent, said Dr. Anila Dias Bandaranaike, a former Assistant Governor of the Central Bank, when she addressed a seminar on the National Budget in Colombo on Thursday, organized by Women for Good Governance.

She noted that the government had to present a Vote on Account and then mini budget for the year 2010, after withdrawing money from the Consolidated Fund. She noted that Sri Lanka's budgetary expenditure is more than double its revenue in the past few years and debt servicing exceeded revenue by 17% in 2009. Recurrent expenditure alone exceeded revenue. Approved Budget Estimates up to 2009 were overly optimistic compared to outcomes. Government debt is rising and debt servicing now absorbs more than total revenue. Debt to GDP ratio is a misleading indicator when inflation is high and the rupee stable. External commercial debt is also rising. Debt Service Ratio (as % of Exports of Goods & Services) doubled in three years.

Unsustainable fiscal conditions will stifle the entire economy. Government investment targets were unrealistic and later, sacrificed to achieve budget deficit targets, she added. She emphasized the need to analyse the previous year's performance against fiscal and related targets, giving reasons for deviations in the annual Government Budget.

She noted that this analysis should include positive and negative effects of domestic and external environment, present policies to address weaknesses and build on strengths, including capacity building at all levels - human and technical - to improve fiscal performance.

Dr. Harsha De Silva, a consultant economist and MP said that the Sri Lankan government's action of bypassing tender procedures to fast track development and infrastructure projects following the Mushtaq Khan' economic theory without good governance had opened the doors for massive corruption in the country. He noted that Sri Lanka should identify its priorities clearly in making budgetary allocations as it has already spent a massive sum of money for unproductive projects.

Total spending with debt repayment of 450 billion rupees for 2011 would be around 1,917 billion rupees, This would put government spending at around 1,460 billion rupees for 2011 (up from 1,279 for the current year). Capital expenditure would be around 400 billion rupees, or 7 % of GDP, higher than the 6 % of GDP for the current year. Out of about 1,050 billion rupees in current expenditure, about 300 billion rupees would be for interest and 90 % of that would be for domestic debt. This situation will push the government to place additional burdens on the people, he said.

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