by Rajan Philips

President Anura Kumara Dissanayake has delivered an excellent first budget. It could easily be described as the best budget so far this century and presented in the most dire economic circumstances in Sri Lanka’s modern history. Following his consummate performance in parliament, the President waded into a post-budget forum and joined the country’s economic experts to “dissect new Govt’s maiden budget,” as headlined by the Daily FT, one of the sponsors of the event. Whether one agrees with him or not, there is no question that AKD has been listening to those who knows the subject, has diligently done his homework on the budget file, and knows what he is doing,.

The problem he faces is that he cannot be doing homework on every file for the entire government, and he must find a way to quickly address the collective inexperience of his cabinet. He should not let this inexperience become the enemy that kills the government from within. Hopefully, he will find a way to address this within the framework of the budget and in the delegation of ministerial responsibilities for its implementation.

Somewhere in the budget, the President refers to economic decentralization, to deconcentrate the top heavy Western Province. Unfortunately, the corollary of political decentralization could not find its place in the text. Equally important, the President should also pay attention to ‘cabinet federalisation’ (AJ Wilson’s description of one of DS Senanayake’s quite a few master traits), and more so as he moves ahead to implement the budget proposals.

Ultimately, the success of the budget will be measured in political terms. Read, electoral terms. AKD’s and NPP’s detractors will be winding themselves for political wrestling in the local and later the provincial council elections. The NPP could be expected to hold its ground, but not necessarily all two-thirds of it. It should not at all be strange if the NPP gains ground in the North and East even as it loses some of it in the South. To keep the inevitable losses to the minimum, the government must eschew any and all complacency, which, modifying Mao’s famous Redbook take on it, could be described as the enemy of elections.

Geopolitically, paraphrasing the French Marxist Regis Debray, the NPP government must have its overhead antennas fully alert, but its feet firmly planted on the ground in Sri Lanka. The government cannot avoid being distracted by the global tumults that Donald Trump is creating day in and day out. There will be ripples, even waves, around Sri Lanka depending on what the Modi government decides to do in India to harmonize with the Trump Administration in Washington. Even so, the government’s primary preoccupation in the context of the turmoil in America should be to protect for as long as possible Sri Lanka’s exports to the US which are significant for Sri Lanka’s forex earnings.

At the same time, and consistent with the budget objectives, even as it diversifies its exports the government must diversify its importers. For the next four years, as Trump unfolds his madness, there will be responsive realignments in the Global North even as there will be reconsolidations in the Global South. The NPP government will have to navigate Sri Lanka through these currents without being smothered by them.

There are of course the self-proclaimed Rajapaksa nationalists who want to hitch their broken political wagons in Sri Lanka to the passing hegemon in America. They are in fact ethno-narcissists just like – but writ-small – the racial narcissist that Trump is. Ridiculous as these forces and their politics might seem, indeed as they are, the government should not underestimate their potential to do harm even by accident. Look at Bangladesh to see how political fortunes can dissipate fast, even though the NPP government is in no way comparable to Sheikh Hasina’s rotten government. The eternal home truth is the quick rise and the quicker fall of Gotabaya Rajapaksa.

Setting the Budget Context

The budget speech outlines as its backdrop the 2022 economic crisis that has now become the Rajapaksa era legacy, and as its context the overwhelming verdict of the people in the 2024 presidential and parliamentary elections. In this context, the President calls the budget both “historic” and “challenging,” because the government has to not only lay the foundation for fulfilling the people’s aspirations, but also to dispel “the wrongful picture (of us) created by the myths and malicious political propaganda against our economic policy and vision.” “We have succeeded in that,” the President asserted.

The government has proved its expectant critics wrong and stabilized the economy. All the indicators confirm that – the relatively stable exchange rate at one USD for LKR 300, and not LKR 400 as recklessly scare mongered; the lowering of the Treasury bill rate (8.8%) and getting inflation under control; forex reserves rising past USD six billion; finalizing agreements over debt-restructuring; and most of all keeping essential goods available and avoiding queues. In fairness, the credit for starting the process of economic stabilization belongs to Ranil Wickremesinghe, but post-election expectations in political circles have been that things will start to unravel due to NPP’s inexperience and even incompetence. That did not happen, and President AKD and the NPP government are justified in claiming credit for it.

Mr. Wickremesinghe may have even fancied that another economic crisis this time under an NPP government would give him a second kick at the can of power. No such luck. RW is now part of a team of exes – former ministers and presidents including Maithripala Sirisena – trying to figure out a way to stay relevant in today’s politics. Looking at this aging crowd outside parliament and its slightly younger version in the opposition within parliament, the NPP might fancy its chances of retaining power for more than one cycle of elections. But what the NPP has to contend with ultimately will not be ill equipped politicians but a frustrated electorate.

Apart from President AKD’s versatile feats, the NPP government has little to show to keep the people contented. Recurring rice shortage, the shortfall in coconuts, and the power outage blamed on a monkey tripping off a transformer have certainly taken the shine off the government. Looked from the other end, rice, coconuts and the power outage seem to the only shortcomings that the government is being picked on by media pundits and the political class. But what should concern the NPP government is that any one of them (rice, coconut or power), all of them together, or any similar shortages or failures, are enough to rile the people and bring down a government. Not long ago, it was called aragalaya.

Budget as Political Reset

The budget speech lays down the principles underlying the government’s approach to the economy: sectoral growth sustained by participation and even distribution on the supply side; and balancing roles for the market and the government on the demand side. A GDP growth rate of 5% is targeted for the medium term, predicated on a strong export sector performance while maintaining price stability and ensuring social welfare. Promoting investments, leveraging logistics, revamping tourism, digital transformation of the economy, and unleashing SME potentials through new credit structures are highlighted as the main growth poles. Allocations for health, education, food security, and social benefits are intended to rebuild and strengthen country’s social welfare system.

There is emphasis on Regional Development, including the assurance of special programmes for the Eastern Province, the Malayaga Tamils, and the Northern Province, but there is no mention of Provincial Councils and Local Government bodies and their agency roles in regional development. Regional industrial zones are identified including the promotion of Chemical Manufacturing in Paranthan, KKS and Mankulam in the Northern Province, Galle in the South and Trincomalee in the East. If some of them were to materialize the North and East might be seeing state sponsored industrial activity after more than 70 years when GG Ponnamabalam was Minister of Industries and Fisheries.

Auto Parts and Rubber Products manufacturing is also identified for promotion through industrial zones. What is not clearly indicated is whether new regional industrial initiatives will be tied to the export sector without which they may not be viable, as past experience has shown. Also, on the export front there is no identification of specific products and target markets to match the significant export sector growth that is being championed. Generally, for industries, there should be guardrails for minimizing and mitigating adverse environmental effects.

The budget rightly focuses on the modernization of public transport. Specific projects are identified for bus transport in Colombo and for the rail sector, including the revamping and the extension of the KV Line, multi-modal transport terminal in Kandy, and the expansion of the Thambuththegama Railway Station to function as a hub for transporting agricultural products. Large scale transport projects and rail transport are invariably the responsibility of the central government, but bus transport operations including those in Colombo and Kandy are better assigned to provincial and even larger municipal governments.

The budget provides for settling the legacy debt of the Sri Lankan Airlines (SLA) in the hope that SLA would hereafter become a viable enterprise. For other SOEs, the budget is proposing the setting up of a Holding Company again with the hope of revitalizing the mostly under-performing State Owned Enterprises (SOEs). Whether this approach is motivated by patriotic sentiments or political calculations, there is little support for it from past experience, except for enterprises in the crucial servicing and energy sectors.

The budget gets quite specific in its proposals for the agricultural and food sectors, especially rice and coconuts. At long last, there is official admission at the highest level that there is no data and information system for the “entire value chain” from paddy production to rice consumption. There is no immediate solution to this except the assurance to find one through the ADB funded “Food Security Livelihood Emergency Assistance Project” and a related World Bank project.

Coconuts are easy to count and difficult to hide. Some 4,500 million nuts are the projected demand for 2030, with 2,700 for the coconut industry and 1,800 for household consumption – at one per household per day. The problem is with production and the budget is allocating money for high yielding seedlings to be used in a new Northern Coconut Triangle extending from the coconut rich Northwestern Province, recommended by the Coconut Research Institute and mirror imaging the long established Southern Coconut Triangle. Better later than never, even when it comes to nuts.

All in all, the budget provides a good framework for the NPP government to reset its political road map. To succeed, the resetting must involve delegations at the ministerial level and following through to local communities and political grassroots. Equally important will be the medium in between, and the challenge to the NPP government is in resurrecting and using the currently defunct provincial and local government agencies.