President Anura Kumara Dissanayake yesterday presented the maiden Budget of the National Peoples’ Power (NPP) Government. He eyes 5% growth for Sri Lanka in 2025. However, his expenditure plans soared beyond Rs 7.1 trillion. With a planned State income of Rs. 5 trillion and expenditure at Rs. 7.1 trillion, the Government should be cautious about overspending, as if they fail to effectively finance the Rs. 2 billion budget deficit, it risks building pressure on the rupee and which can create instability for the economy. This brings into question long-term fiscal discipline.
However, according to some economists, in terms of the overall numbers, the Budget is staying within the IMF parameters. Also, the Government, true to its statements, has included roughly Rs. 130 billion increase in allocations for welfare programmes and public sector spending.
Recurrent expenditure, which includes salaries, wages,and interest payments, remains a large portion of total spending. Salaries and wages will increase from Rs. 939 billion in 2023 to Rs. 1,230 billion in 2025. Further, interest payments are projected to rise to Rs. 2,950 billion by 2025. Subsidies and transfers will amount to Rs. 1,290 billion in 2025. Meanwhile, public investment is expected to see a significant rise from Rs. 817 billion in 2024 to Rs. 1,315 billion in 2025, indicating a focus on infrastructure and development.
Some economists have praised the capital expenditure proposed by the Budget. “The increase in allocation for capital expenditure was necessary,” an expert said. “In recent years, development projects have been constrained, especially during the debt restructuring process” economist Umesh Moramudali told The Daily Morning. Moramudali pointed to stalled infrastructure projects funded by bilateral creditors, such as the Colombo Metro Urban Development Project, Port City Colombo, and the Colombo Commercial City Development Plan, which were initially backed by the Chinese Exim Bank. “With debt restructuring ongoing, these projects have faced delays, but the increased capital expenditure signals a renewed focus on development,” he explained. Additionally, Moramudali highlighted Japan-funded initiatives aimed at improving water supply and sanitation, such as the Anuradhapura North Water Supply Project, the Kalu Ganga Water Supply Expansion Project, and the Kandy City Wastewater Management Project. These projects, supported by the Japan International Cooperation Agency (JICA), are critical for addressing Sri Lanka’s infrastructure gaps.
Advocata Institute’s CEO Dhananath Fernando speaking to The Daily Morning expressed concerns over the inflationary impact of wage hikes. “The increase in State sector salaries will further inflate expenses on an already bloated public sector. While pension increments are phased out and may not have a long-term effect, salary hikes could strain the pension system in the future,” he opined. However, the record allocation for health and education, with the Health allocation hiked Rs. 604,000 million is a welcomed investment in the critical pillars which all Sri Lankans have come to rely on.
President Disanayake has proposed 11 new laws under legal reforms to implement the new Government’s policies. The new reforms are part of Sri Lanka’s commitments in return to a $ 2.9 billion IMF bailout package. This is viewed as a positive move. The legislation includes a new Act on the ‘exchange of information between State institutions’ to be introduced to enhance the efficiency of public services and ensure the proper collection of State revenues. A new overarching new legislation is to be introduced to safeguard the rights of the investors and provide a conducive environment for foreign investment. A Public-Private Partnership Investment Management Act. This new law is intended to encourage foreign and domestic private investments in collaboration with the public sector, a crucial factor for the country’s rapid economic development. A State Business Enterprises Management Act is mooted, which will hopefully end the poor policies and mismanagement of State-owned Enterprises.
As such, the Government has its work cut out for it, it has proposed a bold budget, one with some challenges and hurdles. Let us hope the Parliament will ensure that the country is kept on a recovery and growth trajectory with this new plan by the new Government.