Sri Lanka’s 2019 budget set to woo voters ahead of key elections

(Colombo) REUTERS: Sri Lankan Finance Minister Mangala Samaraweera’s 2019 budget next week will attempt to stick to the fiscal targets set by the International Monetary Fund (IMF), while raising spending on farmers and public servants to woo voters ahead of the polls later this year.

The government, led by Prime Minister Ranil Wickremesinghe, has come under heavy criticism for higher taxes and tight monetary and fiscal policies that have crimped growth and led to a sharp fall in the Sri Lankan rupee.

Presidential elections are to be held later this year, followed by parliamentary polls in 2020. Wickremesinghe was reinstated as Prime Minister after a 51-day political face-off with President Maithripala Sirisena, who had initially sacked him but was forced by court to later reinstate him.

“It (the budget) is more of a collection of vote winning strategies. But some measures will help long-term sustainable growth too,” a senior Finance Ministry officials told Reuters on condition of anonymity, as he is not authorized to discuss the budget with the media.

Another finance ministry official said that there might be delays in overcoming the debt trap, reducing the budget deficit and implementing economic reforms.
Junior Finance Minister Eran Wickremeratne said the government will not deviate from its fiscal consolidation path it has maintained since 2015 but it is “trying to have some space”.

The IMF on Friday said it has agreed to extend the US $ 1.5 billion loan programme for an additional year, a move some analysts say could enable the government to spend on the populist policies before the elections.

Finance Minister Samaraweera is expected to bring down the budget deficit to 4.8 percent of GDP this year, from last year’s 5.2 percent.

“It’s an election year. So the government would like to have many freebies given out in the budget. But the room to manoeuvre may be limited,” said Softlogic Capital Markets CEO Danushka Samarasinghe.

More than being investment friendly, the proposals will focus on boosting the consumption capacity of the state sector employees and farmers, said Samarasinghe.
“The challenge would be to satisfy the IMF guidelines,” he said.

The full year budget is usually presented in November but the political crisis delayed the budget until a Supreme Court decision ruled against Sirisena’s dissolution of parliament.

Later Samaraweera presented a temporary budget for the first four months of 2019.

Tuesday’s budget will cover the last eight months of 2019.

The government’s medium-term economic strategy of cutting the deficit to 3.5 percent of GDP by 2020, an IMF target, is expected to be shifted to 2021.

Tight monetary and fiscal policies, along with intermittent floods and drought, have led to growth slumping to a 17-year low of around 3 percent last year, while the rupee fell 16 percent mainly due to foreign outflows from Sri Lanka securities.

Sri Lanka is struggling to repay its foreign loans, with a record US $ 5.9 billion due this year, including US $ 2.6 billion in the first three months. It used its reserves to repay a US $ 1 billion sovereign bond loan in January.