By Rusiripala Tennakoon –

Rusiripala Tennakoon

Sri Lankans are  witnessing a series of neo-burlesque theatrical dramas satirizing and rationalizing the maiden budget presented a few days ago to parliament by the AKD government. While the expectations were high, fueled by hopes for a drastic system change as professed, what transpired was yet another anticlimax -reminiscent of previous budgets that failed to bring about any meaningful transformation.

The rationalizations, often presented in modest public forums, are distasteful to say the least. While the true architects of the budget, constrained by numerous limitations have little choice with no options but to adhere to a predetermined path laid down with no room for deviations. However, those who attribute unmerited  motives to the process  cannot be excused for their deceit.

It is also unfair to be overly critical when the situation does not warrant risky experimentations with untested economic strategies. Instead, adhering to a proven, more reliable course  consistent with what is going on should be acknowledged and appreciated.

Hence a budget review should be factual, unbiased and beyond dispute. Those who choose to ignore economic realities – seeing no evil, hearing no evil, speaking  no evil – must be reminded that such attitudes are tantamount to selfishness, cowardice and a deliberate refusal to address wrong doing.

Let us now take a look at the AKD budget in its true Perspecta.

Has the budget moved towards a new Direction?

While we do not see any evidence in this budget of a shift in economic direction, we come across many oversights and apparent deviations from the policy stands advocated by those in the new government. These  may have resulted from mandatory adherence to conditions imposed and thrusted upon the government, limiting the government’s ability to introduce innovative measures tailored to domestic economic needs and traditional values. This shows that those who assisted in the budget making process have been too involved in sticking to the  pre advised programs they are responsible to continue. The emphasis by the IMF to maintain the reform momentum as critical, should not in any way restrict the government to take innovative steps of putting the economy on a path towards lasting recovery and inclusive growth. Unfortunately, the budget is heavily weighted towards welfare assistance with less emphasis on bolstering lasting basic production levels.

For instance, prioritizing and the emphasis on the rural roads and bridges in the North is commendable, but immediate assistance for Agriculture for the region should have been regarded as more relevant. North has been our main producer and supplier of many essential food items including Red Chilies, Onions, vegetables and even exotic fruit varieties, most of which were imported from India. Immediate  assistance – such as providing  hand tractors, water pumps, drip irrigation systems, and essential agricultural equipment- would have significantly contributed to import substitution and improve rural productivity, complementing infrastructure development initiatives.

The budget’s reference to underutilized public lands is praiseworthy. However, a more targeted approach is necessary,  as tens of thousands of acres of land owned by the Land Reform Commission (LRC) have remained  idle for several decades now. This untapped resource alone has the potential to revitalize the country’s agro-based economy, boosting domestic production and creating rural employment opportunities. The situation is too complex to be highlighted in a short write up like this. But, sighting a few examples such as, vast stretches of prime cardamon-growing land in a state owned estate in Yatiyantota area remaining abandoned, and a once flourishing rubber plantation spanning approximately 2000 acres lying idle in close proximity to Wellawaya can elaborate the case in point.

Priorities misplaced: investment vs Production !

Budgets have consistently placed the cart before the Horse. Policy makers emphasize attracting investors when the primary focus should be on increasing production. If the LRC can compile and publish a comprehensive Land Bank detailing available lands, their geographical attributes, and potential utility values, investors would actively seek out opportunities for development projects. With proper oversight and targeted initiatives, the country could reap economic benefits in a short time frame.

The AKD government’s openness to PUBLIC-PRIVATE Partnerships (PPPs) signals a departure from outdated fears of foreign investment leading to land dispossession. Instead of merely inviting and imploring investors, Sri Lanka should proactively identify and publicize viable opportunities. Global investors are in search of promising ventures, and contrary to prevailing misconceptions, they will not abscond with our land, as feared by the majority who have been trained to believe such.

The dark side of Increasing Public Sector Salaries 

Successive governments have repeatedly committed the error of indiscriminately raising public sector salaries. This practice, often used as a political tool to garner favor, is a glaring hypocrisy. While periodic wage adjustments are necessary to reflect economic fluctuations, several other critical factors must be taken into consideration, including productivity, the impact of non-public sector employees, the long-term implications on account of enhanced retirement benefits, and the distortionary effects on wage structures.

A public sector salary revision should be based on a National Wage Policy that encompasses all sectors of employees. Adhoc increases driven by election promises inflict more harm than good. The govt must establish a structured wage policy to ensure equitable adjustments rather than engaging in unsustainable financial largesse. Ironically, even the IMF appears to ignore this pressing issue.

Realty behind the Budget    

There is no magic in this budget. The various welfare measures and financing proposals have been possible due to facilitation by the progress made under the IMF’s economic program initiated in 2023. The revenue mobilization strategies set forth in alignment with the IMF agreement have thus far yielded positive results.

The economic adjustment measures implemented by the Central Bank have also borne fruit. Inflation which had surged to alarming levels has been curtailed to single digit figures. For the first time in years, economy had recorded a surplus in the primary balance of the government. Foreign reserves have improved significantly compared to the severe deficits experienced during the economic crisis. The legal reforms that granted greater autonomy to the Central Bank, coupled with enactment of the Economic Reformation Bill in 2023-2024, have provided a framework for steady economic progress, which could be sustained, unless otherwise reversed due to policy missteps.

The successful completion of the foreign debt restructuring program and the Domestic Debt Optimization (DDO) initiative has reinforced international confidence in Sri Lanka’s economic resilience. Moreover, the international debt moratorium extended and effective until 2028, has provided the new government with physical breathing space to implement social welfare initiatives without much distress.

It is imperative to adhere to the IMF’s extended fund facility (EFF) program conditions while sustaining the ongoing reform momentum. The treasury secretary and the Central Bank Governor had played a pivotal role in ensuring policy continuity, safeguarding against economic instability, and preventing regressive policy shifts.

Sri Lanka has learned painful lessons from past experiences, including failed attempts to overthrow government and reckless policy experiments characterized by waste and corruption. Continued IMF oversight is essential to protect the hard-won gains achieved under the EFF program and to keep the economy on a path to ensure sustainable recovery and inclusive growth. The new government deserves credit for its commitment to remain confined to IMF program objectives in formulating this budget. However, moving forward, a greater emphasis on production, economic self-sufficiency, and strategic policy-making is necessary to achieve long term stability and prosperity beyond palliative measures that provide temporary reliefs.