Sri Lanka seeks Supreme Court approval to present a new budget

Sri Lanka plans to shortly seek Supreme Court approval to table a new budget before parliament on Dec. 8, cabinet spokesman Nimal Siripala de Silva said. Sri Lanka plans to shortly seek Supreme Court approval to table a new budget before parliament on Dec. 8, cabinet spokesman Nimal Siripala de Silva said. In an unprecedented move, President Mahinda Rajapakse opted to scrap the island’s 2006 budget and replace it with a new one that reflects his election manifesto.

The new appropriation bill will now go before parliament as an urgent bill, once Supreme Court sanctions the move.

There will be four days of second readings starting Dec. 9, followed by eight days of debates, Media Minister, Anura Yapa Abeywardena told reporters on Thursday.

“The new budget will include measures to give immediate relief to people as we have stated in our manifesto. This includes fertiliser subsidies to benefit our poor farmers,” de Silva said.

Rajapakse, 60, who narrowly scraped through last Thursday’s ballot, pledged to cut the prices of products ranging from milk powder to fertiliser.

The tsunami-hit tropical island is already creaking under the strain of high oil prices and double-digit inflation and Rajapakse’s bundle of goodies comes with a US$ 50 million price tag – luxuries the war-torn country can’t afford.

Translating the subsidy-laden manifesto into action, could scare off investors and undo fiscal discipline, analysts said.

“Attempts to include his manifesto will be fiscally irresponsible,” notes Economist and CEO Frontier Research, Amal Sandaratne.

Such ‘sweetners’ highlight his biggest economic test – dispensing with handouts like fertiliser and fuel – and paying more attention to plug the worsening fiscal deficit, hovering around a high nine-per cent of gross domestic product.

“This will not be a popular move, but he will have to do it now, if he wants to achieve six percent growth,” notes private economist, Sonali Dassanayake adding that it will be interesting to see how the new budget raises funds for its spending spree.

In the now defunct budget presented on Nov. 8, the government raised the tax rate for publicly traded companies to 33.3 percent from 30 percent, and increased the tax on financial services to 20 percent from 15 percent, while easing the tax burden on farmers and raising government salaries.

Sri Lanka’s U$ 20 billion economy is heavily dependent on foreign remittances, clothing and tea exports and tourism.

The economy has expanded every quarter since the ceasefire was signed nearly three-years back, and a permanent peace deal with the Tamil Tiger rebels, is vital to achieve double digit growth.

-Mel Gunasekera: mel@vanguardlk.com