Govt. prepares for austerity measures; no decision on IMF assistance yet

• Treasury begins work to curtail govt. 
• expenditure in upcoming budget for 2022
• No new govt. sector hires; welfare programmes to be restructured 
• Only “productive expenditure” to be included in budget 2022
• Prime importance to be given to 8 identified areas in allocating resources

By Nishel Fernando
Although the government is yet to reach a definite decision whether to go to the International Monetary Fund (IMF) or not, it has begun preparations for austerity measures such as freezing new recruitments and restructuring welfare programmes in order to curtail government expenditure in the upcoming budget 2022 amid a narrowing fiscal path.

“The management of government budget has been challenging this year due to the re-emergence of COVID- 19 pandemic in the first quarter of 2021. Collecting the expected revenue was hampered, and government expenditure increased unexpectedly due to additional expenditure for providing reliefs to affected people,” Finance Ministry said in a recent circular.

In the first half of the year, the overall budget deficit was expanded by six percent Year-on-Year to Rs.780.2 billion compared to Rs.735.7 billion in the same period last year. 

The co-cabinet spokesman and Minister of Plantation, Ramesh Pathirana yesterday acknowledged that Finance Minister Basil Rajapasksa briefed the Cabinet of Ministers on the current state of government finances, and plans to cut expenditure. Secretary to the Treasury Sajith Attygalle has already issued guidelines to Ministry Secretaries and Heads of State institutions instructing them to only include “productive expenditure” of their respective entities in preparing budget estimates for 2022 while stressing that there would be no new recruitments and no financial assistance to be extended to cover non-essential expenses next year.

“…the budget estimates for year 2022 should be prepared by giving due consideration to the narrow fiscal space owing to slow recovery of government revenue,

  which declined due to the pandemic and the expectation of the government to reduce central government debt, which remains at a higher level of 95 percent of GDP. 

In this respect, with the consultation of respective ministers, direct involvement of Chief Accounting Officers are expected to include only the essential and productive expenditure after reviewing the same in a rational and prudent manner. Since new recruitments will be discouraged in the year 2022, provisions will not be allocated for the same,” the guidelines stated. 

However, Pathirana noted that the government would reach a decision on reaching out to the IMF after weighing future conditions. 

“After looking at the world situation and the country’s situation in the future, we will take the required decision. There is no specific decision taken as of this moment,” he stressed.

Meanwhile, the government has decided to restructure the welfare programmes/projects implemented using State funds with a focus on accurately identifying the beneficiaries backed by proper supervision while also cutting down unnecessary administrative costs.

“On-going subsidy and welfare programmes shall be limited to the beneficiaries already approved unless otherwise decided by the Cabinet of Ministers. Steps should be taken to integrate programmes implemented by the Central Government and Provincial Councils to direct the welfare expenditure only for the most deserving cluster and ensure excluding benefits to ineligible people. Chief Accounting Officers should develop a method to ensure the beneficiary himself receives the benefits directly, either through a bank account or any other method,” the Treasury noted.

Further, the government has also decided to cut down in expenditure incurred on supplies and contractual services by State entities. Accordingly, State entities have been asked to hold virtual meetings and to utilise available spaces in government buildings for office spaces. 

Further, vehicle requirements of State entities are expected to be fulfilled within the current State vehicle fleet, including repairing the vehicles that are no longer in use. However, the Treasury noted that it may agree to allow the purchase of tractors, trucks, ambulances, land vehicles and other utility vehicles.

In addition, the Treasury advised the Heads of State entities to give prime importance to eight identified areas in allocating resources and where benefits can be materialized within the medium term of 2022-2024.

Accordingly, the top five prioritized areas are; controlling the pandemic situation and restoration of livelihood of the people expeditiously; production of organic fertilizer for domestic agriculture while ensuring proper standards; taking appropriate measures to revive and encourage the tourism sector; continuation of on-going national programmes for rural and urban infrastructure development and facilitation of import substitution industries and promoting of export-oriented industries.

In addition, the government is also considering delaying or cancelling domestic-funded projects that are already faced with delays while focusing on minimising foreign exchange outflows from foreign-funded projects.

“Provisions for domestic funded projects that does not have a specific completion date, should be reviewed and provisions should be sought after determining the time frames of completion. If the time frame has already lapsed for a particular project, allocations should not be sought unless commitments are still available. The inclusion of relevant clauses in agreements has to be negotiated enabling the use of local labour, consultation services, raw materials and equipment in the implementation of projects with foreign loans,” the Treasury noted.