Asia Progress Forum: Sri Lanka needs a Budget for sovereignty and modernisation

The manifesto of the National People’s Power (NPP) stated that it would build “a thriving nation, a beautiful life” by creating a productive economy and eliminating waste and corruption. Such an objective cannot be achieved in the first budget itself, but the budget can indicate whether the government is moving towards that objective.

Unfortunately, the NPP government’s current policy directions do not reflect even the beginning of a decisive break from the neoliberal pattern of underdevelopment that Sri Lanka has followed since 1977. The government is broadly proceeding within the framework of the 17th IMF programme which has not even been renegotiated.

The IMF does not consider development at the social level, and is not concerned with integrated development and structural transformation. Its narrow framework is designed to lock countries in a debt trap of underdevelopment and dependency. Its policy cocktail is antithetical to industrialisation and modernisation of the economy, which alone can uplift the livelihoods of Sri Lanka’s people.

The NPP’s current focus and budget proposals appear to be short-term, prioritising immediate survival over long-term planning, with no coherent strategy or vision for the future. In doing so, it is advancing the same economic agenda as preceding governments which offers no escape from the current crisis. Without a shift in direction, the country risks descending once again into chaos.

The Asia Progress Forum proposes the following measures be taken to provide immediate relief to the people, and to lay the groundwork for future sovereign development of the country:

Repeal laws that violate Sri Lanka’s economic sovereignty

The government is constrained by the harsh conditions of the 17th IMF programme, entered into by the previous government. The following laws imposed by the IMF have severely constrained our economic independence: The Central Bank Act No. 16 of 2023, The Public Financial Management Act No. 44 of 2024, The Economic Transformation Act No. 45 of 2024, and the Public Debt Management Act No. 33 of 2024. A Commission of Inquiry should be appointed to investigate the circumstances under which these laws were enacted and the possibility of undue foreign pressure. These laws have placed severe constraints on the government’s fiscal and monetary autonomy and should be repealed.

Establish a development bank for manufacturing industries – A key campaign proposals by the NPP was the establishment of a development bank. This proposal was also an unfulfilled promise of the Sri Lanka Podujana Peramuna (SLPP) government. Sri Lanka is one of the only countries in Asia without a state-owned development bank. History has shown that development is not possible without national provision of credit for domestic manufacturing industries. Therefore, the establishment of a state-owned development bank is an utmost priority.

Stabilise agriculture and food sovereignty

In view of the crisis in the rice market, the government should allocate funds to revive the Paddy Marketing Board (PMB) so that it can challenge the monopoly of private mill owners and middlemen. In the future, PMB should be used to buy paddy at a competitive price from farmers and distribute it to the people. PMD reserves should be released to the market to prevent hoarding by private monopolies.

Promote fisheries – As fish is a major source of local protein consumption and many families depend on the fisheries sector, the government should allocate funds to improve our cold storage and transport facilities. The government may consider installing Fish-aggregating devices (FADs) in identified locations in Sri Lanka’s EEZ based on spatial data. FADs increase fish catch and helps to bring down fuel costs for fishing vessels. Funding for the existing programme to provide all fishing vessels with electronic identification should be augmented to combine it with communications equipment to signal distress and to report to trawlers on locations of fish shoals.

Support workers in FTZs

Funds should be allocated to provide public facilities, including housing, sanitation, and healthcare services to the workers in the Free Trade Zones. As these workers are essential for the country’s capacity to generate foreign currency, better provision of public services will be beneficial to both the workers and the export sector by mitigating days lost due to physical and social ailments.

Debt relief for SMEs and victims of microfinance

The government should support restructuring or write-off of private debt, borrowed by micro/small/medium enterprises under transparent criteria. Small businesses which have been affected badly by the crisis should receive government funding (in the form of soft loans) and other support to ride out the crisis.

Fair taxation – The IMF-mandated tax reforms have disproportionately targeted the incomes of workers through regressive taxes such as VAT. The budget should introduce a reasonable taxation system in which the corporates and the super-rich are taxed proportionately. The PAYE tax threshold should be increased with the gap between tax slabs wider than what it is currently. Corruption and inefficiencies in tax administration should be immediately addressed. Caution must be exercised in plans to introduce a Digital Service Tax (DST) and a Global Minimum Tax (GMT). DST should not be structured in a way that transfers the tax burden to consumers. Extensive consultation should be done before agreeing to a GMT, which has been demonstrated as disadvantageous for developing countries.

Increasing wages – Wages in Sri Lanka have not risen in a level commensurate with inflation. Therefore, wages board minimum wages for public and private sector employees should be increased to match the real cost of living. A national insurance scheme should be established for own-account workers such as seamstresses and carpenters.

National audit of unutilised resources

The government should undertake a nationwide audit of underutilised national assets and resources including land, buildings, machinery and equipment. A plan should be formulated to put these resources to productive use, with the added benefit of providing employment.

These proposals point to the beginning of the change of direction needed to secure Sri Lanka’s long-term development potential. The crisis that Sri Lanka is in necessitates a return to rational planning of the economy and development of state capacity to implement proactive industrial policies. Blind faith in the market and the existing private sector is insufficient to drive structural transformation and uplift the lives of Sri Lanka’s citizens. Part of such a strategy will also require Sri Lanka to rekindle its ties with the Global South through organisations such as BRICS and the Belt and Road Initiative.

(Asia Progress Forum is a collective of like-minded intellectuals and activists dedicated to building dialogue that promotes Sri Lanka’s sovereignty, development, and increasing engagement in South-South cooperation. APF may be contacted at asiaprogressforum@gmail.com)