Despite the overwhelming two thirds majority that the budget received in parliament, its implementation is not likely to be smooth. Achieving the budget’s fiscal outcomes, as well as its developmental objectives, will face many difficulties, obstacles, opposition and obstructions. These difficulties and obstacles must be overcome to achieve a healthier fiscal outcome and to implement the comprehensive and multifaceted development program outlined in the 2018 Budget.
If there was a common thread in the serious discussions of the Budget, it was the concern regarding its implementation. The wide ranging policies announced in the budget were in the right direction and reinforcing recent economic policies enunciated by the government. However, there were serious doubts as to whether the proposals would be effectively implemented owing to a number of difficulties and constraints.
The difficulties in implementing the budget include political compulsions of the forthcoming provincial council elections, the large number of ministries with overlapping functions, disagreement within the government on several policies such as trade liberalisation and state enterprise reforms, the weak administrative capacity to implement, scarce technical and scientific personnel and obstructionist policies of the opposition. Ways and means of overcoming these difficulties must be found to effectively implement the budget proposals speedily.
Achieving the lower fiscal deficit target of 4.8 percent of GDP in 2018 is vital for the economy’s stability and growth. Doubts that the 2018 fiscal deficit target could be achieved have arisen owing to the forthcoming elections to provincial councils and local bodies. As in past election years, there is a likelihood that political compulsions would increase public expenditure owing to hand-outs. Revenue could fall due to reduction of certain taxes. These factors would result in overruns in public expenditure and shortfalls in revenue. Is the coalition government willing to eschew political advantages to maintain fiscal discipline?
There are some positive signs that the fiscal deficit would be reined in. The new taxation measures in the Inland Revenue Act that takes effect on April 1st next year is expected to increase government revenue by the elimination of tax exemptions, expanding the tax base and higher corporate taxes. The higher revenue collection in the first eight months of this year lends a basis to expect government revenue targets to be achieved. However much depends on the capacity and efficiency of the tax administration that requires to be strengthened in order to achieve higher revenue collection.
The success in moving towards fiscal consolidation depends on three factors. First, the envisaged higher tax revenue must be realised by the tax proposals of the New Inland Revenue Act. The administrative capacity and integrity of the tax collection authorities are vital to achieve this. Second, the government must remain steadfast in ensuring the revenue proposals are not changed midterm to gain popularity and ensure that there are no overruns on government expenditure.
The latter would be difficult owing to the elections in the coming months. In the event of election bonanzas being given, the increase in expenditure must be found through cuts in wasteful expenditure and not by curtailing expenditure on education, health and other development expenditure.
It is imperative that the government does not go on a spending spree to increase its popularity. In the event of such unbudgeted expenditure, there should be cuts in other expenditure to ensure the targeted fiscal deficit. The minister of finance is fully aware of this and hopefully he can ensure financial discipline.
Recent experience, as well as past experience of budget proposals not being implemented in election years are uppermost in the expectation of fiscal slippage. The government would require to enact further tax measures to garner revenue to meet additional expenditure.
The lack of agreement on economic policies within the government has been a serious drag on the implementation of policies. There is justifiable grounds to think that these disagreements would compound rather than decrease in the context of an election period when the two constituent parties are vying with each other and the joint opposition would be promising what they themselves failed to deliver. The disagreements from within the government coalition and obstructionist activities of the joint opposition would in fact be serious obstacles as has been the experience since 2015.
In this inauspicious setting there are a few favourable factors as well. One silver lining is the new minister of finance’s serious concern and understanding of the critical economic situation and commitment to implement the economic reforms. His track record bears evidence of this. He was the minister of telecommunications in the Chandrika Bandaranaike Kumaratunga government, who spearheaded the privatising of the telecommunications that had considerable opposition.
Commitment to implementation
One of the weakest aspects of the government has been the inability to implement its policies. The government itself has recognised this.
Its political will to implement the budget is clearly evident in setting up a team to monitor the implementation of the budget. This task force consisting of specially selected persons would monitor implementation. They would have to devise mechanisms to ensure effective monitoring of budget proposals.
A severe constraint to implementing the developmental objectives of the Budget is the lack of skilled personnel. This is especially so in respect of the educational reforms envisaged in the Budget. Expanding scientific, technical and medical education cannot be achieved by constructing new buildings. There is a severe shortage of competent teachers and skilled staff. The scarce local personnel would have to be increased by the extension of the retirement age, re-employment of retirees, short term visiting appointments and the assistance of foreign countries and institutions. It may require an infusion of foreign scientists and technical personnel.
In spite of the government obtaining a clear mandate in parliament, that section of the opposition calling itself the Joint Opposition has adopted mass scale obstructionist actions. In the recent past the country witnessed a number of protests obstructing the implementation of development plans. This was clearly seen when the government attempted to implement the Hambantota development projects. It is likely that many of the budget plans will confront such sabotaging. The government must take sterner measures to overcome such obstruction. Otherwise much of the budget’s development programs will remain unimplemented.
Effective implementation of the Budget is vital for economic stability and development. The fiscal proposals and the development plans of the budget must be effectively implemented. This is a difficult task owing to the constraints discussed here. The economy is at a juncture when the realisation of the lower fiscal deficit and implementation of the development proposals are imperative to ensure the country’s rapid economic development.