2022 Sri Lanka Budget Appropriation Bill

CEYLON TODAY | Published: 2:00 AM Oct 14 2021

Key Takeaways

- Decline in total expenditure is achieved at the expense of the capital spending 

- Capital heavy ministries take capex cuts while personnel heavy ministries get a boost for recurrent expenditure 

- Allocation of defence and security related SUs is strengthened 

- Overall health-related allocation is increased by nearly LKR 7B 

- Total expenditure allocation on education contracts by LKR 6B 

- Increase in the organic fertilizer allocation is financed by reductions in the budgets of minor Agri Ministries 

- Plantation-related allocations fall below the norm 

- Trade spending to be on par with 2020 levels 

- Tourism receives the lowest allocation in five years 

- Number of grassroots level development interventions in 2022 may see a decline 

- Somewhat lower level of spending is expected on welfare and social development 

- Allocations for industries plummet, risks sector development 

For the year 2022, the Appropriation Bill – the first step of the National Budget Process –has been tabled in the Parliament and the Second Reading is set for 12 November 2021 followed by Parliamentary debates. Given the current challenges faced by the country, the Bill has invoked great interest and discussions among politicians and the general public. 

This article presents ICRA Lanka’s initial observations with regard to the aggregate expenditure allocations of First Schedule (i.e., the expenditure of General Services of the Government) and the Second Schedule (i.e., expenditure of the Government, authorised by law, which should be charged to the Consolidated Fund) of the Bill. 

We caution readers that approved allocations of the individual Spending Units[1] (SUs) may vary from the original Bill. ICRA Lanka Observations Decline in total expenditure is achieved at the expense of the capital spending: total expenditure earmarked for 2022 stands at around LKR 4T, a marginal decline of about LKR 30B from the approved allocations for 2021. 

This reduction comes at the expense of the overall capital expenditure allocation (-20%), which is critical for the long-term growth of the economy. In addition, over LKR 384B has been taken off from 54 SUs to finance the expenditure increase of other 25 SUs. Capital heavy ministries take capex cuts while personnel heavy ministries get a boost for recurrent expenditure: a notable decline in capital expenditure allocations were observed in Highways (-LKR 100B) and Water Supply (-LKR 69B), Ministries with generally heavy capex spending. 

On the other hand, Ministries with large workforces; (1) Finance, (2) Public Services, Provincial Councils and Local Government, and (3) Defense collectively saw their recurrent expenditure allocations move up by LKR 214B. 

Allocation of defence and security related SUs is strengthened: when the allocations in the Second Schedule are excluded, Ministry of Defence emerges as the SU with the largest budget allocation overtaking the Ministry of Public Services, Provincial Councils and Local Government. The jump in allocations from 2021 is quite notable (+21%). 

The largest portion of the recurrent expenditure is earmarked to be spent on the operational activities of the Sri Lanka Army (LKR 181B). Rest of the security related Ministries[2] have been allocated LKR 117B for 2022. 

Overall health related allocation is increased by nearly LKR 7B: current pandemic is likely to turn into an endemic where the government may have to bear considerable costs yearlong due to relatively higher utilisation of public health facilities, containment measures, and vaccination programmes including booster shots. 

LKR 156B has been allocated for two traditional Ministries related to Health[3], a 4% decline from 2021. However, total health related expenditure will move up by nearly LKR 7B with the allocation of funds under the State Ministry of Primary Health Care, Epidemics and Covid Disease Control. 

Total expenditure allocation on education contracts by LKR 6B: The Ministry of Education is being allocated LKR 128B; a marginal expansion of 1% compared to 2021. This expansion is a result of an increase in recurrent expenditure, which has risen by nearly LKR 3B. 

However, aggregate allocations for education related Ministries[4] have contracted by over LKR 6B (-4%). Increase in the organic fertilizer allocation is financed by reductions in the budgets of minor agri Ministries: Total allocation earmarked for 2022 for agriculture related Ministries[5] (including Irrigation) was LKR 133B. This is about 13% decrease from 2021 allocations but more-or-less in line with 2020 spending. 

Adoption of organic fertilizer is currently one of the priority items in the Government’s agenda. The specific Ministry[6] which is responsible for this task, has received a sizable allocation of LKR 46B, an increase of LKR 10B from 2021. This increase is financed by cutting individual allocations of all the minor Agri ministries by over 20%. 

Plantation related allocations fall below the norm: plantation sector is a key contributor to export revenues of the country at the moment. It is imperative that the government keep supporting the industry to achieve envisaged improvements in yields and quality. However, aggregate allocations for plantation related Ministries have gone down by about LKR 4B (-35%). 

Even in comparison to 2020, these allocations can be deemed below the norm. Trade spending to be on par with 2020 levels: Ministry of Industry and Commerce is the key Ministry responsible for promoting industrial development in the country. It could play a pivotal role in assisting economic growth and facilitating employment creation. 

However, the Ministry has received only LKR 5B, which is a reduction of 21% in comparison to what the ministry received in 2021, almost on par with 2020 levels. Tourism receives the lowest allocation in five years: tourism holds an important role in the economy due to its ability to generate forex revenue and create jobs. 

With gradual reopening of international borders, tourism is expected to make a comeback in 2022. Allocation for the Ministry of Tourism was halved to LKR 923M, lowest since 2016. The government increased capital expenditure of the Ministry substantially in 2021 (from LKR 288M in 2020 to LKR 1B in 2021), and it has been drastically brought down to LKR 245M in 2022. 

Number of grassroots level development interventions in 2022 may see a decline: capital expenditure cuts in Ministries such as Public Services, Provincial Councils and Local Government (-LKR 18B), the State Ministry of Rural and School Sports Infrastructure Improvement (-LKR 262M), the Ministry of Urban Development and Housing (-LKR 9B) etc. may deliver a relatively a smaller number of small-scale development projects in 2022. 

Somewhat lower level of spending is expected on welfare and social development: legacy of pandemic may leave an elevated level of poverty especially among rural communities. We observe some sizable cuts in allocations of welfare and social development-oriented Ministries such as the State Ministry of Samurdhi Household Economy, Micro-finance, Self Employment and Business Development (-LKR 10B).

 Allocations for industries plummet, risks sector development: development of the industries is a critical need of the hour due to the fragile state of the economy. However, a number of Ministries[7] related to this saw the allocations fall below even 2020 levels. Collectively, the allocations of these Ministries are brought down almost by half for 2022.

CEYLON TODAY | Published: 2:00 AM Oct 14 2021

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