28 June 2022 12:57 am
The fiscal deficit in the first three months of 2022 expanded by 21.2 percent to Rs.484.3 billion over the same period in 2021, signalling a yet another year of a stretched budget, as the state revenues are falling short in a shrinking economy while the expenses are rising, due to additional finances required to support millions falling into poverty and starvation.
The data that came out last week showed that the expenses had surged by 21.6 percent to Rs.931.2 billion, nearly offsetting the 22.3 percent increase in the revenue reported for the same period to Rs.446.8 billion over the corresponding period last year. The data is a clear reflection of the fundamental deficiency in the budget, where Sri Lanka spends more than twice its revenues, yet fails to generate the required economic output, as over 70 percent of its revenues go into the unproductive state service and another sizeable chunk to provide welfare and subsidies, with no economic value addition.
This cycle came to a complete halt when Sri Lanka could not bridge its budget deficit through foreign borrowings, as the country was cut off from the international capital markets, confronting the nation of 22 million people with the harsh reality that they cannot continue to live beyond their means.
Mirror Business last week showed that Sri Lanka is on its way to a yet another year of a blowout budget deficit, despite its tax policy was restored, as the economy is in sharp decline with factories scaling down operations and MSMEs closing shop, rendering hundreds of thousands jobless, who otherwise would have generated taxes.
Now with the dependents rising sharply, the government is confronted with the double whammy of weak state revenues and higher recurrent expenditure to provide sustenance to those who have lost their means of income and livelihoods.
The three-month data showed that the tax revenue has increased by 14.1 percent to Rs.369.9 billion while the recurrent expenditure has increased by 18.9 percent to Rs.821.0 billion. It was disclosed last week that even the personal income tax of certain state sector employees had been paid by the respective state-owned enterprise’s revenues, adding to the massive losses it annually accumulates, ultimately becoming a burden on the budget.
At a COPE hearing last week, it was also disclosed that the meter readers at the Ceylon Electricity Board (CEB) had been paid two incentives—one for reading the meter and the second for reading the meter accurately, making a mockery of the state-owned enterprise sector incentive schemes, which are designed to rob the taxpayer’s money. It was also transpired during the COPE committee meeting that the CEB’s entire generation cost estimated for 2022, which is Rs.868 billion, is higher than the entirety of the tax income estimated for the year by the Inland Revenue Department, which is Rs.860 billion, reflecting that a single institution swallows the total taxes paid. The CEB makes thumping losses, which will then be bailed out by the state-owned banks, the burden of which will finally fall on the taxpayer, as the budget will either have to allocate funds to the CEB to settle those loans or to provide the state banks with capital when the banks are forced to provide from their profits for the continuous non-payment of debts. If there is a single tangible economic reform, which must be carried out to emerge out of the current economic crisis, economists and analysts often say the 1.6 million state service must be cut down by two-thirds forthwith and privatise everything except for healthcare and education only up to secondary level, with rigorous regulatory watchdogs.