Equity concerns must be placed at centre of any fiscal adjustments in budget 2022: IPS

• Says poor worst affected by pandemic; calls for equal distribution of capital
• “Most important question any government will ask itself is how tight a budget would be politically possible”- Dr. Weerakoon

By Shabiya Ali Ahlam
Sri Lanka braving through the present economic challenges and getting on the recovery track would require the government to focus on ensuring the resources are equally distributed throughout society in the 2022 budget and make sure the effort is at the centre of any upcoming fiscal adjustments, the Institute of Policy Studies (IPS) pointed out this week. Stating that the bottom of the pyramid segments of society are most impacted by the issues stemming from the COVID-19 pandemic, the State of the Economy 2021 report highlighted the need for the government to have a more equal distribution of capital, goods and access to services throughout 
the economy. 

“The most important question any government will ask itself is how tight a budget would be politically possible. I’m sure that is the preoccupation of the government as well as they prepare to present the budget next month.

Whatever the tax and spending measures are being proposed, equity concerns have to be at the front and centre of any fiscal adjustment, given that it is the poor that have been disproportionately impacted by the pandemic,” said IPS Executive Director Dr. Dushni Weerakoon.

She presented her views while addressing the first session of the webinar series facilitated by the IPS to mark the launch of the State of the Economy 2021 report.

Sri Lanka requires improved efforts in firming up its revenue mobilisation, reducing revenue leakages and improving the efficiency of the existing expenditures, particularly on the non-discretionary spending options available to the government.

Commenting on the tax system, that would assist in generating state revenues, Dr. Weerakoon noted that the argument that Sri Lanka should hold on to the current tax regime, since it is expected that any changes would generate uncertainty and eventually lead to under investment, holds true for an economy that has high debt – the reason being, the private sector will factor the same in as a potential reason for tax increases in the future.

“If we come to some adjustment on the fiscal front and improve access to capital markets on the back of that, then I think that will free up the space for a more orderly macro adjustment,” said Dr. Weerakoon.

The senior economist elaborated that initially there will be increased volatility, such as the possible overshooting of the exchange rate.

However, the area of concern, according to Dr. Weerakoon, is the ability of the Central Bank to reverse its debt monetisation and focus on price stability.

“A policy framework along those lines will provide a more robust environment to support investment and sustain Sri Lanka’s recovery,” she added.