No crisis by withdrawing Sri Lanka vote-on-account supplement, arrears to continue: Minister

ECONOMYNEXT – There is no financial crisis in the government due to the withdrawal of a supplementary estimated to the interim budget Sri Lanka is now operating, but arrears would continue, Finance State Minister for Finance Shehan Semasinghe has said.

A supplementary estimate to spendf 156 billion rupees under a vote-on-account (mini-budget) for the first four months and raise 367 billion rupees in debt was withdrawn from parliament on Thursday saying the opposition had failed to support it.

“There will be no financial crisis as a result,” Minister Semasinghe told reporters. “The result will be that contractors and others will not be able to be paid on time and the arrears will continue.”

“These payments were due from 2019.”

Sri Lanka tends to run arrears on the last two months of the year and then pay them early in the next year, in a bid to understate budget deficits, economic analysts say.

However the new administration had also slashed taxes, including value added tax, which had raised concerns and also triggered cuts in the outlook of Sri Lanka’s ‘B’ highly speculative rating.

Former Finance Minister Mangala Samaraweera claimed in parliament that permission to spend 156 billion rupees and borrow 367 million more was sought misleading the parliament.

The large new borrowings was due to steep tax cuts made by the new administration, he told parliament.

The government said there were arrears of 45 billion rupees on senior citizens interest subsidy,18.4 billion for road builders,6.8 billion rupees for urban construction contractors.

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Meanwhile the new administration has also slashed spending, making some savings.

A hike to pensions, a 15,000 rupee pay increase to executive state officers and a large salary increases under the so-called Rannuge salary commission costing over 50 billion rupees had not been carried out, making savings.

This year’s budget deficit is expected to go up to 7.5 to 7.9 percent from an provisional 6.7 percent in 2019. (Colombo/Feb21/2020 – Update II)