Budget targets need to be more realistic and credible – former banker

By Azhar Razak
Macro economic targets set in Sri Lanka’s forthcoming Budget 2011 will need to be more realistic and credible while government and opposition members, citizens, civil society and other stakeholders should be able to review, understand, monitor and critique budget estimates and fiscal performance thoroughly, a top economist has suggested.

Senior economist Dr Anila Dias Bandaranaike says that although fiscal targets in the Budget 2011, which is expected to be presented in parliament on November 22, needs to be set high, they should also be pragmatic with recurrent expenditure rationalised and curtailed. “In recent years, we have witnessed an increase in the differences between estimated numbers and actual performances. Therefore, it is important that we improve on budget estimates to one that is realistic and credible,” said Dr Bandaranaike, who was also a former assistant governor of the Central Bank. He was addressing a recent seminar on ‘how our money is spent,’ organised by the Women for Good Governance. 

Speaking on the topic of ‘Lessons from the Past,’ Dr Bandaranaike said that although annual revenue estimates for the years’ 2007, 2008 and 2009 had been Rs 621bn, Rs751 bn and Rs855 bn respectively, actual revenues had only been R584 bn, Rs655 bn and Rs703 bn displaying negative variances of Rs37bn, Rs96bn, and Rs152bn.
 
On the expenditure front, she said that total expenditure incurred in 2009 of Rs1,749bn had not only exceeded its estimates by Rs45bn, but recurrent expenditure, which is a component of total expenditure, had alone exceeded total revenue by Rs180 bn during the year. Recurrent expenditure was however budgeted to be at Rs825bn.
 
“Of the other components of expenditure, debt servicing exceeded revenue by 17% in 2009 whereas salaries accounted for 40% of revenue,” she added.

Lessons from the past
 
Outlining some lessons from the past, Dr Bandaranayake said that monitoring of outcomes vs targets has been poor in Sri Lanka’s budget analyses and documents.
She said statistical inconsistencies in official documents confuse both decision-makers and other readers.
 
“Links between assumptions, calculations, budget proposals and financial outcomes have also been inadequate for serious analysis as official documents rarely contain comparison of targets vs. achievements, reasons for deviations or critical self-analysis,” she highlighted.
She also pointed out that parliamentary budget debates in the past had only focused on petty issues rather than addressing serious fundamental issues.
 
“Public debate and discussion must be constructively critical to raise relevant issues and inconsistencies to support the government’s efforts to move the country forward,” she said stressing further that the government needs to be open to such criticism in the national interest towards improving fiscal management and discipline.
 
Voicing her expectations on how a government budget should be modelled, she said that firstly, the budget should analyse the previous year’s performance against fiscal and related targets, giving reasons for any deviations and stress on the strengths and weaknesses of performance.
 
She said such an analysis should include both positive and negative effects of domestic and external environments.
 
“Secondly, the budget should present policies to address weaknesses and build on strengths that were identified in the analysis including capacity building at all levels – human and technical - to improve fiscal performance. Third, the budget debate and stakeholders should provide, and government should accept constructive criticism to support and improve the budgetary process,” she said.
 
She reiterated that in the past, macro economic targets had been unrealistic as approved budget estimates up to 2009 were overly optimistic compared to actual outcomes, and added that the failure to prepare the 2010 Budget had also set a very bad precedent.
“Government investment targets were also unrealistic and later, sacrificed to achieve budget deficit targets,” she said pointing out further that government debt is rising as debt servicing is higher than total revenue.
 
Dr Anila Dias Bandaranaike retired as an assistant governor of the Central Bank of Sri Lanka in October 2007. Prior to her appointment as assistant governor, she served as a director of statistics at the Bank Supervision Department of the Central Bank of Sri Lanka. 
 
She currently serves on the council of the Open University of Sri Lanka and is a member of the Centre for Poverty Analysis. 
 
She holds a PhD in Statistics from Cornell University, US, MSc in Applied Statistics from Oxford University, UK and a BSc (First Class Honours) in Mathematics from the University of Colombo, Sri Lanka.

http://www.thebottomline.lk/2010/11/14/business1.html

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