A budget replete with optimism-The Island

ENB Budget series:

ஏற்றுமதிப் பொருளாதாரம் என்கிற வேற்று மதி! 

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President Dissanayake is hopeful that a 5% economic growth will be attainable in 2025. He says growth will be facilitated by a strong export sector, where the government expects the exports of goods and services.

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A budget replete with optimism

Tuesday 18th February, 2025

President Anura Kumara Dissanayake, in his capacity as the Minister of Finance, Economic Stabilisation and National Policies, yesterday presented his government’s maiden budget in Parliament. He said the goal of Budget 2025 was to fulfil the aspirations of the people who had voted the NPP into power, hoping for sustainable growth and development.

The NPP government’s efforts to present an election-oriented budget have partially succeeded and borne mixed results. However painful the IMF bailout conditions may be, they have made the new administration remain focused on the need to achieve economic recovery and act with some restraint, ensuring that, inter alia, its revenue will amount to at least 15% of GDP, and the primary account will have a surplus. The Economic Transformation Act (ETA) has also become a kind of straitjacket on the government. With the local government polls approaching, what the NPP administration would have done to garner favour with the public, if not for the IMF programme and the ETA constraints, is anybody’s guess. President Dissanayake has said his government intends to amend the ETA. If it is planning to lower the bar for itself, such politically-motivated action will entail adverse economic consequences.

There is no gainsaying that workers deserve better salaries. However, one wonders whether the NPP government, just like its predecessors, is labouring under the misconception that it can grant relief to the public by increasing the state sector salaries. In the late 1980s, the JVP coined a pithy slogan—kolombata kiri, gamata kekiri (‘milk for Colombo and melon for the village’)—to highlight the glaring urban bias in the allocation of state resources. Today, it looks like a case of kiri for state employees and kekiri for their private sector counterparts, who have to bear the burden of maintaining the ever-burgeoning public sector by paying high taxes. President Dissanayake lamented in Parliament that the state employees’ real income had decreased. The same holds true for the non-state workers, and other members of the public as well, but they have been left fending for themselves.

Among the budget highlights flaunted by the government is what it calls the highest-ever fund allocations for the health and education sectors. The government has undertaken to allocate Rs. 604 billion for health. The cost of social welfare (Aswesuma) will be Rs. 232.5 billion. Capital expenditure will amount to 4% of GDP. Such spending will benefit the public, but much more needs to be done to mitigate the economic hardships they are facing.

Bridging a 6.7% budget deficit will be a gargantuan task. President Dissanayake is hopeful that a 5% economic growth will be attainable in 2025. He says growth will be facilitated by a strong export sector, where the government expects the exports of goods and services to reach an all-time high of close to USD 19 billion in the current year; this growth in non-debt creating inflows along with robust economic growth and a primary account surplus of 2.3 percent of GDP will ensure that Sri Lanka will be well placed to make debt service payments from 2028 onwards.

President Dissanayake has said he expects the relaxation of restrictions on vehicle imports to deliver a bulk of the country’s revenue gains for 2025. It is fervently hoped that he is not being as optimistic as the proverbial poor man who ordered oysters for dinner hoping to settle the bill with pearls he expected to find on his plate. Some economic analysts have argued that there is the possibility of extremely high taxes, which are sure to drive automobile prices up, causing a drop in the sales of imported vehicles and preventing the government from achieving its revenue targets. How does the NPP administration propose to handle such an eventuality?🔺

Pro-business Budget but implementation is key: Murtaza

Advocata Institute Chairman
Murtaza Jafferjee

நிதி மூலதனமே நிவாரணம்!

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“We need Foreign Direct Investment (FDI). So, for the proposals to have more industrial zones is important.

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Pro-business Budget but implementation is key: Murtaza

 FT Tuesday, 18 February 2025 By Darshana Abayasingha

“There is a misperception of the Government ideology given its roots. This is a market-oriented pro-business Budget. But the devil is in the details. If the Government can get implementation right, then in one year Sri Lanka will be in a better place,” Jafferjee said, delivering the keynote at the KPMG 2025 Budget Forum last night.

Using an economist’s lens – but “tinted with capitalism” – he said a few policies are problematic and hitting the revenue targets can be challenging, whilst debt remains a huge concern. 

Tax revenue will have to grow by 23%, which is a tall order, he noted. “You will need many people who love cars more than houses to get that Rs. 230 billion number from vehicles.”

Jafferjee said he is confident the Government may hit the primary balance target spelt out in the Budget and recognised the need to enhance capital expenditure as spelt out in the Budget to ensure infrastructure remains serviceable. 

However, he lamented under-priced fuel, which he said results in the richest 30% of households getting 70% of benefits. There is a need to grow export contributions to Sri Lanka’s growth as our representation globally is in very few products. 

“We need Foreign Direct Investment (FDI). So, for the proposals to have more industrial zones is important. We need to attract foreigners to come and reside in our cities and work here and contribute to this process. We need to be more welcoming. We have a large diaspora so we need to attract some of them back,” Jafferjee said. 

He also touched on the need to develop a capable State capable of driving implementation. “So we need high paying jobs in the State sector, but the pay is not good.”

KPMG Sri Lanka Principal – Tax and Regulatory Suresh Perera said: “We need more science in our tax systems and reforms. We need a specialised unit advising the Finance Minister. A trial and error basis won’t work. We have done that for 20 years now.”. 🔺

What A Budget!

ENB-Budget series

தனியார்மயமே தாரக மந்திரம்! 

Harsha Gunasena

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However, the positive policy direction of the Government which is a deviation from the policy stance of the JVP would be a reality.

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What A Budget!

Prior to the Presidential Election I was at a seminar and I was questioned about what will happen after the elections. I said if Anura Kumara Dissanayake (AKD) wins he will continue with the IMF programme irrespective of the claims that NPP will seek to alter the Debt Sustainability Analysis (DSA). However, I said their problem would be the failure of implementing the capitalist economic reforms such as shrinking of the state sector and as a result the government would face difficulties in continuing with the IMF progamme.

When the President delivered his “throne speech“ at the Parliament, I said at a webinar (Kathikava) organized to discuss it by the National Movement for Social Justice, that AKD is more towards right compared to the other JVP leaders who are towards the left. Therefore, I liked keeping the Finance portfolio with him, although as a policy I disagreed to it since by that act financial control of the Republic by the Parliament, which is the legitimate right of the Parliament, is loosened. However, it was the best option under the given circumstances.

I expressed concerns that since the JVP is in power and not the NPP, their pro left ideology would hamper the essential economic reforms since capitalist reforms could not be done with a leftist ideology. I said however it would be possible if AKD would be able to take the control into his hands and that happened in the  budget speech.

In Sri Lanka people are worried when the government sells state assets. These people think that ‘somehow’ the state should manage it. There were instances where the state assets were sold to the cronies of the ruling party to which no one would agree. Even though the selling process is transparent these people disagree with it. In personal capacity they may sell their assets if faced by strong financial constrains, but not at the national level.

I presume that the former President Ranil Wickremesinghe (RW) delayed any privatization or restructuring the state assets or entities fearing of this public opinion orchestrated by mainly the people with JVP ideology. What is happening now is overruling the JVP ideology by the JVP which is beneficial to the country. In the coming years leftist ideologies will be crucified by the JVP and if not, the country will get crucified.

By this leftist ideology I mean mainly maintaining a large state. The JVP started talking of inequality of income distribution recently. In the policy statement of Rapid Response released during Covid time, they were focusing on criticizing the open economy in toto. It went on to state, “Introduced in 1977, the Open Economic Policy has been destructive through its prioritization of personal gain over social responsibility.” RW, considered as a neo-liberal, strengthened the monitoring power of the state by introducing various Acts which was contrary to the neo-liberal thinking.

In the budget speech AKD said that Sri Lanka’s network of Free Trade Agreements (FTAs) with strategic partners, particularly with a view to greater economic ties with ASEAN nations will be expanded through the Regional Comprehensive Economic Partnership (RCEP) and other agreements. There is no mention of reviewing the existing FTAs as mentioned in their election manifesto. The said group of Sri Lankan ideologists are against the FTAs.

AKD identified that the state is larger than it should be. Therefore, a Committee under the Prime Minister’s Secretary has already been appointed to review the functions and utility of a plethora of Government agencies. It would be possible to determine which agencies need to continue, which need to be amalgamated with other agencies, and which agencies need to be discontinued, which need to change their objectives. A Holding Company under the full control of the Government will be established under which selected SOEs are held as subsidiaries with a view to improve governance, financial discipline and operational efficiency. The government will actively encourage private and appropriate state entities to raise funds through listed equity and debt capital markets. Therefore, it is ideal if this Holding Company can be listed in the Stock Market even though it is under the full control of the Government.

The Government will lease out under-utilized state-owned land for productive economic activities. Some of the lands presently managed by LRC, RPCs, SLSPC, JEDB and under-utilized will be identified and brought in for private investment including SMEs taking the suitability of the land into consideration. The Government  propose to allocate Rs. 250 million to undertake initial activities in this regard. The proposed Colombo West Terminal 2 and Colombo North Port are expected to expedite the performance of Sri Lanka’s ports. Therefore, the Government will call for Expression of Interest for these projects within a month. These are not selling but ‘selling’ which is the real need of the country.

Government will call for foreign direct investments to optimize the utilization of Sri Lanka’s untapped potential in investment, industrial development, and value added exports of Sri Lanka’s mineral resources and marine economy. To provide energy at a competitive cost to industries, exporters, and consumers, the Government  will welcome energy investments based on the lowest tariffs and we will not provide preferential treatment purely on the company or the country of origin. The criticism of taking the profits away is not valid now.

There was a proposal to expand the export-oriented investments  through Public Private Partnership (PPPs) and privately run zones. The concept of privately run zones is a novel idea. There will be 5 industrial parks for which Rs. 500 million was allocated. it is proposed to establish an Industrial Estate dedicated for Automobile components and rubber manufacturing and Rs.1.5 billion was allocated for this. It is not sure whether this money is sufficient since over the several years there were proposals to have industrial zones but those were not implemented.

An Investment Protection Bill will be enacted to facilitate and protect investments, and a Public Private Partnership (PPP) Bill also will be introduced. He said that the country’s ease of doing business will be prioritized which is much needed.

Barriers for local firms to invest overseas will be reviewed and gradually rationalised by establishing appropriate safeguards to track repatriation of earnings and dividends. This is easing of the Capital Account. Commercial usability of land will be increased by expediting Bimsaviya but he was silent about the Urumaya pragramme the intention of which was also the same.

In order to support the SMEs, the Government is working towards setting up a development bank. As a first step, the function of a development bank through a new administrative structure will be established through the existing state bank mechanism. The Government will support this task through the National Credit Guarantee Institution (NCGI). Also Rs. 1000 million is allocated to commercialize the inventions.

The Government allocated Rs.35 billion for the fertilizer subsidy of paddy farmers and Rs. 78 billion to the irrigation sector development. In order to improve the productivity of the paddy farmers the Government should focus on allowing paddy farmers to cultivate commercial products which is prohibited in Agrarian Development Act.

Allocation of Rs.5 billion to purchase of paddy and Rs.20 billion to Sri Lankan Airlines would be a waste. Rs. 20 billion will be used by Sri Lankan Airlines to pay interests and repay the loans which may facilitate the company to borrow again. The President said that the treasury would not allocate money for recurrent expenses of the Airline. This colossal waste of public money to this “strategic investment” should be stopped.

The Government should explain why the existing vacancies cannot be filled by the graduates who are already recruited as development officers and who are not engaged with productive work.

In the previous budgets the common phenomenon was to have several budget proposals but hardly they were implemented. With financial constraints those will be thrown away out of the window. The capital expenditure would be affected first. It is likely since the recurrent expenses were increased in the budget proposals. I do not take these proposals seriously until they are implemented. However, the positive policy direction of the Government which is a deviation from the policy stance of the JVP would be a reality.🔺

President Dissanayake’s full budget speech

President Dissanayake’s full budget speech

ADA February 17, 2025 

President Anura Kumara Dissanayake, in his capacity as the Minister of Finance, Economic Stabilization and National Policies, presented his maiden Budget Speech in the Parliament today (17).

The 79th budget of the Independent Sri Lanka aimed at developing the country in a way that enables it to repay debt when repayment commences in 2028 today (17), encapsulated three main facets;

1. Growth of production of industry, services and agriculture.
2. Production must take place with the active engagement and participation of people.
3. The benefits and gains from production must be equitably shared across society.

The Head of the State also noted that this years’ budget is prepared based on these principles, and that the government intend to set a foundation to create an economy where all citizens are active participants, active stakeholders, and active beneficiaries.

According to the Head of State, the budget deficit for the fiscal year 2025 is estimated at Rs. 2,200 billion, which is 6.7 as a percentage from the GDP.

The total expenditure for next year will be Rs. 7,190 billion, which is 21.8% of the country’s GDP and the total revenue and grants will be Rs. 4,990 billion (15.09%).

The government has allocated Rs. 5,886 billion for recurring expenditure such as subsidies and salary payments. For salaries and wages, Rs. 1,230 billion has been set aside, and Rs. 1,290 billion for subsidies and transfers.

President’s full budget speech is as below; 

TEXT (English)

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New African Union leader elected as two major crises rage

Video

New African Union leader elected as two major crises rage

February 15, 2025  VOA By Harun Maruf , Eskinder Firew

The leaders of Africa Union countries on Saturday chose a new chief for the branch that runs the organization’s daily operations, as conflicts persist in two of the largest three countries on the continent.

At their annual summit in Addis Ababa, Ethiopia, the organization’s members elected Djibouti Foreign Minister Mahmoud Ali Youssouf as the next chair of the African Union Commission in a secret ballot.

Youssouf, who celebrated his 60th birthday a week ago, defeated Kenya’s former Prime Minister Raila Odinga and former Foreign Minister of Madagascar Richard Randriamandrato. The selection took several rounds of voting.

Youssouf was a close second in the first and second rounds behind Raila. In the following four rounds, Youssouf took the lead until he became the sole candidate in the seventh round, with an unassailable 33 votes needed for victory in the final.

He replaces Moussa Faki Mahamat of Chad, who served two terms as AU commissioner.

Youssouf, who has been minister of foreign affairs of the Republic of Djibouti since 2005, is the longest-serving foreign minister on the continent.

All 55 member states, with the exception of six countries that were suspended from membership, are taking part in the summit. An Ethiopian Foreign Ministry source speaking on condition of anonymity because they were not authorized to speak on the matter told VOA’s Horn of Africa Service that 29 presidents, three vice presidents, four prime ministers and a king are in attendance.

New chief inherits crises

The election of the new chief comes as the conflict in Africa’s second-largest country, the Democratic Republic of Congo, escalates following recent territorial gains by M23 rebels.

The M23 forces approached the second-biggest city in eastern DRC, Bukavu, two weeks after seizing the main city of Goma. The DRC accuses Rwanda of backing the rebels, although Rwanda denies supporting M23.

The continent’s leaders called for an immediate and unconditional ceasefire, cessation of hostilities and the reopening of main supply routes and Goma airport.

Sudan is another major focal point of conflict that leaders are discussing. United Nations Secretary-General Antonio Guterres, who is at the summit, called on warring parties in Sudan to cease hostilities and protect civilians, including humanitarian workers.

Guterres appealed for $6 billion to address the needs of about 26 million Sudanese who need emergency assistance.

In an interview with VOA Horn of Africa last year, Youssouf vowed to work on “silencing the guns” on the continent.

“Silencing the gun, you know, preventing conflicts, resolving those wars and internal crises ... that we are faced with already is one of the priorities,” he said.

“Of course, this is something that we need to work on, and I'll make sure that the commission will concentrate on that particular program.”

Youssouf also said he will work to reform the organization, recruit the most qualified and skilled Africans, and make excellence, merit and competence the key principle.

“If you have a good staff at the commission, it will be much easier for all of us to implement the reforms that have already been enacted by our leaders,” he said.

Meanwhile, Angolan President Joao Manuel Goncalves Lourenco took the rotating African Union chairmanship, replacing Mauritanian President Mohamed Ould Cheikh Ghazouani. 🔺