By Harsha Gunasena –
Harsha Gunasena
Prior to the Presidential Election I was at a seminar and I was questioned about what will happen after the elections. I said if Anura Kumara Dissanayake (AKD) wins he will continue with the IMF programme irrespective of the claims that NPP will seek to alter the Debt Sustainability Analysis (DSA). However, I said their problem would be the failure of implementing the capitalist economic reforms such as shrinking of the state sector and as a result the government would face difficulties in continuing with the IMF progamme.
When the President delivered his “throne speech“ at the Parliament, I said at a webinar (Kathikava) organized to discuss it by the National Movement for Social Justice, that AKD is more towards right compared to the other JVP leaders who are towards the left. Therefore, I liked keeping the Finance portfolio with him, although as a policy I disagreed to it since by that act financial control of the Republic by the Parliament, which is the legitimate right of the Parliament, is loosened. However, it was the best option under the given circumstances.
I expressed concerns that since the JVP is in power and not the NPP, their pro left ideology would hamper the essential economic reforms since capitalist reforms could not be done with a leftist ideology. I said however it would be possible if AKD would be able to take the control into his hands and that happened in the budget speech.
In Sri Lanka people are worried when the government sells state assets. These people think that ‘somehow’ the state should manage it. There were instances where the state assets were sold to the cronies of the ruling party to which no one would agree. Even though the selling process is transparent these people disagree with it. In personal capacity they may sell their assets if faced by strong financial constrains, but not at the national level.
I presume that the former President Ranil Wickremesinghe (RW) delayed any privatization or restructuring the state assets or entities fearing of this public opinion orchestrated by mainly the people with JVP ideology. What is happening now is overruling the JVP ideology by the JVP which is beneficial to the country. In the coming years leftist ideologies will be crucified by the JVP and if not, the country will get crucified.
By this leftist ideology I mean mainly maintaining a large state. The JVP started talking of inequality of income distribution recently. In the policy statement of Rapid Response released during Covid time, they were focusing on criticizing the open economy in toto. It went on to state, “Introduced in 1977, the Open Economic Policy has been destructive through its prioritization of personal gain over social responsibility.” RW, considered as a neo-liberal, strengthened the monitoring power of the state by introducing various Acts which was contrary to the neo-liberal thinking.
In the budget speech AKD said that Sri Lanka’s network of Free Trade Agreements (FTAs) with strategic partners, particularly with a view to greater economic ties with ASEAN nations will be expanded through the Regional Comprehensive Economic Partnership (RCEP) and other agreements. There is no mention of reviewing the existing FTAs as mentioned in their election manifesto. The said group of Sri Lankan ideologists are against the FTAs.
AKD identified that the state is larger than it should be. Therefore, a Committee under the Prime Minister’s Secretary has already been appointed to review the functions and utility of a plethora of Government agencies. It would be possible to determine which agencies need to continue, which need to be amalgamated with other agencies, and which agencies need to be discontinued, which need to change their objectives. A Holding Company under the full control of the Government will be established under which selected SOEs are held as subsidiaries with a view to improve governance, financial discipline and operational efficiency. The government will actively encourage private and appropriate state entities to raise funds through listed equity and debt capital markets. Therefore, it is ideal if this Holding Company can be listed in the Stock Market even though it is under the full control of the Government.
The Government will lease out under-utilized state-owned land for productive economic activities. Some of the lands presently managed by LRC, RPCs, SLSPC, JEDB and under-utilized will be identified and brought in for private investment including SMEs taking the suitability of the land into consideration. The Government propose to allocate Rs. 250 million to undertake initial activities in this regard. The proposed Colombo West Terminal 2 and Colombo North Port are expected to expedite the performance of Sri Lanka’s ports. Therefore, the Government will call for Expression of Interest for these projects within a month. These are not selling but ‘selling’ which is the real need of the country.
Government will call for foreign direct investments to optimize the utilization of Sri Lanka’s untapped potential in investment, industrial development, and value added exports of Sri Lanka’s mineral resources and marine economy. To provide energy at a competitive cost to industries, exporters, and consumers, the Government will welcome energy investments based on the lowest tariffs and we will not provide preferential treatment purely on the company or the country of origin. The criticism of taking the profits away is not valid now.
There was a proposal to expand the export-oriented investments through Public Private Partnership (PPPs) and privately run zones. The concept of privately run zones is a novel idea. There will be 5 industrial parks for which Rs. 500 million was allocated. it is proposed to establish an Industrial Estate dedicated for Automobile components and rubber manufacturing and Rs.1.5 billion was allocated for this. It is not sure whether this money is sufficient since over the several years there were proposals to have industrial zones but those were not implemented.
An Investment Protection Bill will be enacted to facilitate and protect investments, and a Public Private Partnership (PPP) Bill also will be introduced. He said that the country’s ease of doing business will be prioritized which is much needed.
Barriers for local firms to invest overseas will be reviewed and gradually rationalised by establishing appropriate safeguards to track repatriation of earnings and dividends. This is easing of the Capital Account. Commercial usability of land will be increased by expediting Bimsaviya but he was silent about the Urumaya pragramme the intention of which was also the same.
In order to support the SMEs, the Government is working towards setting up a development bank. As a first step, the function of a development bank through a new administrative structure will be established through the existing state bank mechanism. The Government will support this task through the National Credit Guarantee Institution (NCGI). Also Rs. 1000 million is allocated to commercialize the inventions.
The Government allocated Rs.35 billion for the fertilizer subsidy of paddy farmers and Rs. 78 billion to the irrigation sector development. In order to improve the productivity of the paddy farmers the Government should focus on allowing paddy farmers to cultivate commercial products which is prohibited in Agrarian Development Act.
Allocation of Rs.5 billion to purchase of paddy and Rs.20 billion to Sri Lankan Airlines would be a waste. Rs. 20 billion will be used by Sri Lankan Airlines to pay interests and repay the loans which may facilitate the company to borrow again. The President said that the treasury would not allocate money for recurrent expenses of the Airline. This colossal waste of public money to this “strategic investment” should be stopped.
The Government should explain why the existing vacancies cannot be filled by the graduates who are already recruited as development officers and who are not engaged with productive work.
In the previous budgets the common phenomenon was to have several budget proposals but hardly they were implemented. With financial constraints those will be thrown away out of the window. The capital expenditure would be affected first. It is likely since the recurrent expenses were increased in the budget proposals. I do not take these proposals seriously until they are implemented. However, the positive policy direction of the Government which is a deviation from the policy stance of the JVP would be a reality.
Published in Colombo Telegraph on February 17, 2025
https://www.colombotelegraph.com/index.php/what-a-budget/#google_vignette
/ February 19, 2025
7
9leelagemalli
Thank you for your comment.
What we tell AKD is not to fulfill his promises. (not all the promises) For instance what will happen if they start negotiating with the IMF in respect of DSA? I do not care about his catching the thieves rhetoric. They may have lied the people intentionally. It is the fault of the people of accepting it. I am not concerned of the past. I am concerned of the future economic recovery of the country. If JVP tries to destroy it, I will oppose.
/ February 20, 2025
5 4nimal fernando
1. Please refer the below link to refer the analysis of poverty by the Department of Census and Statistics. Poverty has gone down in Sri Lanka over the years but it has gone up in 2022 due to economic conditions.
chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.statistics.gov.lk/Resource/en/Poverty/PovertyIndicators-2019.pdf
2. Singapore adopted a capitalist economic model which was based on profitability whether the entities were private owned or state owned. Sri Lanka adopted socialist economic model where in state entities the main focus was not profitability.
3. I am not a fan of Ranil or anybody. If anything is correct in my view I say it is correct. Hambantota harbour was leased to a Chinese Company since the Government found it difficult to service the debt. AKD is going to do the same with Government lands.
/ February 21, 2025
4 5nimal fernando
“who out there, can do it better than AKD? Any suggestions?”
In Sri Lanka I believe the problem is the people not the leaders. Leaders will have to think of the next election. Therefore they think how to pacify the people. That was the reason for the continuing budget deficits in Sri Lanka which is the root cause of the economic collapse which was triggered by GR’s folly.
If you want me to name someone, as far as the economic recovery is concerned it is RW+. He did it in 2001 and also in 2022 although people do not want to give the credit to him.
+ means he should not be burned with elections. He has several other weaknesses.
/ February 19, 2025
4 4Lester
IMF plan is good for the financial stabilization. They do not build countries. Foe that we should have a plan to improve the growth especially improving on exports. For that the governments cannot simply request the businessmen. Conducive environment should be created such as FTAs./ February 20, 2025
18 7Harsha,
You are correct to state that the IMF does not build countries. It keeps them ensnared in debt, which is a form of slavery. There are very few success stories when it comes to the IMF. This is something the IMF itself admits. These countries would have succeeded without the IMF; the latter was merely a temporary bandage. Iceland escaped its debt through international arbitration and high taxation. South Korea succeeded because of the work ethic; people used to work 6 days a week. What the IMF does well is facilitate low-interest rate loans for global corporations to hijack the natural resources and other valuable assets of developing countries, which in turn return very little to the native inhabitants living there.
/ February 20, 2025
4 0Lester
What IMF did in Sri Lanka is to force the country to cut the coat according to the cloth. Simple as that. The Government was borrowing beyond its capacity to pay. At one point to pay the interest also it was borrowing. Now the Government should cover all it expenses from its revenue. Moreover there should be an excess which should be equal to 2.3% of the GDP. Now the Governments cannot give goodies to the voters and solicit the votes. Simple as that. Accelerating growth is the job of the Government. Since the Govt does not have money they should get the support of Private Sector and FDI. Simple as that./ February 19, 2025
2 5ramona therese fernando
Yes, I agree with you. No other way than the way of RW. Give the due credit even to the devil. “government control over all sectors” will be a disaster. That is old Marxist rhetoric. Robbing is wrong and non-robbing is great. Solely by non-robbing countries cannot be recovered. “guess it will be a one-time debt payment” nonsense. All the previous government said that./ February 20, 2025
12 4Harsha Gunasena……That’s because RW made sure he tied up the system so tightly, there’s no way to move.
On 18 December 2024 President Anura Kumara Dissanayake announced in Parliament a series of tax changes. Some taxes were increased while the other taxes were decreased. Those changes were revision of personal income tax, increase in withholding tax on interest from 5% to 10%, imposition of VAT of 18% on digital services, removal of export service exemption on income tax and tax them at 15%, increasing the corporate tax rates on betting, tobacco and liquor industries from 40% to 45%, grant exemptions to locally produced liquid milk and yogurt industries on VAT which is 18%, increase stamp duty on leases from 1% to 2%, continuing SVAT system contrary to the agreement with the IMF, and removal of vehicle import restrictions. 
