The much-discussed inaugural Budget of the National People’s Power (NPP) Government was passed with a thumping majority as anticipated last Friday (21) evening. With all of the 159 members of the Government voting ‘aye’ for Budget 2025 and 45 Opposition Members of Parliament voting against it, the 114-vote majority is the largest since J.R. Jayewardene’s United National Party dominance in the post-1977 era. What is important is for the NPP to fulfil the people’s expectations by using this unprecedented mandate to usher in the change it promised, but whether Budget 2025 has the ability to deliver on that score is to be seen.
Interestingly, the six-month milestone of the NPP taking over government in Sri Lanka coincided with the news that the country has dropped five places to 133rd spot in the 2025 edition of the ‘World Happiness Report,’ published by the Wellbeing Research Centre at the University of Oxford in partnership with Gallup and the United Nations Sustainable Development Solutions Network.
Having quoted extensively from the report while in Opposition, the party will find it difficult to question its credibility while in Government now. The ‘World Happiness Report’ evaluates factors such as health, wealth, freedom, generosity, and freedom from corruption in order to measure overall happiness. Sri Lanka, which ranked 128th last year, has dropped to 133rd place this year and is only ranked above countries such as Yemen, Zimbabwe, Lebanon, Sierra Leone, Bangladesh, and Afghanistan.
Be that as it may, Budget 2025 afforded the NPP its first opportunity to implement its policy document, titled ‘A Thriving Nation, A Beautiful Life.’ However, a cursory glance at Budget 2025 and the party’s policy document shows they appear to be at variance on most counts and the most likely explanation for this could be the necessity to stick to the International Monetary Fund (IMF) bailout parameters, which the party must adhere to in order to continue with the programme.
Speaking during the closing stages of the third reading of the Budget on Friday, Leader of the House Bimal Rathnayake made a strange observation – strange because it came from a party supposedly committed to Marxist ideals and campaigned as such up until the conclusion of the last election. Rathnayake, responding to an Opposition Samagi Jana Balawegaya (SJB) MP, noted that the SJB was no longer the ‘darlings’ of the IMF and in fact that place had now been taken over by the NPP. From having been a sworn enemy of the IMF in general and its neoliberalist agenda in particular in the not-so-distant past to now taking pride in being its paramour and even boasting about it is quite a dramatic transformation.
Whether Rathnayake realised the gravity of what he said or not, what it implies is the NPP’s complete capitulation to the IMF and by extension its neoliberalist agenda against which it breathed fire not so long ago. In fact, one year ago, the NPP was shouting from the rooftops that it would have nothing to do with the IMF, then six months ago it said it was ready to work with the IMF, and now we have a prominent member of the party boasting in Parliament that the NPP is the IMF’s new best friend.
What the likes of Rathnayake in particular and the NPP in general must keep in mind is that the IMF programme is essentially made of two parts, and is systemically limited to that. First, it is a bailout programme: to bail out the nation from bankruptcy. Secondly, it is intended to stabilise the economy. Having commenced mid-2022, the programme will terminate by mid-next year, completing its duration of four years. While the Government seems pleased by the continued perception of stability, this administration urgently needs to shift gears and move beyond mere stability to aggressive growth, which is the only way it can sustain the gains made thus far.
Steadfastly sticking to the IMF programme will not deliver growth for the simple reason that it was not designed for that purpose. That part is left to the Government of Sri Lanka. Therefore, the trillion-rupee question is whether Budget 2025 can deliver that growth.
While the Central Bank has projected a minimum growth rate of 5% for 2025, it comes in the backdrop of a global economic meltdown caused by the biggest trade war the world has ever known, fuelled by US President Donald Trump’s arbitrary imposition of punitive tariffs on its key trading partners. As of last Friday, the US Fed revised its own growth forecast for the full year of 2025 to 1.7% of GDP, down from the earlier projection of 2.1%.
While the US remains Sri Lanka’s single biggest export market, accounting for about 25% of all exports, it is still unclear whether the country’s exports will be spared additional tariffs. If one is to go by the Trump administration’s criteria for the imposition of import tariffs – the trade balance, which is heavily in favour of Sri Lanka – then it is better to be prepared with appropriate countermeasures in order to mitigate the impact.
There is more cause for concern across the Atlantic over Sri Lanka’s second biggest export market, Europe. It is understood that the European Union (EU) is currently in the process of carrying out its periodic assessment of the concessional GSP Plus programme extended to Sri Lanka pending renewal of the facility. Europe is having its own share of issues resulting from the Trump administration’s weaponisation of trade as well as its abrupt halting of military aid to Ukraine. The move has compelled the EU and Britain to increase defence spending to historic highs, a consequence of which could well be the trimming of trading concessions. Here again, it is better to be prepared than sorry.
The biggest danger facing the nation on the economic front today is the complacency of its leadership borne out of the perception of having achieved economic stability. It must be noted that the nation’s external debt stock that triggered the economic crisis remains intact while the interest component alone eats up around Rs. 3 trillion out of the total Government revenue of Rs. 5 trillion. In addition, capital repayments that become due from 2028 would add another Rs. 1.6 trillion on top of the interest payments, virtually eating up the entire revenue component. The only way out of preventing a recurrence of the monetary events of 2022 is urgent, rapid, and sustained expansion of the economy.
In a backdrop where a host of new taxes including personal taxes on forex incomes are to come into effect on 1 April, casting a cloud over what has been a growth segment, and tourism earnings too being unnecessarily compromised as a result of a seemingly ill-advised decision to drive away powerful online travel agencies like Booking.com and replacing these global platforms with indigenous ones, it appears that caution is being thrown to the wind and the goose that lays the golden eggs is being unnecessarily exposed to danger.
If tax evasion is the issue, then the Government must formulate an equitable policy to tax these service providers instead of driving them away. Questions are also being raised as to why booking engines are a problem and not the thousands of Israelis, Russians, and Ukrainians running business illegally on the south and east coasts, whose revenue is being channelled to overseas accounts.
Resorting to extreme measures at this juncture will neither help the industry nor the economy. Rather, it would be far more prudent for the authorities to focus on the basics and ensure that tourists are provided basic facilities such as clean toilets at popular sites and bring foreign nationals operating illegal tourism businesses to book.
While budgets have come and gone over the course of the past 76 years, if one thing is to be learnt from them, it is the importance of the monitoring aspect. Towards this end, it is important to set up an independent monitoring authority to track progress of budget proposal implementation and their outcomes over the course of the year. One would have expected the NPP that promised change to set up such an office, but given the failure to do so in a backdrop where throughout history less than 50% of budget proposals have actually been implemented, it appears that real change continues to be elusive.