Mobilizing Domestic Resources and Increasing Public Expenditure Efficiency for Infrastructure Development AR Desapriya Deputy Secretary to the Treasury Sri Lanka UN ESCAP Meeting on Policy Dialogue on Infrastructure Financing Strategies for Sustainable Development in South and South-West Asia 25-26 Jan 2017, Kathmandu, Nepal 1
Sri Lanka 9 Provinces 25 Districts 65,610 km 2 2015 2016 GDP Growth (%) 4.8 4.0 (first nine months) Inflation (%) 3.8 4.1 (Nov) Unemployment (%) 4.7 4.6 (second quarter) Treasury Bill Rate 3 Months (%) 6.45 8.72 Budget Deficit (% of GDP) 7.4 5.4 (Est.) Per Capita GDP US $ 3,924 Current Account Deficit (% of GDP) Central Government Debt (% of GDP) Poverty Head Count Index 6.7% 2.4 2.1 76.0 75.8 (Est.) Expectation of Life at Birth 74.9 years Electrification level 98.5% Human Development Index Rank 73 (of 188) Literacy Rate 93.3% 2
Sri Lanka s Public Finance Management Structure is based on a decentralized approach to enhance efficiency Revenue Collection Government revenue is managed by the Consolidated Fund Part of revenue is re-distributed among the provincial level authorities based on their relative contribution Some revenue collected at provincial levels is allowed to be retained Decentralized Expenditure Management Line ministries are allocated funds from the National Budget Provincial level resource allocation is done for certain capital expenditure Decentralized Capital Budget (DCB) allocates funds for capital expenditure on district level 3
Public Finance Management outlook shifted with the change of government in 2015 Public Finance Management was fraught with some major structural weaknesses Government revenue was falling continuously despite various measures Recurrent expenditure exceeded total government revenue Subsidies and transfers on the increasing trend and often suffered from poor targeting Infrastructure development was funded through borrowed funds, mostly at commercial rates Capital projects for infrastructure development were often implemented through unsolicited proposals Debt accumulation in both government and state-owned-enterprises Most infrastructure development projects had long payback periods thereby rendering little support to ease fiscal burden 4
Until 2014, domestic resource mobilization for infrastructure development met with formidable challenges due to falling government revenue Revenue, Recurrent and Capital Expenditure (%of GDP) 21.6 Recurrent expenditure surpassed Government revenue and grants 18.2 17.2 12.7 15.0 11.5 6.4 6.8 4.7 Public investments remained subdued 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Recurrent Expenditure Public Investments Government Revenue and Grants 5
Until 2014, debt servicing used up almost all government revenue, making a dent in public expenditure... Rs.Bn 1,600 1,400 1,200 1,000 800 600 400 200 0 Revenue vs Debt Servicing 1,195 1,137 Government Revenue 1,051 968 817 700 700 655 633 609 565 539 478 516 468 380 380 316 294 225 310 353 357 408 444 436 120 151 183 212 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Government Revenue Rs.Bn Total Debt Servicing 2005 380 345 2006 478 444 2007 565 499 2008 655 593 2009 700 826 2010 817 820 2011 968 895 2012 1,051 1,017 2013 1,137 1,144 2014 1,195 1,069 Interest Payments Capital Repayments 6
Consequently, capital investments suffered the most 35.0 30.0 25.0 20.0 15.0 Government Capital Expenditure (%) 30.3 24.1 Capital Exp./ Total Exp. 26.9 6 5 4 3 Capital Expenditure Components (% of GDP) Economic Services 5.3 3.2 10.0 5.0 0.0 6.4 Capital Exp./ GDP 4.7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2 1 0 Social Services General Public Services 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1.1 0.5 Only one fourth of government expenditure went for public investments As a share of GDP, capital expenditure fell from 6.4% in 2000 to 4.7% in 2014 Capital expenditure on economic services saw a major hit declining from 5.3% of GDP in 2009 to 3.2% of GDP in 2014 7
Investments in Infrastructure 3.5 Investments in Infrastructure (% of GDP) Investments in Infrastructure (Rs.Mn) 3 300,000 2.5 250,000 2 200,000 1.5 1 0.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 150,000 100,000 50,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Agriculture and Irrigation Agriculture and Irrigation Energy and Water Supply Energy and Water Supply Transport and Communication Transport and Communication Other
Sustainable Infrastructure Development Strategy Priorities for the New Government since 2015 9
Major Fiscal Priorities 1. Creating fiscal space for public investment through revenue enhancement and rationalizing recurrent expenditure 2. Enhancing fiscal discipline 3. Mobilizing resources locally and abroad through marketbased and transparent mechanism 4. Restructuring government debt 5. Resort to a sustainable development approach 10
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Est) 2017 (Proj) 2018 (Proj) 2019 (Proj) 2020 (Proj) 1. Creating fiscal space for public investment through revenue enhancement and rationalizing recurrent expenditure 23 Government Revenue (% of GDP) 21 19 18.1 17 15 16.7 13 11.4 11 Tax Revenue 9 10.1 An Several of measures introduced since 2015 reversed the downward trajectory of government revenue (tax based broadening, Ramis,Risk based Tax audit ) Tax revenue in absolute terms grew by 29% in 2015, the highest annual increase since 1990 Major subsidy and transfer programmes were rationalized and made well targeted 11
2. Enhancing fiscal discipline An independent Procurement Commission was established (with the introduction of an amendment to the constitution) Entered into an arrangement with IMF for fiscal consolidation in 2016 (through an Extended Fund Facility EFF) A credible commitment control mechanism is in the making Right to Information Act was enacted Established a central procurement monitoring unit at the Ministry of Finance 12
3. Mobilizing resources locally and abroad through market-based and transparent mechanism Unsolicited proposals are channeled through Swiss Challenge Policy framework and legal reforms are introduced to encourage Public-Private-Partnerships (PPP) for major infrastructure projects Major orientation towards multilateral lending agencies for infrastructure funding Balance sheets of State-Owned-Enterprises are strengthened through introduction of marked-based pricing strategies and mobilizing funds on their own 13
4. Restructuring government debt Debt liability management through debt-equity swap arrangements Negotiations are on-going with respect to debt financed port development (USD 1.4 Bn) Measures to extend the maturity profile The average-time-to-maturity (ATM) of the domestic debt stock increased to 6.28 years in 2015 from 5.75 yeas in 2014 Strengthening the legal framework and introducing new laws New legislation is in the draft on re-financing and pre-financing of debt Drafting of debt liability management act 14
5. Resort to a Sustainable Development Approach A Sustainable Development Bill was moved in Parliament on 9 Jan 2017 (in conformity with SDGs and associated targets) The theme of the 2017 National Budget was framed as Accelerating Growth with Social Inclusion The Year 2017 has already been declared as the year of Poverty Alleviation" by His Excellency the President Sri Lanka is firmly committed to achieve the United Nations proclaimed UN Sustainable Development Goals by 2030 ensuring shelter, safe drinking water and improved living standards for all. 15
Gross Borrowing Limits could be lowered in 2016 and 2017 Approved Limit (Rs.Bn) Domestic Foreign Total 2011 658 339 997 2012 832 307 1,139 2013 1,069 234 1,303 2014 1,147 332 1,478 2015 1,222 558 1,780 2016 1,180 519 1,699 2017 (Est) 1,129 450 1,579 997 994 Approved Limit and Usage (Rs.Bn) 1,139 1,105 1,303 1,286 1,478 1,425 1,780 1,749 1,699 1,221 1,579 2011 2012 2013 2014 2015 2016 2017 Approved Limit *Usage for 2016 is as at end October Usage 14.2 14.4 13.4 Change in Borrowing Limit (% increase) 20.4-4.6-7.1 Gross Borrowing Limit in 2016 was reduced by 4.6% compared to 2015 and is expected to reduce further in 2017 2012 2013 2014 2015 2016 2017 16
Given the improved revenue performance and well-managed expenditure, the outlook for the Medium-Term Fiscal Framework (2016-2020) looks promising Increasing tax revenue to GDP ratio to over 15 % by 2017 and 18% by 2020 Containing the budget deficit to 3.0 percent of GDP by 2020 Reducing the outstanding government debt below 65 percent of GDP by 2020 Maintaining a primary surplus in 2017 and beyond Rationalizing Recurrent expenditure and enhancing public expenditure 2015 2016 2017 2018 2019 2020 Total Revenue and Grants 13.1 12.9 15.0 16.6 17.5 18.1 Total Revenue 13.0 12.8 14.9 16.5 17.4 18.0 Grants 0.1 0.1 0.1 0.1 0.1 0.1 Total Expenditure and net lending 20.5 18.3 19.6 20.3 21.0 21.1 Recurrent Expenditure* 15.2 14.3 14.4 14.8 15.3 15.3 Capital Expenditure and Net Lending 5.3 4.0 5.2 5.5 5.7 5.8 Budget Deficit 7.4 5.4 4.6 3.7 3.5 3.0 Central Govt Debt 76.0 75.8 75.0 71.9 69.8 65.1 * After adjusting for an increase in interest paymements estimates for 2016. % of GDP 17
Medium-Term Macroeconomic Outlook. Inflation at Mid-Single Digit Level Primary Surplus in Fiscal Accounts Balance of Payments Surplus Unemploy -ment below 4% Economic Growth 7% 18
Thanks 19