Amidst countless promises and challenges, the Government is set to table its very first Budget today (17), and the people’s expectations, especially following the economic crisis, have never been higher. To say that the 2025 Budget will be a pivotal one would be an understatement.
Sri Lanka is still recovering from the economic crisis, which was exacerbated by the medium-term impacts of the Covid-19 pandemic and decades of poor governance. Despite the official figures about the economy improving, the cost of living and poverty remains high, and people remain sceptical about their future. In this context, there is a great deal of pressure on this Government from its electorate to deliver a Budget that balances two aspects, i.e. the provision of relief for the crisis-hit people and balancing the ongoing economic recovery process. The National People’s Power (NPP) Government led by President Anura Kumara Dissanayake will have to take into account this double-edged sword when delivering the Budget today.
There is also international and local scrutiny to see if this Government will introduce new reforms or continue with the International Monetary Fund’s (IMF) relief package, which is paramount to building investor confidence and will also help improve economic resilience in the country. Sri Lanka’s priorities in the context of the Budget, several key matters require attention. Some economists are of the view that Sri Lanka must continue to perform within the framework of the Extended Fund Facility that came with the IMF’s bail programme, while also providing relief to the people.
Firstly, the government revenue should reach at least Rs. 15.5% of the Gross Domestic Product (GDP), which means it must be increased to about Rs. 5.5 trillion. This target undoubtedly requires fiscal discipline. Regardless of the State plans with regard to the Economic Transformation Act, which was first proposed by the previous Government, the present Government will have to balance the people’s and the country’s needs when enacting or implementing this Act. If the Budget goes against those needs and the agreements reached by Sri Lanka and the IMF, that will place the country in a difficult situation.
In the second step, attention must be paid to bringing down the cost of living, with a great focus on ensuring the affordability, availability, and accessibility of essential food items. Improving labour and industrial productivity is also of great importance if the country is to revive its economy. At the same time, the Government must deal with the ongoing demand for salary hike through the Budget – on the one hand, these demands show the potential to adversely impact public services and industries while on the other hand resolving salary-related issues is one of the key promises given by the NPP Government before coming to power. However, even if the Government decides to fulfil these promises, the Government will also have to have in place a plan to ensure that their labour is utilised effectively and contributes to the economy. Through the Budget, the Government must introduce specific economic reforms aimed at productivity and labour force growth.
How the Government wants to move forward with its fiscal and debt-management policies and practices should also be a major concern in this discussion.
In addition, for the country’s economic revival to be strengthened by external support other than loans and relief programmes, the Government must prioritise improving investor confidence. During the few years following the economic crisis, several major investors have left the country while some have pointed out difficulties in investing in Sri Lanka-based projects. How the Government presents and implements the Budget will also have a major impact as far as addressing the existing trust deficit is concerned.
When it comes to improving and ensuring social welfare, there is a need to improve and streamline the existing social welfare programmes. There needs to be more targeted approaches in providing relief. Price control mechanisms for essential food items only benefit some groups, and therefore, the Government should pay attention to more innovative mechanisms to ensure that the food mafia is dealt with. What is more, the tax-collection process should also be streamlined and strengthened to reach the overall economic targets. All these require a proper Budget, which is not only properly drafted, but effectively implemented.