‘Can’t spend more than Rs. 4,219 billion for 2025’

‘Low GDP forecast is one of the main constraints’

Minister says,’govt is navigating the challenges’

By Sanath Nanayakkare

The management of public finances in 2025, has thrown a huge challenge at the government, according to Prof. Anil Jayantha Fernando, Minister of Labour and Deputy Minister of Economic Development.He went on to say that the government is taking a broader perspective of the prevailing situation and is navigating the challenges well.

“Although we have enough money now, we can’t spend more than Rs. 4,219 billion for the fiscal year 2025”, he stated on January 17, 2025, delivering the keynote address at the 11th edition of the First Capital investor Symposium, held at Cinnamon Grand, Colombo.

“The period available for us to come up with the Budget creates a lot of constraints, and in addition, system embedded constraints are also there. The main constraint is the forecasted GDP for 2025. It has been calculated based on economic variables and past trends. The growth rate in 2024 was 2.1% and the expected real GDP growth for the next 4 – 5 years is around 2-3%. Because of these low expectations, the GDP expectations for 2025 have been confined to Rs. 33 trillion rupees. Other primary spending is subject to this cap. 13% of expected GDP is the cap for revenue expenses. No matter we have enough money now, we can’t spend more than Rs. 4,219 billion for 2025,” he said.

“That is a bit of a challenge for us. There is a ceiling for capital expenses which is 4% of the GDP. It comes to about Rs. 1,320 billion. We can increase that by reducing revenue expenses. But you can’t reduce each expense that much because the bulk of the revenue expenses comprise state salaries, pensions etc. So, there is very little fiscal space, but when it comes to capital expenses, there is some space there. Some of these expenses are incurred by ongoing projects. We were able to repurpose some of the ongoing projects for this year, and we managed to incorporate some [new] capital expenditure; in other words, the items that we had presented in our manifesto, into this space. Anyway, I would like to mention that 2025 will be a challenging year. After all, depending on the success we are going to achieve in 2025, there will be a comfortable position for us at the next [IMF]review and discussions in the future,” he said.

Speaking about the investment landscape, he said, “Our government was given a different mandate. It has been perceived differently by different segments of the country. The individuals of society is oriented towards maximizing their own wealth from investments, but not all individuals in society can gain from them in an equitable manner. So, the government wants to act as an instrument in striking a balance between individual interests and public interests. We will take that mandate from that perspective and act as true agents of the masses without creating any conflicts of interest. Our policy decisions and activities will be driven towards upholding the public interest over private interests.”

“People may have different perceptions about our government. That may be why sometimes there is a sentiment in society that the new government is not doing anything. They talk about the price of commodities remaining at the same levels, or even higher. Of course, we need to solve these. However, as a responsible government, we need to look at things in a broader perspective.”

“Political stability is now in place. We have been managing fiscal stability as per the [IMF] benchmarks. But we still need to broaden the taxbase and optimize tax administration. When it comes to financial stability, we are seeing a normal yield curve and the interest rate is also coming down gradually. That is reflected in the forex market as well.”

“We have a big target for foreign exchange reserves this year and in the coming years. The signs indicate that we will be able to achieve it despite challenges in the way. Allowing motor vehicle imports is necessary as the economy is reviving and that will be another challenge that we have to deal with.”

“Social stabilization also needs a lot of focus as a large majority of the masses are struggling. We have taken measures to iron out this situation to some extent. We are contemplating on giving more targeted benefits to the vulnerable segments.”

“The Opposition would say that we are inexperienced, but we have that political experience, and we are in a learning process. And that learning would help us take things in the right direction.”

“A rift can occur when the financial system stability is not connected to the real economy and when it is not driven by the economic fundamentals. We need to bring about a robust and vibrant capital market in the future. When we have an alienated financial sphere and operate it in such a manner, it could lead to market bubbles and consequently to inevitable crashes. So, we need to see how best we can share accurate and credible market information without leaving room for irregularities, insider trading and so on. The government’s objective is to create a capital market where accurate information is freely available and with one’s competence and talent, they can identify suitable investment vehicles and channel their savings into the right portfolios. When only a few have exclusive information about the goings-on in the capital market, that is not democratic. This is where new technology should be deployed to bridge that gap.”

“It appears that the political, economic, financial and techno spheres are making their own separate journey. Our vision is to converge these spheres as much as possible, so that the capital and financial markets can link to create capital formation by attracting more savings.”

“The government will create such a conducive environment for capital formation to help energize the economy where national savings will be channeled into investments.”

“The capital market’s efficiency should not be compromised by the adverse elements I mentioned earlier. We think that market efficiency is not up to the mark at present. For example, the extraordinary performance of the stock market shows increased confidence in investors because of the policies of the government, but I won’t say that this was only because of government action,” the minister said candidly.

At the dinner-time networking following the First Capital Investor symposium, a participant was heard telling a friend, “We’d better have some money ready to invest in short-tenor government securities which might generate rising yields.”