Budget and benefits

Typically the Budget is viewed by the general public as a catalyst for relief. But the standard expectations of the Budget may have to be laid aside next year and the Government attempts to contain COVID-19 and turnaround a sluggish economy while finding funds for debt repayment. Budget 2021 is the first to be presented by President Gotabaya Rajapaksa and his Government as well as kick off a critical decade for Sri Lanka. But is the Budget up to the task? 

In terms of policies there are no surprises expected. There is simply no fiscal space for handouts and more relief. Whatever space that does exist needs to be reserved for the COVID-19 battle in the coming months. Across Asia cases are rising again, with Japan, South Korea, Australia and Indonesia among the countries seeing fresh spikes of infection. In India the Modi Government is airlifting doctors to the capital Delhi after new infections soared past 7,000 daily. 

There are concerns that the modest recovery seen in some of these countries in the past few months may be affected by the latest surge and Christmas may not be spared. Retail sales generally expected around the New Year may also not materialise next month as more people look to save in uncertain times. 

Brought to Parliament in the most challenging time seen in decades the Budget for 2021 has to focus on the dire reality before it, rather than optimistic projections. In 2020 due to delayed elections and other challenges there was no budget and consequently little time left after Parliamentary Elections and pandemic fighting to put in place a policy agenda that looks past the immediate challenges. Budget 2021 will have to do both. It will need to address the immediate challenges to growth posed by the pandemic and also set in place policies to help Sri Lanka out of the morass it has dug itself into by living beyond its means for decades. 

Reforms for the State sector, especially State-Owned Enterprises (SOEs), will be critical in this backdrop, especially since it is a necessary part of reducing the deficit. The import substitution efforts introduced by the Government will also get special attention in the Budget. However, the maintenance of quality standards of domestically-produced goods and ensuring availability at a reasonable price are vital to derive intended benefits in the medium to long term. This is imperative to boosting Sri Lanka’s competitiveness because import substitution will not be successful unless products move up the value chain and can also expand the country’s limited basket of exports.    

Adequate investment in innovation and research and development (R&D), and the promotion of export-oriented Foreign Direct Investment (FDI) are needed to improve efficiency and enhance productivity, particularly in the SME sector. If Sri Lanka is to achieve the high growth predicted in 2021 it has to have improved access to international markets, so trade negotiations with existing and new partner economies must continue.      

Broadening of social welfare, job creation, reducing the economic dependency on the Western Province, which still provides more than 40% of Sri Lanka’s GDP are among other important aspects that will hopefully be addressed by the Budget. The public will be hoping for less political rhetoric and more clear and concise guidelines in the policy document to boost confidence in 2021.