COLOMBO : A high-level closed-door discussion on Sri Lanka’s 2025 budget took place at Solis Hotel, Pitakotte, with economic experts, policymakers, and parliamentarians dissecting the proposed fiscal plan and its implications for national growth and stability. The meeting, organized by the One-Text Initiative, highlighted concerns over economic disparities, tax amendments, and the government’s approach to public sector reforms.
Contradictions in Budget Policies
Professor Priyanga Dunusinghe provided an in-depth analysis of the budget, noting that it follows a familiar pattern of combining liberal macroeconomic policies with welfarist micro-level interventions. However, inconsistencies were pointed out, particularly in taxation policies, where the removal of property taxes appears contradictory given that 47% of the national budget is controlled by the wealthiest 20% of the population.
The government’s ambitious economic targets, including 5% growth, low inflation, and a current account deficit of 2%, were met with skepticism. While the budget deficit has been projected at 6.7%, surpassing the IMF’s estimated 5.2%, concerns remain over whether revenue targets will be met, especially given the high reliance on tariffs, particularly on vehicle imports.
North-East Economic Disparities
Hon. Gajen Ponnambalam emphasized the ongoing economic struggles of the North-East (NE) region, questioning whether the government has made genuine efforts to integrate war-affected communities into the national economy. He urged for a comprehensive needs assessment and policy framework, warning that the continued economic neglect could lead to further migration and disillusionment among Tamil communities.
Public Sector and Digitalization Reforms
Former Minister Champika Ranawaka underscored the need for restructuring the public sector, highlighting inefficiencies across 1,200 public institutions. Instead of streamlining operations, however, the government allocated LKR 20 billion to SriLankan Airlines, a move widely criticized for misdirecting public funds.
On the digitalization front, the introduction of an e-rupee and a unique identification number system were seen as promising measures to improve revenue collection. However, political resistance from entities such as the Inland Revenue Department (IRD) has slowed down implementation. If successfully enforced, these reforms could increase revenue collection by up to 50%.
Debate on Taxation Policies
The proposed VAT and income tax amendments aim to ensure compliance with IMF-mandated revenue targets. Professor Rohan Samarajiva led a discussion on taxing non-resident entities such as YouTube and Uber, with concerns raised over enforcement challenges. While local ride-hailing service PickMe has been taxed, Uber has managed to avoid compliance by processing transactions through the Netherlands, presenting a significant regulatory loophole.
Hon. Srinath highlighted the need for political stability to attract investments, arguing that economic growth is hindered by uncertainty in policy execution. Meanwhile, Prof. Charitha Herath criticized the government’s approach to state-owned enterprises (SOEs), particularly the decision to infuse capital into SriLankan Airlines without a clear financial sustainability plan.
Concerns Over Labor and Public Sector Salaries
Ms. Thamara Dayani, representing trade unions, expressed disappointment over the budget’s failure to address pressing labor concerns. With 1.6 million public sector employees making up 30% of the workforce, salary adjustments were expected but ultimately fell short. The lack of policies addressing inflationary pressures and the rising cost of living has led to growing public unrest.
Debt Restructuring and Regional Development
Parliamentarian Anura Yapa raised critical questions about the long-term sustainability of Sri Lanka’s debt repayment strategy, warning that without concrete economic planning, the country could face financial uncertainty by 2028.
MP Dr. Sathyagam emphasized the need for greater investment in agriculture and infrastructure in the North, criticizing the inefficiency in fund allocations. He pointed to the disparity in market access, where local produce such as red papaya is sold at drastically lower prices in rural regions compared to urban centers.
Looking Ahead
As Sri Lanka grapples with economic recovery, the 2025 budget presents both opportunities and challenges. While efforts have been made to improve macroeconomic stability and digital governance, concerns remain over inconsistent policies, revenue generation shortfalls, and regional inequalities.
With parliamentary debates set to continue, stakeholders emphasize the need for long-term policy planning and decisive economic strategies to navigate the country out of financial distress. Whether the government will implement these proposed reforms effectively remains to be seen.
