1. BLUE - GREEN BUDGET ENTERPRISE SRI LANKA
National Budget 2018
BLUE - GREEN BUDGET
ENTERPRISE SRI LANKA
Dr. R.H.S. Samaratunge
Secretary to the Treasury
13 Nov 2017

2. Outline Budget Estimates 2018 Major Areas of Budget Focus
Budget Formulation Approach
Recent Fiscal Developments & the Outlook
Government Borrowings, Debt Servicing, and Outstanding Debt
Challenges in Public Finance Management & Policy Measures
Budget Implementation
Fiscal Consolidation Path

3. Budget Estimates 2018

4. Budget Estimates 2018 Rs.Bn Rs.Bn
Revenue and Grants
Rs. 2,228
Total
Expenditure
Rs. 2,903
* Above Budget estimates exclude allocations for Provincial councils

5. Major Categories of Government Expenditure
Rs. Bn
Interest payments have the largest share of about 28%, followed by salaries and wages of about 22%.
The third higher category is the current subsidies and transfers, recording a share of about 17%.

6. Assumptions of Major Macro-Economic Indicators - 2018

7. Gross Borrowing Requirement - 2018

8. Major Areas of Budget Focus

9. Major Areas of Budget Focus
Fast Tracking Liberalization
blue – green economy
encouraging sustainable agri and fishery ventures
Enterprise Sri Lanka
creating the next generation local entrepreneurs
from local entrepreneurs to global leaders
stimulating the tourism industry
enabling environment for foreign direct investments
harnessing our young entrepreneurs

10. Major Areas of Budget Focus (contd;)
Social Infrastructure
13 years of education
world class university education
sports activities
a healthy nation
a home owning society and creating urban hubs

11. Major Areas of Budget Focus (contd;)
Creating A Secure Environment For All
Legal Reforms
Strengthening The Capital Markets
Heritage And Culture
Public Sector
Reconciliation
Cost of Living Support
Special Levy for Debt Repayment
Revenue Administration

12. Budget Formulation Approach

13. Budget Formulation Approach
Government prepares the annual budget based on the revenue and expenditure estimates for medium-term
Appropriation Bill presents revenue and expenditrure
Major Components of the Appropriation Bill
Expenditure
General Services
Special Law Services
Advance Account
Borrowing Limit (based on the revenue and expenditure estimates
A detailed description on expenditure is provided in the Annual Budget Estimates (Red Book)

14. Budget Formulation Approach
2018 Budget is formulated based on the Performance-Based Budgeting (PBB) approach
PBB allocates resources for achieving specifically defined measurable outcomes.
requires the definition of Key Performance Indicators (KPIs) for the fiscal year
linking such KPIs to resource allocations
defining the intended measurable outcomes
assessing the socio-economic impact of the project
Government budget is prepared over a medium-term horizon (as per Fiscal Management (Responsibility Act)

15. Recent Fiscal Developments & the Outlook

16. Government Revenue
Rs.Bn

17. Government revenue shows a sustained upward shift beginning 2015...
Reforms introduced to the tax policy and tax administration improved revenue performance substantially

18. Major Categories of Government Tax Revenue
VAT revenue has the largest share of 27% of total tax revenue, followed by Excise revenue 26%
Income tax accounts for 18% of total tax revenue

19. Government Tax Revenue by Major Revenue Collecting Agencies

20. Government Expenditure

21. In recurrent expenditure, interest payments and expenditure on salaries are on the rise
Interest payments account for 38% of recurrent expenditure, while salaries wages account for 29% in 2018

22. Expenditure on Household Subsidies and Transfers will increase with better targeting…
Rs. Bn

23. Government Borrowings, Debt Servicing, and Outstanding Debt

24. Government debt servicing requirements will fall below the level of government revenue, departing from past experience…
As government revenue increases by more than the burgeoning debt servicing requirements, more fiscal space would be available for development activities…

25. Debt servicing as a share of total revenue would be contained further…
During 2002 through 2014, debt servicing accounted for 99% of government revenue on average, while in several years debt servicing escalated even up to 118% - 125% of government revenue...

26. The circumstances where government borrowings were above the debt servicing requirements are reversing…
As net borrowings are expected to be less than interest payments, the build-up of outstanding debt would decelerate…because a part of revenue goes to finance debt servicing, in spite of depending entirely on borrowings …

27. Debt repayments will increase significantly due to maturing treasury bonds and international sovereign bonds over the medium term…

28. Domestic and Foreign Debt Servicing
Rs.Bn
Total debt servicing will increase by 64% in 2020 compared to 2017
Domestic and foreign debt servicing will increase by 57% and 87% respectively in 2020 compared to 2017

29. Projections of high foreign debt servicing requirements during have drawn urgent policy attention...
Foreign liability management becomes an immediate priority as the economy is facing the largest ever foreign debt servicing requirements, clustered during …

30. Challenges in Public Finance Management & Policy Measures

31. Challenges
Increasing debt servicing requirements makes a thin fiscal space for public expenditure
Revenue enhancement measures are hard to implement
Revenue performance often falls short of the estimates
Timing mismatch between government revenue flows and expenditure patterns during the year
Recurrent expenditure is large and rigid, weighing on the capital expenditure
Maintaining a large public sector
Increasing share of subsidies and transfers, particularly when ageing population grows
Some debt funded large capital projects take a longer time to generate benefits
Unexpected events such as natural disasters make public finance management really challenging
Transfers for state-owned-enterprises makes public finance management less efficient

32. Policy Measures
New Inland Revenue Act will ensure robust enhancement of government revenue
Proposed fiscal liability management bill is expected to facilitate prudent management of debt
Recurrent expenditure is subject to rationalization with targeted subsidy and transfer schemes (such as fertilizer, schools uniforms etc); proposed pension fund
Measures to enhance efficiency of public sector expenditure (performance-based-budgeting)
Promotion of PPP projects instead of debt funded projects by the government (establishment of PPP Agency)
Insuring the whole country against natural disasters
Signing of Statements of Corporate Intent with major SOEs to improve their performance
Committing to a credible fiscal consolidation path as a part of the IMF support package

33. Budget Implementation

34. Budget Timeline Date/Week Issuance of Budget Call 28 July 2017
Date/Week
Issuance of Budget Call
28 July 2017
Presentation of the Appropriation Bill in Parliament
(1st Reading)
09-Oct-17
Presentation of the Budget Proposals
(2nd Reading)
09-Nov-17
Third Reading of the Budget (Vote and Approval)
09-Dec-17
Issuance of Expenditure Authorization Circular
3rd Week of Dec 2017

35. Revenue Proposal Implementation

36. Expenditure Proposals by Sectors

37. Fiscal Consolidation Path

38. Expenditure management policies are to improve public finance management…
Recurrent Expenditure/GDP remains rationalized, while Capital Expenditure/GDP would be maintained at an elevated level over the medium-term.

39. Some Fiscal Balances are Expected to Record a Remarkable Turnaround in 2018 and Beyond…
Budget deficit is estimated to decline in absolute terms; Current Account Balance is expected to record a surplus; and Primary Balance is expected to turn positive after decades…
Current account balance = Revenue – Recurrent Expenditure
Primary account balance = Revenue – Total Expenditure excluding Interest Payments

40. Fiscal Framework Fiscal consolidation is based on both enhanced revenue mobilization as well as prudent expenditure management
Government revenue continues to increase while government expenditure prudently rationalized, paving the way forward for a credible fiscal consolidation

41. End