The cash-strapped coalition government is now set to present a revised budget for 2016 to parliament for its approval amid over Rs.1 trillion unaccounted liabilities of the previous regime and failed attempts made to raise revenue from the original November 2015 budget. To this end, the government is now preparing the revised budget to be presented in mid-2016, the Asian Development Bank (ADB) said.
“Fiscal consolidation is to be put back on track by a revision of the 2016 budget. Following the suspension in January 2016 of earlier plans for tax reform, the government has been preparing a revised budget for 2016,” the 2016 Asian Development Outlook (ADO) – a periodic assessment carried out by the ADB on Asian and Pacific economies— said. The multilateral lender is of the belief that the revised budget would be the base for discussions with the International Monetary Fund (IMF) for possible balance of payments (BoP) support that interests the government.
Not only the coalition government’s maiden budget presented in November 2015 remained inconsistent with the medium-term economic policy spelt out by the Prime Minister in the same month but also met with widespread public outcry due to many segments and sectors being sidelined or favoured arbitrarily. While the revenue targets set by the government in the November budget were highly ambitious,
many revenue proposals either had to be revised or withdrawn amid fears of waning popularity of the government among the masses. Lack of credible path to fiscal consolidation has been cited by many for all the ills faced by the Sri Lankan economy, such as slowing down of foreign investments and other capital inflows, rising public debt and lack of private sector participation in the economic activities.
Despite the highly attractive rates offered on government securities, weak fiscal consolidation efforts by the government have triggered hefty sell offs of Sri Lankan bonds by foreigners, which in turn has pushed the country’s BoP into a difficult position.
“Private investment can recover to drive economic growth in 2016, assuming that the revised budget is approved in mid-2016, the national development strategy is finalized, and agreement is reached with the IMF on possible support,” the ADB said. However, the analysts said another budget would be a blow to the credibility of the government, as questions would be asked about the competency of the key government figures in managing the country’s economy and prolong the uncertainty among the private sector operators on the policy consistency.
Prime Minister Ranil Wickremesinghe, announcing the upward revisions to the tax proposals in the November budget, recently told parliament that the country is in a debt trap as a result of the unaccounted liabilities of the previous government, running over Rs.1 trillion. Giving effect to a host of fresh tax reforms announced by Wickremesinghe in parliament, a circular was issued this week increasing the personal and corporate income tax with effect from April 1, 2016, while the revision to the Value-Added Tax from the current 11 percent to 15 percent is also expected soon. Meanwhile, the government is also set to publish the public investment plan for 2016 – 2018 this May. It is expected to prioritize and streamline the public projects, provide vision for economic development and thus promote private sector investment.