Relief Package: What it Entails and How Will it be Financed?

Abstract

In response to rising living cost with inflation rate of 12.1%1 in December 2021, the cabinet of ministers approved a relief package amounting to LKR 229 billion on the 3rd of January 2022. The following infographic depicts the proposals included in the relief package. In the face of Sri Lankas’ diminishing fiscal space, financing of such a package creates new challenges. The government has stated that the relief package will not be financed through new taxation measures but will seek to reallocate previously approved expenditure, which in turn would require a supplementary estimate to be approved by parliament. Based on the governments’ estimated revenue figure of LKR 2,321, the relief package would cost the equivalent of 10% of government revenue. However, Verite’s Public report on the 2022 budget highlights that the government has overestimated the revenue figure and Verité estimates the figure to amount LKR 1,900 billion. Which would imply that the relief package would account for 12% of government revenue. The relief package accounts for 6% of total estimated expenditure and 24% of total estimated capital expenditure. Provided that there is no increase in revenue and no reduction in approved expenditure, based on the government's budgeted figures for 2022, the budget deficit will increase to 9.7% of GDP from the initial estimate of 8.5 % of GDP if this relief package is included. However, due to the government's overestimation of revenue, Verité estimates the budget deficit for 2022 to be LKR 2,020 billion (10.9% of GDP) before accounting for the relief package. If the relief package is included, Verite estimates the budget deficit will increase to LKR 2,249 billion (12.1% of GDP). Any new expenditure that is not authorized in the 2022 budget will require a supplementary estimate which would need to be approved by parliament. However, in paragraph 5.4.4 of the 2022 budget speech, the finance minister states the following, “I also propose to include amendments to the Appropriation Bill preventing requests for Supplementary Estimates for 2022 by all Ministries”. Thereby the use of supplementary estimates will result in the government violating its own commitments.