State finance imbalance resulting from the decline of Government revenue in the long run and the escalation of Government expenditure has now developed into an extreme economic crisis, the Government in a statement on Monday said.
The statement which highlighted Monday’s Cabinet decisions further said that amidst the economic challenges arising in relation to the above, preparation of the budget for the year 2023 within the medium term budget framework of 2023 – 2025 should be executed with prudent and strategic means while measures should be taken to prevent more intensity and lay the foundation for future sustainability.
Accordingly, based on the State financial targets expected to accomplish within the medium term budget framework of 2023 – 2025, it is expected to accomplish the target of increasing the present nine per cent Sate revenue which is a percentage of the gross domestic product (GDP), up to 11.3 per cent, to reduce the 18.9 per cent State expenditure back to 18.1 per cent, to reduce the primary budget deficit of four per cent to one per cent and to reduce the budget deficit from 9.9 per cent to minus 6.8 per cent in “Budget 2023.”
The reason behind the reduction in State revenue was due to a policy decision taken by the immediately preceding President Gotabaya Rajapaksa after being elected to office in November 2019, reducing taxes led by VAT which led to a fall in revenue. For instance, the VAT rate which was 15 per cent prior to his election was reduced to eight per cent. These reductions took place in the backdrop that Sri Lanka has been suffering yawning budget deficits since 1978. However, after President Ranil Wickremesinghe was made Finance Minister in May 2022, he increased the VAT rate by 50 per cent to 12 per cent. Other measures taken by Wickremesinghe to reduce Government expenditure was, reestablishing the automatic pricing formula for diesel and petrol and most recently, increasing electricity rates by 75 per cent beginning with the electricity bill from next month and also hiking the administered price of kerosene by 291 per cent, a few days ago.
By Paneetha Ameresekere