Priorities in Focus: Will Budget 2025 address Sri Lanka’s agricultural challenges?

Manoj Thibbotuwawa is a Research Fellow at the Institute of Policy Studies of Sri Lanka (IPS) with 

research interests in agriculture, agribusiness value chains, food security, climate change and environmental and natural resource economics. He has more than 19 years of research experience at IPS. . Dr Thibbotuwawa holds a BSc (Agriculture) with Honours from the University of Peradeniya, an MSc (Agricultural Economics) from the Post-Graduate Institute of Agriculture at the University of Peradeniya, and a PhD from the University of Western Australia. He has also obtained a Post-Graduate Diploma in Modelling and Accounting for Sustainable Development from the International Institute of Social Studies (ISS) in The Hague. Dr Thibbotuwawa is a recipient of the prestigious Nuffic Fellowship from the Government of the Netherlands and the Endeavour Award from the Government of Australia.

Lakmini Fernando is a Research Fellow at IPS with primary research interest in Development Economics, Public Finance and Climate Change. She has expertise in econometric data analysis, research design and causal methodologies. Dr Fernando holds a BSc in Agriculture from the University of Peradeniya, a Master of Development Economics (Advanced) from the University of Queensland, Australia and a PhD in Economics from the University of Adelaide, Australia. She was awarded the Dean’s Honour Roll from the University of Queensland for Outstanding Academic Excellence in 2015 and the Dean’s Commendation for Doctoral Thesis Excellence from the University of Adelaide in 2021.

By Dr Manoj Thibbotuwawa and Dr Lakmini Fernando

Public expenditure on agriculture as a share of total government spending has decreased from 6.4% to 2% between 2014 and 2023.

The irrigation subsector receives most of the agricultural spending (41%), with subsidies accounting for a high 26%.

Change to funding priorities necessary to address critical concerns.

The agricultural sector in Sri Lanka has long been a pillar of the nation’s economy, yet its decline reflects a complex interplay of economic shifts, policy decisions, and underutilised potential. Agriculture’s contribution to the overall economy in Sri Lanka has gradually diminished over time, while the agricultural labour force has shrunk at a slower rate. This disparity between a declining sector and a stagnant workforce, coupled with the failure to address structural changes by improving land and labour productivity, has led to poor sector performance, particularly in terms of food security and farm income.

Additionally, unproductive public spending in the form of inefficient allocation, short-term concentration, and neglect of crucial areas is an important contributory factor. In this context, it is crucial to assess whether public expenditure allocation in Sri Lanka has undergone significant shifts aimed at unlocking the agriculture sector’s potential while advancing food security and fostering rural development.

Tracking the Shift: Trends in Public Spending on Agriculture

Over the last decade, Sri Lanka has struggled to spend adequately on agriculture due to competing fiscal concerns. Before COVID-19, total agricultural investment was around LKR 112 billion in real terms between 2014 and 2020. However, due to the impact of COVID-19, it sharply declined to LKR 88 billion in 2021. Since then, agricultural investment has slightly increased, averaging LKR 97 billion in the past two years (2022-2023). Despite an increase in absolute public expenditure on agriculture (PEA), both the GDP share and the percentage of the total budget allocated to agriculture have been declining.

PEA as a percentage of GDP has fallen from 1.1% in 2014 to 0.8% by 2023. Similarly, PEA as a percentage of total government spending has decreased from 6.4% to 2% throughout the same period. Notably, the balance between capital and recurring expenditures has shifted dramatically in favour of more recurrent expenditures during institutional structure changes linked to changes of government, as shown in 2015, 2019, and 2020.

Guiding the Budget: Who Shapes Agricultural Investments?

The agriculture sector in Sri Lanka is primarily managed by the Ministry of Agriculture (MOA), the Ministry of Plantation Industries (MOP) and the Ministry of Fisheries (MOF), as outlined in the Public Investment Programme (PIP). While the land and irrigation sectors are closely linked to agriculture, they fall under the jurisdiction of separate ministries: the Ministry of Lands (MOL) and the Ministry of Irrigation (MOI), respectively. In terms of budgetary allocations, MOA historically receives the largest share, accounting for 51% of agriculture-related expenditures.

This is followed by the Ministry of Mahaweli Development and Environment (MOE) with 23%, and MOI with 13%. MOF and MOP receive smaller allocations, at 3% and 4% respectively. While the nominal PEA has been on the rise, real-term PEA has either declined or remained largely unchanged across all ministries.. However, this does not necessarily indicate whether agricultural expenditures are aligned with sectoral policies, making it challenging to evaluate the effectiveness of spending in addressing critical concerns within the sector.