Editorial
A budget oozing overoptimism
Thursday 19th November 2020
Prime Minister Mahinda Rajapaksa, who is also the Minister of Finance, has presented Budget 2021, which looks a good story with a happy ending. It has offered something to everyone, and is bound to go down well with those who are to benefit from tax exemptions and other such relief. All 75 budgets presented in the Sri Lankan Parliament have been tales told by Finance Ministers. Most budget proposals, especially the progressive ones, have remained unimplemented, all these years, for want of funds mostly due to failure on the part of successive governments to meet their revenue targets and curtail wasteful expenditure.
As for Budget 2021, proposals to abolish PAYE and the withholding tax and increase the personal income tax threshold will benefit a large number of people. But it will be swings and roundabouts for them if indirect taxes increase, as feared in some quarters. Steps taken to develop local agriculture and industries through tax exemptions, etc., and allocate additional funds for developing public health and education sectors are welcome. The proposed expansion of the university system, however, is a task that the government has to carry out cautiously, taking into consideration the need to ensure their standards. Even the existing universities are experiencing a severe dearth of qualified teachers and facilities. There are some more progressive budget proposals, and they are welcome. One can only hope that there will be enough funds for their implementation.
The devil is in the detail, though. When one reads Budget 2021 carefully, one sees that several crucial issues have not been addressed in a satisfactory manner. The government has made numerous expenditure commitments as regards development and social welfare, but how does it propose to meet the revenue shortfall resulting mainly from tax concessions and a significant decrease in foreign earnings? Borrowings, both foreign and domestic, will not be easy.
The government has undertaken to reduce the budget deficit to 4% of GDP by 2025. This is a very ambitious target. One may recall that it was first set by a UNP-led government, in 2002. The then Prime Minister Ranil Wickremesinghe declared, in Parliament, that the budget deficit would be brought down to 4% of GDP by 2008. (His government fell in 2004!) Later on, the Mahinda Rajapaksa government undertook to achieve that target. Now, another Rajapaksa government has repeated the same promise. It seems to believe that the economy will expand at such as rate that its revenue will increase automatically. It is being overoptimistic.
The success of any programme to reduce the budget deficit to the expected level hinges on the government’s ability to increase revenue to at least 10.8% of GDP, in 2021, as economists argue. This goal will be unattainable without new tax proposals. A shortfall in revenue collection may lead to a much higher budget deficit than 8.8% of GDP. Such a situation can be averted only by curtailing public investment, inter alia, to match lower revenue. This means most ministries will not receive allocated funds for the implementation of envisaged projects in such an eventuality.
It will also be an uphill task for the government to fulfil its expenditure commitments while reducing public debt from 90% of GDP to 70% of GDP and ‘minimizing the risk in debt composition caused by sourcing of foreign loans’. How the government is planning to achieve this target is not clear.
As for the envisaged budget deficit, 8.3% of GDP is expected to be financed through domestic borrowings. Enough domestic financial resources in terms of savings will not be available for the government to borrow such a large amount domestically, and the Central Bank may have to print money as it has done this year in view of the pandemic. If money printing continues, it will result in serious problems such as higher inflation and price instability.
The government has expressed serious concern about slow progress in foreign-funded projects and low returns therefrom. Pointing out that the number of programmes implemented annually with foreign financing has increased exponentially, the PM has said in Budget 2021: “However, a significant number of projects worth more than USD 6.000 million show slow progress. The main deficiencies identified in monitoring of project planning, feasibility, implementation are deviation of the projects from national requirements, and frequent cost and time escalations resulting in low returns … Due to these expenditures, productive investments which could have been implemented at a lower cost are not adequately financed …” Has the government forgotten that most of these problems are also due to rampant corruption involving politicians and bureaucrats. How does it propose to tackle corruption, which will put paid to its efforts to keep the costs of development projects low and increase returns?
Meanwhile, Budget 2021 does not reveal how the Treasury is going to meet USD 6 billion worth of foreign currency debt obligations falling due during 2021 while having only USD 5.5 billion official reserves with the Central Bank. If the government fails to raise at least USD 6 billion external borrowings, it will be forced to default on its external debt obligations––absit omen!––and this has never happened in Sri Lanka. If it were to happen, Sri Lanka would have a hard landing currency crisis similar to ones faced by Greece, Argentina and Zimbabwe, in the past.
Overall, we view Budget 2021 as a government attempt to achieve a set of highly ambitious goals within an overoptimistic macroeconomic framework.
Editorial
Deliver or perish
Monday 4th May, 2026
Rice farmers are in a paddy. They are complaining that they have been left without fertilisers for the current cultivation season. The government has reportedly announced that it will not be able to meet the paddy farmers’ fertiliser requirements fully due to the current global supply disruptions. It has thus contradicted itself. Previously, it said there were adequate fertiliser stocks in the country, and there would be no shortages. It should not have given such an assurance amidst a global fertiliser crisis.
The West Asia conflict, especially the closure of the Hormuz Strait, has adversely impacted the global fertiliser supply. The Persian Gulf is a major hub of global fertiliser production and exports. Iran, Qatar, Saudi Arabia and Oman are among the world’s leading exporters of nitrogen fertilisers, including urea and ammonia, amounting to 30-35 percent of global urea exports and around 20-30 percent of ammonia exports, according to the Food and Agriculture Organization (FAO) of the UN. The FAO has said that overall, up to 30 percent of global fertiliser exports pass through the Hormuz Strait, the closure of which has disrupted the global fertiliser supply chains. Production cuts and shipping constraints have stalled an estimated 3-4 million tonnes for fertiliser trade per month, and the global fertiliser prices could average 15-20 percent higher during the first half of 2026 if the present crisis continues. Even the American Farm Bureau Federation has complained of fertiliser woes. It has written to President Donald Trump and the Congressional leaders, emphasising the severe economic pressures facing America’s farmers and ranchers. Falling crop prices, skyrocketing expenses, etc., due to rising fertiliser prices are creating conditions that are too much for farm families to bear, it has pointed out.
Anger blinds people to reason. It is therefore possible for politicians and political parties to weaponise farmers’ woes, food shortages and hunger to unsettle, if not topple, governments that fail to ensure an uninterrupted agrochemicals and food supplies even during crises. The fate of the SLFP-led United Front (UF) government in the 1970s is a case in point.
The early 1970s saw a severe world grain shortage. A run of poor harvests in the food producing regions, and a rising demand left many countries with no alternative but to adopt stringent measures to face the situation. An oil crisis in the early 1970s drove up the cost of fuel, fertilisers, and transport, increasing the cost of food production and distribution. Low global grain reserves aggravated the situation, and Sri Lanka was among the worst hit. Reeling from the food crisis, with food import bills increasing, the countries in the Global North scrambled to obtain supplies and remained focused on increasing domestic agricultural production, food security planning and seeking international cooperation to maintain buffer stocks. They had to ration some imported food items that were in short supply.
The UF government became hugely unpopular due to the extreme measures it adopted to curtail hoarding and increase domestic food production through import restrictions. It suffered a humiliating defeat in the 1977 general election. One may recall that the reduction of rice subsidy almost brought down a UNP government in 1953. Sri Lanka was experiencing the ill-effects of a severe grain shortage in Asia in the early 1950s. It was among the former colonies that had prioritised cash crops over subsistence farming and found rice production insufficient for rapidly growing populations. But those who were opposing the then UNP government’s decision to curtail the rice subsidy and increase rice prices ignored the aforementioned aspects of the problem, and organised public protests, triggering the 1953 hartal, which resulted in several deaths of protesters and the resignation of Prime Minister Dudley Senanayake. The then Opposition effectively harnessed public anger against that beleaguered government to engineer a regime change.
Sri Lankans tend to expect their governments to act as beneficent agencies. This mindset has arisen from decades of patronage-based politics, promoted by political parties, including the JVP. So, it is therefore only natural that when a government fails to deliver even during crises, it faces public anger.
If the current fertiliser shortage persists, it could lead to an ironical turn of events, with the farming community having to adopt biological soil amendments, such as compost, farmyard manure, etc., as they did during the Gotabaya Rajapaksa presidency for want of a better alternative. Gotabaya’s ill-planned organic farming experiment created a situation where the JVP was at the forefront of farmers’ protests, demanding fertilisers. Some JVP seniors were seen clutching clumps of withering paddy seedlings and urging the SLPP government to make fertilisers available. They made the most of farmers’ resentment and gained a turbo boost for their political campaigns to win elections. Today, the boot is on the other foot.
Editorial
A worker watches May Day circuses
Another May Day was drawing to a close, and the moon was waxing at the time of writing. A rare overlap of the International Labour Day and Poya, this year, left the public confused, with the second Poya in the current month being officially declared Vesak. Opinion is however divided on the issue. It is being argued in some quarters that Vesak fell yesterday. The ongoing debate on this issue is not likely to fizzle out.
On watching various political circuses that passed for the International Labour Day events yesterday, one might have recalled the closing line of an epigram that mocks the writers who display technical control but not substance or vitality: “They use the snaffle and the curb all right/But where’s the bloody horse?” As for this year’s main International Labour Day events in Sri Lanka, one might have asked oneself: “Where’s the bloody worker?”
Yesterday’s May Day events were full of theatrics, and the worker as well as his cause was only an excuse for politicians to bellow rhetoric and score political points. Their May Day rally themes and sloganeering effectively gave away their political game.
The SJB’s May Day rally, held under the theme, Pacha Madiwata Horu (“Lies and Theft”), in Colombo, was a frontal propaganda attack on the government. It had little or nothing to do with workers’ cause. Lies and theft are bound to continue under future governments as well in this country, and propaganda attacks alone will not serve any purpose for workers. The SJB is an offshoot of the UNP, which crushed workers’ struggle in a brutal manner. In 1980, a powerful UNP government unflinchingly sacked tens of thousands of strikers overnight. The suppression of labour rights is part of the SJB’s political legacy. The SJB invited the UNP to join its May Day rally yesterday, as part of a plan to form a common electoral front, but the latter opted to take part in religious activities instead.
The JVP-led NPP’s main May Day rally was held in Nuwara Eliya yesterday under the theme, People’s Power for A People’s Government. The people, especially workers, enabled the incumbent government to secure a two-thirds majority in Parliament, expecting it to eliminate corruption and waste, develop the country and improve their lot. But the JVP/NPP leaders are riding roughshod over trade unions and even issuing veiled threats to resort to mass sackings to crush strikes. They have apparently borrowed a leaf out of the LSSP’s book in suppressing trade union struggles. One may recall that the LSSP, which emerged powerful with the help of trade unions, broke a bank employees’ strike in 1972 under the SLFP-led United Front government.
The NPP government has read protesting doctors the riot act. It chose to wear down the Government Medical Officers’ Association (GMOA) during a recent trade union battle. Time was when the JVP leaders shouted slogans, such as Death to imperialism––Liberation to the People and Death to Capitalism––Victory to Socialism. The JVP’s 36-page Revolutionary Policy Declaration with its founder Rohana Wijeweera’s imprimatur is full of promises to safeguard workers’ interests; it carries a quotation from The Communist Manifesto on its back cover. But today, the JVP-led NPP has prioritised the interests of the rich and the corporate sector over those of the ordinary people and workers. Some big-time rice millers are importing Rolls-Royces and helicopters while paddy farmers are pawning their valuables, unable to recover production costs due to exploitation at the hands of the millers’ Mafia and the soaring prices of agricultural inputs. The government has allowed the millers to fleece rice consumers as well.
The promised biannual salary revisions have become pie in the sky for state employees, and their private sector counterparts’ predicament is even worse. The NPP government did not care two hoots about workers’ views and protests, when it dismembered the Ceylon Electricity Board. What the JVP/NPP has done to trade unions, after being ensconced in power, is a textbook example of kicking the ladder.
Workers’ woes remain unaddressed, but the May Day political circuses go on, with politicians shedding copious tears for the working class.
Editorial
Where do funds come from?
Saturday 2nd May, 2026
The government and some Opposition parties held big rallies purportedly to mark May Day yesterday. The JVP/NPP staged as many as 21 such events across the country, and the SJB rally took place in Colombo. Not to be outdone, the SLFP also held its May Day rally in Colombo. Those spectacles must have cost a fortune each. Where did the funds come from?
Both the government and the Opposition never miss an opportunity to declare their commitment to upholding transparency and other good governance principles. So, they should be able to disclose the costs of the aforementioned mega events, attended by thousands of their supporters, and how they raised funds. They must do so because anti-social elements use colossal amounts of black money to bankroll election campaigns and political events in return for favours from politicians. There is said to be no such thing as a free lunch in politics.
Following the assassination of upright High Court Judge Sarath Ambeypitiya in 2004, this newspaper reported that Kudu Nauffer, a notorious drug dealer, who ordered the killing, had sponsored food and beverages served at a judicial officers’ function. This shows how widespread the tentacles of the underworld are. Besides criminals, other moneybags also lavish funds on political parties and their leaders and leverage the quid pro quo to cut corrupt deals.
There have been instances where some political parties resorted to illegal operations to raise funds for elections, the 2015 Treasury bond scams being a case in point. The UNP could not pay its water and telephone bills at Sirikotha while it was out of power, but after the ouster of the Rajapaksa government in January 2015, its war chest overflowed, and the UNP candidates went on a spending spree during the 2015 general election campaign. A group of businessmen who financed the SLPP’s campaign events gained from the sugar tax scam in 2020. They made a killing at the expense of the state coffers. It is alleged that some financiers of the JVP/NPP benefited from the green-channelling of 323 red-flagged freight containers in the Colombo Port in January 2025. Another allegation is that the current government is beholden to the wealthy rice millers, known to shower funds on politicians, especially during elections.
Hence, the need for pressure to be ramped up on the government and the Opposition to reveal the costs of their political dog and pony shows on May Day and how funds were raised for them.
A large number of government politicians including President Anura Kumara Dissanayake attended the JVP/NPP’s main May Day rally in Nuwara Eliya yesterday. In doing so, they gave the lie to their claim that they had decided against holding a May Day rally in Colombo in view of the fuel crisis. Their supporters were bussed to Nuwara Eliya as well as other venues. VIP travel and security cost the public an arm and a leg. Will the government reveal the costs of transport, accommodation and security for the JVP/NPP leaders?
The government insists that it was wrong for Ranil Wickremesinghe to use state funds for a visit to a university in the UK, while he was the President. If so, it must be equally wrong for President Dissanayake to spend state funds on domestic travel to attend political events, from which no benefits accrue to the public.
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