(Mis)-apportioning the Public Money

By Muttukrishna Sarvananthan Ph.D

The government has tabled the Appropriation Bill for the fiscal year 2008 in the Parliament on October 10th. This short note is intended to highlight the apportioning (or rather mis-apportioning) of the public expenditure for year 2008. The overall public expenditure will increase by 15% to LKR.925 billion in 2008 from LKR.805 billion earmarked for 2007. Similarly, the defence expenditure would increase by 19% to LKR.166.5 billion (USD.1.5 billion) in 2008 from LKR.140 billion (USD.1.4 billion) earmarked for 2007. The actual expenditures would be greater than the foregoing earmarked figures going by the past experience. Besides, the total public expenditure for 2007 and 2008 indicated in Table 1 does not include public debt repayments, which is huge. Public debt repayment was 41% of the annual total public expenditure in 2005 and 45% in 2006.

The twelve ministries catalogued in the table account for about 90% of the total public expenditure based on the actual expenditures incurred in 2005 and 2006. There are 58 ministries at present. Three largest spending ministries are Finance, Defence and Provincial Councils & Local Government, which in total accounted for over 67% of the total public expenditure in 2005 and 2006. Finance ministry is the largest spender because of huge public debt repayments, accounting for 50% of the total public expenditure incurred in 2006. Public administration, at the central, provincial and local government, consumed 15% of the total public expenditure in 2005 and 2006 (see Table 2). Hence, finance, public administration and defence gobble up almost 75% of the total public expenditure. Further, public debt repayments, public administration and defence together consume two-thirds of the annual public expenditure. Moreover, three ministries (Finance, Defence and Samurdhi & Nation Building) that come under the President accounted for over 60% of the total public expenditure incurred in 2005 and 2006, which is set to further increase in 2007 and 2008.

Four key messages emerge out of the foregoing figures. Firstly, the fact that over 40% of the annual public expenditure is spent on public debt repayments means that the government is spending more for the past than for the future. This does not augur well for the future of the country. Secondly, there is concentration of financial resources within a few ministries that have very little to do with human welfare. This reflects the wasteful nature of public expenditure in Sri Lanka. Thirdly, public expenditures on social sectors (education and health) and economic infrastructure (power, roads, transport and railways) were just 11% of the total in 2005 and 2006. This means the government has got its priorities wrong. Fourthly, the President who is not accountable or answerable to the Parliament and has blanket immunity from the laws of country is the custodian of over 60% of the public money, which is a matter of concern to the citizens of this country. Whereas the Constitution of the country claims that the Parliament is supreme on matters of public finance, how come 60% of the public money entrusted to a person who is neither accountable nor answerable to the Parliament? This is a serious lapse in the economic governance of the country.

The highest increases in public expenditure for 2008 are in the three ministries under the President, namely, defence, finance and nation building & poverty alleviation. Thus, defence expenditure is increased by 19%; finance ministry expenditure is increased by 88% and nation building & poverty alleviation expenditure is increased by 200% compared to the allocation for 2007 (see Table 1). The increase in budgetary allocation for defence is understandable given the security situation of the country. However, what is the need for such huge increases in the other two ministries under the President?

It is also noteworthy that all the increases in ministerial allocations are less than the rate of inflation, except the three ministries under the President. That is, there have been declines in individual ministerial allocations for 2008 in real terms, except just three ministries. The increase in defence allocation in real terms is only marginally higher than 2007. However, finance and nation building & poverty alleviation ministerial allocations are several fold higher in real terms compared to 2007.

Hence, in the last three budgets (2006-2008) there has been a conscious effort to concentrate the public money in the hands of just one Minister who happens to be the President. This country has known the monopolisation of political power in the hands of the President during the past 30 years. In the last three years this country is also witnessing the monopolisation of economic power (i.e. public money) by the President. Can such a monopolist ever devolve political and economic power to the regions/districts? The government is in the process of drafting a new consumer protection law supposedly to break up monopolies in trade. Is it not time for the government to draft a legislation to break the monopoly of political and economic power wielded by the President?

Table 1

Table 2

This article written for Montage, published by Counterpoint. To get in touch with or to subscribe to Montage, please email montagesrilanka [at] gmail.com

  • Sham

    another view would be that Sri Lanka is one of the few counties with free education and health. actually at unviresity level, the state pays to the student rather than the other way around. also the fact that Sri Lanka is one of the few countries (like cuba) with a good health sector. if you take a walk around the national hospital or the cancer hospital, we can see that our expenditure on these may be inefficent, but at least effective.

    as the writer points out, we keep paying for the loans we borrowed from the past. some ways out of that may be to end the war once and for all or to find a oil deposit of a larger size. both at once would be a bonus.

  • kumar

    Totally agree with Sham

  • Economist

    I am afraid there is too much confusion in deciding on the amount allocated to the President.. Firstly it must be stated that the total public expenditure must exclude the borrowings since borrowings are not part of expenditure but of financing as accountants would know. Soo the total public expendiure is not Rs 1505 billion but Rs 925 billion. When we calculate the ration of expenditure allocated to the Presidnet we should exclude debt repayments, interest payments and pensions which are all shown under Finance Ministry. These payments are regulated by special laws and the President has no discretion in their expenditure. Dr M’s tables don’t indicate how he calculated the Presdient’s allocation