By Chathuri Dissanayake
The Cabinet this week gave approval to prepare the 2019 National Budget under the medium term fiscal frame work (MTFF) by adopting a Performance-Based Budgeting (PBB) approach, with aims of increasing the Government revenue to 17% of GDP by 2021, Cabinet Co-spokesperson Gayantha Karunathilaka said.
The proposal, made by Finance Minister Mangala Samaraweera, told the Cabinet of Ministers that major economic assumptions for the fiscal year 2019 will include real GDP growth of 5.5%, while inflation is expected to stabilise around mid-single digit level.
Further, the Government also plans to limit recurrent expenditure to 15% of GDP, while maintaining Government Public Investment at 5.5% of GDP. This also includes plans to limit the Budget Deficit to 3.5% of GDP, while limiting Government debt to below 70% of GDP.
With Rs. 2500 billion Government revenue, out of which Rs. 2000 billion is to be spent on debt-servicing in 2019, there would be limited space for public investment projects, the Minister told Cabinet. The line Ministries will be required to identify priority projects, where resources will be allocated within ceilings.
The Cabinet also gave approval to introduce budgetary ceilings to all line Ministries and agencies, based on the available resources, requiring all institutions to prepare their draft budget estimates within the allocated ceiling. Further the General Treasury cash releases will also be linked with the reported commitments and liabilities, requiring Secretaries of Ministries and Department Heads to update their commitments and liabilities regularly to the General Treasury through the Computerised Integrated Government’s Accounting System Program (CIGAS), implemented with the aim of minimising delays incash releases and cash flow management.
Outlining concerns over allocations of budgetary provisions for next year,Minister Samaraweera has informed the Cabinet that the level of utilisation of allocated provision for capital expenditure projects is a major concern, while highlighting that one third of potential impact of public investment has been lost during the managementprocess, and only two thirds of expected outcomes delivered. The Minister was quoting a Public Investment Management Assessment (PIMA) undertaken jointly by IMF and the World Bank.
Finding limitations with the current method of reallocating funds to District Secretaries, the Minister highlighted that the line Ministries fail to monitor projects to ensure completion during the specified time targets, while also failing to secure funds for projects that spill over to the next fiscal year. Further, the Minister recommended a review of available resources in all line Ministries, as the requirement is less than the existing levels if the work is being carried out by the District Secretaries.
Reuters: The Central Bank is concerned about the dollar hoarding and market manipulation that’s exacerbating the rupee’s weakness and has the tools to correct any misalignment in the exchange rate, its Governor told Reuters.
The rupee has been falling steadily since April and is on course to retest recent historic lows. It could fall as much as 8% for the full year against the dollar in 2018 as exporters hold back on converting their dollar earnings into the local currency, traders and analysts said.
The country’s massive trade deficit has been primarily behind the rupee’s 4% fall so far this year. It was last traded at 159.30 to the dollar, recovering from an all-time low of 161.17 that it hit on 20 June. It fell 2.6% in 2017.
“We are in the process of collecting export earning data from banks,” Central Bank Governor Indrajit Coomaraswamy told Reuters on the sidelines of an event in Colombo on Monday.
In earlier emailed comments, he said “there is concern that exporters have not been converting their proceeds because there has been some reduction in the inflows to the market that does not seem warranted by underlying fundamentals”.
The Central Bank is in the process of assessing if the currency depreciation is a result of a market manipulation and “misaligned with underlying fundamentals,” he said. The Central Bank does not see “any fundamental reasons” for the rupee’s weakness, he said.
“If at any point we conclude there is such misalignment, the central bank has the tools to address this without depleting reserves. However, we certainly do not want to take such measures. They are not good for banks, exporters, importers and the economy as a whole,” Coomaraswamy said in his emailed comments.
Exporters, who dominate the island nation’s economy and are benefiting from the currency weakness, are investing their foreign currency earnings in dollar-denominated securities amid fears that the rupee is set to fall further, traders said.
Colombo-based Softlogic Stockbrokers Head of Research Danushka Samarasinghe said the rupee could depreciate between 6% and 8% this year. That would take it to levels of between 163.50 and 167.00 the year end.
At least four currency dealers, who spoke to Reuters on condition of anonymity because they are not authorised to talk to media, said they expect at least 6% fall in the rupee this year.
The Central Bank has intervened in May and June when the rupee faced heavy downward pressure.
A currency dealer in a local bank said most big time exporters, instead of converting dollars, have invested their foreign currency in the dollar-denominated Sri Lanka Development Bonds that offer a 6% yield.
The rupee is also being hurt by foreign outflows from Government securities because of rising US yields, said JB Securities Research Analyst Murtaza Jafferjee.
About $ 185 million, or 9%, of total Government securities held by foreigners has been pulled out since 25 April.
“Most of the exporters will hold on (to dollars) if the trend is to depreciate,” Jafferjee told Reuters.