Except for the customary criticisms by the Opposition, the opinion of many independent and neutral scholars and experts on economic matters seems to look at the budget proposals submitted by the president and the minister of finance optimistically. However, as usual, there were contradictory opinions expressed by the same fraternity about the budget proposals.
The budget presented to Parliament is not based on populist budgets like those in the past. When the President said that leaders must make the right decisions, not the popular ones, he effectively ended populism, which had been a feature of many previous budgets in Sri Lanka. Evidently, the President has made a conscious effort to act in the right way, in explicit contrast to many previous budgets, which were habitually prepared to please voters or politicians. Clearly, there was no overabundance of politically inclined pledges of free benefits or price reductions.
The 2023 budget was apparently the most challenging since independence. Even with a few contentious and debatable points, this budget appears to be one of the best presented in recent decades. The budget was primarily focused on an export-oriented economy, a green economy, and a digital economy, three vitally important factors for the country currently.
The primary issue the country confronted during the past several decades that led to the current crisis was the intolerable deficit in income and expenditure. The outside loans that were taken as foreign currency were to be paid in a similar manner, creating an enormous shortfall of foreign currency. Even though the export performance at this point is creditable, increasing exports further is the key to bringing in valuable foreign exchange.
Hence, focusing on creating a more vibrant export economy is vastly important. The growth of exports is a dire necessity to help the economy recover from its current crisis. While promoting the apparel exports sector to do better, other exports such as tea, coconut-based products, spices, fruits and vegetables, and other export crop sectors have to be given utmost priority from now on.
Institutional reforms
The budget proposals indicate that the government will implement institutional reforms, economic zones, and free trade agreements with several countries. The new agency proposed in replacement of the Export Development Board (EDB), Board of Investment (BOI), Export Credit Insurance Corporation (ECIC), and National Enterprise Development Board (NEDA) will likely cut down the implementation time of new projects.
The efficient implementation of this new agency will lead the country to be positioned at a better slot in the “Ease of Doing Business” index. Regrettably, Sri Lanka is in the 105th position in this important index. This proposal, if managed efficiently, will encourage foreign investors who currently do not consider engaging in business in Sri Lanka.
At this point, due to a number of reasons, investors keep away from Sri Lanka. The country desperately needs foreign investment to come out of the crisis and continue to grow over the long term. Creating business-friendly regulatory frameworks covering specific areas for new economic zones in proposed areas will draw foreign direct investment (FDI). The government’s goal seems to be turning the entire country into an investment hub.
Every year, the Government anticipates more than US$3 billion in FDI. However, compared to the dismal figure of $600 million in FDI attracted over the past year, the task ahead will be a daunting challenge. Nevertheless, if the proposed institutional changes can get off the ground without delay and be managed efficiently, the country can expect a fruitful result sooner.
The swift action proposed in the budget to re-establish Free Trade Agreements (FTAs) is another positive move to develop international trade and earn desperately needed foreign exchange. Hence, negotiating with the countries that already have FTAs and seeking new agreements must be done urgently.
However, merely because the proposals were presented, the Parliament will not be sufficiently motivated to implement them. The foundation laid through the proposals has to be put into action realistically and sensibly to realise results.
The Opposition parties that are eagerly expecting an election early next year have already commenced their campaigns by criticising the budget. It is clear that their intention is to gain political mileage rather than promote public welfare. Visibly, these critics attempt to mislead the masses by pointing to negatives and hiding many positive and optimistic long- and short-term advantages.
They obviously attempt to label the budget as a directive of the International Monetary Fund (IMF). Regrettably, it is abundantly clear that most of these critics are not knowledgeable enough to air opinions on economic matters. They merely do it to gain personal popularity and increase their voter base.
Iron Curtain
The British Statesman Sir Winston Churchill once said “Criticism is easy; achievement is difficult” in his “Iron Curtain speech in Missouri, USA. Regardless of which camp it comes from, vehement criticism, with or without substantiated evidence or justifiable reasons, is an integral part and partial of Sri Lankan politics.
However, in contrast to the great Sir Winston, whose downfall, according to biographer Andrew Roberts, was due to his inadequate knowledge of economics, the incumbent President Wickremesinghe has proven that he possesses sufficient knowledge of economic affairs.
The general opinion is that except for a few grey areas, the budget proposals were largely acceptable. For example, while the proposal to restructure loss-making SOEs is exceedingly useful and long overdue, restructuring institutions such as Sri Lanka Insurance Corporation and Sri Lanka Telecom, which are making substantial profits, is controversial, questionable, and even provocative to the general public.
The Government should therefore produce credible and acceptable reasons in layman’s terms for the masses without delay to avoid public disagreements. However, restructuring or even closing down loss-making Government institutions that are busting billions of rupees of public funds is a must, and the entire nation will stand behind the Government in such a move.
The proposal to introduce various taxes is one of the areas that came under intense disapproval from almost every private sector employee. Personal taxation, introduced for those who earn over Rs. 100,000, is considered a heavy burden on their day-to-day survival. Employees who are already committed to various recurring monthly payments will rightfully object to the proposals.
The soaring price escalations of essential food, electricity, water, and other utilities will undoubtedly have a huge impact on the quality of life of everyone except the most affluent. Hence, the Government either must reconsider the tax reform formulas or provide tolerable reasons to justify the move.
Reduction of Government expenditure was not a focal point in the 2023 budget, although such a move is extremely important to bridge the deficit. In fact, the allocated figure is higher in comparison to the previous budget. Similarly, the costs to the state due to corruption and waste are huge.
Nevertheless, the emphasis given to waste and corruption does not seem adequate. A substantial amount of funds could be saved if a conscious and concerted effort is given to the elimination or at least reduction of bribery and corruption in the public sector.
Surprisingly, the proposals also have allocated funds for several new projects, such as an international university of climate change and a postgraduate institute of medicine. Undeniably, such programs are required for a country. However, the pertinent question is whether the country can afford such luxuries at this point in time.
Experts consider the interlocking challenges facing the world due to multiple reasons, such as high food and fuel prices, inflation, the energy crisis, and the war in Ukraine.
Without a doubt, the impact of the predicted world recession in 2023 will negatively impact Sri Lanka. Assistance from international financial institutions and friendly countries will have limitations.
Therefore, Sri Lanka will be somewhat isolated in obtaining financial support from the world. Also, unlike in previous times, the country will not be offered loans to bridge the budget deficit. In this context, Sri Lanka has to find its own solutions to survive in 2023 and beyond.