The Cabinet greenlight has been granted to increase the government’s borrowing limit for this year by a further Rs.663 billion to bridge the widening budget deficit as expenditure piles up while the tax base continues to shrink due to the economic crisis.
President Ranil Wickremesinghe in his capacity as the Minister of Finance, Economic Stabilisation and National Policies on Monday sought the approval of the Cabinet Ministers to increase the approved borrowing limit of the government by a further Rs.663 billion in order to continue to pay salaries, pensions, interest payments while settling billions of rupees of arrears owed to contractors of state-funded projects.
The amended borrowing limit for 2022 is subjected to parliamentary approval.
According to the Cabinet Spokesperson and Minister of Transport and Highways and Minister of Mass Media Bandula Gunawardane, the government’s borrowing limit for 2022 is set to breach the Rs.4.5 trillion mark, which currently stands at Rs.3, 844 billion. He said many private sector contractors who undertook state-funded projects are on the verge of bankruptcy as the government failed to settle the payments owed to them running into billions of rupees. As a matter of urgency, he revealed that the Treasury is in the process of issuing State-guaranteed long-term bonds to private-sector contractors for arrears above Rs.100 million. For others, the Treasury is planning to issue funds to partially settle the arrears. Despite the tax increases and new taxes, Gunawardane acknowledged that the tax base is shrinking as a result of the economic downturn, while the expenses continue to increase due to the prevailing high inflation, thereby further widening the budget deficit.
“Our tax base is shrinking due to the current economic downturn. We expect the economy to shrink by around 7-8 percent this year. Some multilateral agencies including the World Bank (WB) expect the economic downturn to continue to next year,” he said. Presenting a bleak picture of public finances, Gunawardane said the government incurred Rs.120.6 billion to pay salaries and pensions for state employees last month while the monthly state revenue stood at around Rs.150 billion. He pointed out that the government cannot abandon social safety net programmes such Samurdhi as a large chunk of the country’s population is under financial distress. He stressed that the government has no option, but to move ahead with new borrowings to maintain essential services while maintaining economic stability. The government in an earlier occasion increased the borrowing limit for the year by Rs.882 billion, through an amendment to the Appropriation Bill of 2022.
