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National Budget 2018

National Budget 2018. BLUE - GREEN BUDGET ENTERPRISE SRI LANKA. Dr. R.H.S. Samaratunge Secretary to the Treasury. 13 Nov 2017. Outline. Budget Estimates 2018 Major Areas of Budget Focus Budget Formulation Approach Recent Fiscal Developments & the Outlook

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National Budget 2018

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  1. 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 ofMajor 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 • 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 Rs.Bn

  29. Projections of high foreign debt servicing requirements during 2019-2022 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 2019-2022…

  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

  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 2018-2021Fiscal 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

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