NextGenSL - Friedrich Naumann Foundation For Freedom holds post-Budget forum
Sri Lanka Budget 2023 - Cross Party Panel Discussion
Developing a constructive dialogue on the need for an inclusive development and growth trajectory via multi-constituency interests across the island and beyond individual party ideologies, the NextGenSL in collaboration with Germany-headquartered Friedrich Naumann Foundation For Freedom held a post-Budget forum recently.
Both the ruling party and opposition Members of the Parliament agreed that it was high time Sri Lanka fostered the formulation and implementation of transparent, consistent policies to drive growth.
State Minister of Finance Shehan Semasinghe, Samagi Jana Balawegaya MP Eran Wickremeratne, Sri Lanka Podujana Peramuna MP Dr. Nalaka Godahewa and Independent Opposition MP Patali Champika Ranawaka shared their candid views on the 2023 Budget in 10-minute introductory remarks following a panel discussion, moderated by Thilini Perera. It also provides an opportunity for concerned young Sri Lankans who were in the audience had the opportunity engage with the MPs one-to-one and ask questions.
NextGenSL Convener Milinda Rajapaksa highlighting the importance of the post-Budget forum said Sri Lanka needs consistent implementation of reforms already started and quick finalisation of debt restructuring to fast track the economic revival. He also said through the NextGenSL initiative, they intend to influence the political culture in Sri Lanka by bringing the spotlight to the critical issues that must be addressed.
State Minister Semasinghe described the 2023 Budget as an unconventional one. “This is my first time participating in a post-Budget forum. Since 1948 many politicians have conducted their budgets, but none of them has unveiled any National Program and was carried through without changing. This is where Sri Lanka went wrong. Our fiscal and economic framework had never been consistent since independence and today we witness the repercussions of those,” he said.
Semasinghe said the 2023 Budget has given special attention to stabilising the economy. “We all like populist policies irrespective of the parties we represent. However, in the 2023 Budget, President Ranil Wickremesinghe has not taken popular policies. Sometimes, these proposals will hurt the people, it is not that the Government is not aware of it, but there is no choice. This is not a traditional Budget we have seen in the post-independence,” he pointed out.
State Minister said that during 2023-2025 is to create a new economy, on three focus areas – an export-oriented competitive economy; an environmentally-friendly green and blue economy; and a digital economy.
“We hope to achieve high economic growth of 7%-8%, increasing international trade as a percentage of GDP by over 100%; annual growth of $ 3 billion from new exports from 2023 to 2032; expand Government revenue to 13%of the GDP, boost foreign direct investment of over $ 3 billion in the next 10 years and creating an internationally competitive workforce with high skills in the next 10 years,” he outlined.
Stating that the Government revenue is insufficient to cover the main expenses such as public sector wages and pension as well as the interest on debt, he however said that with the new reforms announced to the tax structure there was progress.
“During the first 10 months, the total tax collected by the State is Rs. 1,586 billion, 37% higher than the previous year. We believe 96% of the revenue can be achieved,” he added.
In terms of debt restructuring, the State Finance Minster said since March they have made significant progress with debt restructuring and were pushing hard to get the International Monetary Fund (IMF) Board approval if the Government can get the support of all creditors.
He also said the aim is to bring down inflation and then tackle the interest rates, and continue to curtail demand for imports amidst the weak foreign reserve situation.
The State Minister noted that key legislations — Public Finance Management (Responsibility) Act and Anti-Corruption Bill would be implemented next year which will help to take action against corruption and malpractice in the future.
“We can all agree that the country had achieved a certain level of economic and political stability from what it was post-March. Despite the many political views we all have, our aim should be as a country to overcome this worst economic crisis. The Government is keen to push through the reforms and make the hard decisions. It is going to be a painful time, as reforms are brought in to fix the economy and put it back on a growth trajectory,” Semasinghe said.
MP Ranawaka described the Budget as an incomplete document and raised reasonable concerns on overestimated revenue targets, rationalisation of high Government expenditure appropriation
“Generally, the Appropriation Bill includes all annexures on income and expenditure. Although during the Budget speech, President and Finance Minister mentioned proposals beyond the Appropriation Bill, those income and expenditure rationalisation was not included in the annexures. Therefore, this is an incomplete document,” he said.
Claiming that the revenue proposals were already brought in with high-income taxes in October, he said the Government is expecting more revenue from fuel and crude oil imports.
“The Government has estimated an Rs. 3.5 trillion revenue for next year, but it has concealed how it plans to settle Rs. 3.8 trillion for treasury bills. This has not been included in the Budget. Therefore, the State expenses should be in excess of Rs. 11.8 trillion and not Rs. 5.8 trillion. So, Are these numbers realistic?” he argued.
MP Ranawaka also said he does not believe that the Government would generate the estimated income for next year, taking into account the ground realities of high inflation, and interest rates which are not at all supportive of the business and particularly for the small and medium enterprises (SMEs).
“The construction sector is completely affected while 90% of the tourism sector is also adversely impacted. As per the information we have received, of 89,000 SMEs 27,000 of them are either closed or about to shut down. So, can we expect the estimated revenues?” he asked.
He said considering both revenue and expenditure, there is no real income generation or growth.
“This is a Budget of a bankrupted economy. The key problematic area in this Budget is that although income generation methods are noted, there is no mention at all of the expenditure curtailments,” Ranawaka claimed.
Emphasising that the capital expenditure mentioned in the Budget is not practical at all, he revealed that Rs. 94 billion has been allocated for road development while insisting that it should have rather been shifted towards improvement and digitisation of public transport such as buses and railway sectors.
“Once you sign contracts and embark on the projects the Government cannot terminate them. This happened in the Good Governance Government in 2015. We had to borrow around $ 2 billion to continue the Southern Expressway and I believe that borrowed money then also was also a cause for the prevailing economic crisis,” he said.
The MP also asserted that the Government should take a concrete decision on whether they halt those capital expenditure-involved projects or they continue without fulfilling basic needs of essential food, medicine and fuel.
Citing recurrent expenditure is estimated to be as high as Rs. 1.4 billion, he claimed the Government had not taken any decision to at least cut down it by 10%, considering the current status of the economy.
“When they first initiated the construction of the new Defence Ministry the cost was cited as Rs. 8 billion, but as of now, they have spent Rs. 80 billion.
“To maintain this office requires Rs. 5 billion per annum and in the document provided to us, the recurrent expenditure is not mentioned. As a Government that operates with the taxpayers' money, I call on the administration to set an example to the public that they make an effort to save and bring down their costs at least now,” he said.
MP Ranawaka said overall the Government has not comprehended or addressed the key issues on the economic and social fronts via the 2023 Budget.
MP Wickremeratne described it as a policy statement and not a Budget.
“This is not one Government’s issue, but a structural issue Sri Lanka had ignored,” he said.
In Sri Lanka we have only had a primary account surplus five times, he said, adding that the President’s stamens of 2.3% are not possible. “This cannot be achieved even in your dreams! These numbers are part of the IMF program as well,” he claimed.
Highlighting the fact that Sri Lanka had sought IMF bailout 16 times already, where nine times of them were successful and 7 times not, MP Wickremaratne said this will be the eighth failure.
“President Wickremesinghe in his Budget speech said Sri Lanka is going to be an export-led economy, but he has not considered the tax concessions that our competitive and successful economies such as Bangladesh and Vietnam have extended to their exporters. He has not accounted for the cost of production of the exporters before transforming Sri Lanka into an export-oriented economy. There is also no mention of SME and MSME entrepreneurs as well,” he added.
Around 10% of the total expenditure is for Defence, he said, adding that the Armed forces are not responsible, but the politicians are because they led it to this massive economic crisis.
MP Wickramaratne also said the State employees have inflated to over 1.5 million at present, emphasising that there is no major improvement in the efficiency and delivery of service.
“We cannot fix the economy without solving the burning issues. It is critical to have an independent Central Bank and make people accountable for financial mismanagement. We cannot be happy with the way the Attorney General also in terms of certain decisions he has taken of late,” he claimed.
MP Dr. Godahewa described the Budget to Macbeth, one of Shakespeare's finest plays, and said similar to the story, there was nothing to take home.
“If we want to cure the illness, we need to find the root cause. The root cause is the inflated Budget deficit and dearth of foreign reserves,” he said.
Upsurge in State revenue, well-managed public expenditure, superior control over forex outflow and foreign currency inflows and enlargement of GDP by 10% to 12% were underscored as four key factors to rebuild the economy.
“An economy operates on the basis of how lucrative the total transactions of the country have been. However, in this Budget, the government has totally ignored the basics. By taxing the businesses how can you activate an economy? We need to boost SMEs, who in other countries are considered as the backbone of the economy. There are so many of SMEs in Sri Lanka, but the Government had no mention in the Budget,” he claimed.
He said that SME owners of hotels and export companies should be taken to attend international exhibitions by cutting down the number of officials from the Sri Lanka Tourism and Export Development Board.
Dr. Godahewa said it is the duty and the responsibility of the Government to encourage businesses to create a conducive environment to protect the businesses.
In terms of expenditure, he claimed that though the Government had requested the public to fasten the belts to the maximum levels, their belts are kept at lose
“There is unlimited wastage in Government projects and I’ve seen it in my short stint at the UDA. For example, we built the Hambantota port at a cost of $ 1.75 billion. But when the Good Governance government sold it, even the Chinese who built the port bought it for $ 1 billion saying it is the true worth of it,” he explained.
He also claimed that despite Government considering tourism as a priority or a low-hanging fruit to boost foreign exchange in the short-term, the Government has neither allocated funds for promotion nor does it have the plan to build the industry for the next 10 years.
In addition, Dr. Godahewa said that though the Government brags about creating a workforce on par with the international level, making a digitised and export-led economy there was no fund allocation or a real interconnection between numbers and timelines.
Question and Answer
Q: As a former Minister of the Gotabaya Rajapaksa-led Government, you claim there is high wastage within the system. What is your suggestion to mitigate those? And being a Minister why didn’t you do anything to reduce it?
Dr. Godahewa: Executive is the President and Cabinet. Although we can talk and suggest, the power to convert them was in the hands of the Cabinet Ministers. I was only a State Minister and had limitations. I think the best way to gradually reduce government corruption is to digitalise all State institutions. This will ensure transparency and corruption could be reduced to a great extent. It can even take the country towards ‘zero corruption.
Q: Although today you pinpoint as Government, as a former Power and Energy Minister what measures did you take to bring down CEB cost? And suggestions to bring down the current electricity bill?
Ranawaka: In 2015, CEB recorded a marginal yet Rs. 20 billion profit. We also settled almost every bill to respective organisations. During my tenure, we also reduced the losses of the CEB by Rs. 45 billion and took urgent steps should be taken to pay back the dues of solar energy suppliers. Moving forward shifting to renewable energy sources, particularly solar power will be critical for the public and businesses to reduce the energy cost.
Q: What are your views on restructuring some of the State-run entities?
Dr. Godahewa: In Sri Lanka privatisation also involves a lot of corruption and I’m personally against it. I suggest and only encourage Private-Public-Partnerships (PPPs).
Q: Irrespective of who comes into power, there is no money to run the economy without lucrative revenue streams. As the main Opposition, what difference will you do if elected to power?
MP Eran: I agree and hence we have to look outwards. We can speak if we are given a chance. However, Sri Lanka’s issue cannot be solved through plasters. Our thoughts go back to old times when well-dressed gentlemen with little in their pockets pretended to be affluent — clean suit, empty pocket! Sri Lanka must have investments! It is alright for the Government to spend on essential food, medicine, and defence, but they should not get involved in doing other business. There are over three million Sri Lankans living abroad and we should look at them as an asset. In these trying times, Sri Lanka needs more radical ideas. We need new ideas, new people, new policies and create new opportunities to overcome this crisis situation. Sri Lanka has one of the largest ‘second generation diaspora’ members in the world and the government should try to woo them to come back to Sri Lanka. We have to offer them a ‘Sri Lankan Residency’ and invite them back to the country. I’m sure they will also be very keen on investing in Sri Lanka.
Q: What will happen if we go for a domestic debt restructuring?
MP Wickramaratne: I don’t want to even think about it. It is critical that the banking and financial industry stays stable. I’m personally against domestic debt restructuring. I’m also not recommending any haircuts (In financial markets, a haircut refers to a reduction applied to the value of an asset).
State Finance Minister Semasinghe: There is no intention whatsoever to give any haircut. I also saw some news reports, but I highly condemn and refute such claims. The government has never spoken about non-payment of domestic debt. Hence we are not and will not look at restructuring or phasing out local debt repayments.
Q: In the event, there is a general election next year, do you think the main opposition can come into power and what is the strategy?
MP Wickramaratne: We can. However, it is necessary that we win the confidence and trust of the public first. Right now, we all feel that the people are unbothered or had lost confidence in the voting power as a result of the economic status of the country, which is understood.
Q: The government is looking at an export-led economy. What are your recommendations to boost exports?
Dr. Godahewa: It can be achieved, subject to good planning on value-added industries, diversified markets and items. There are only a few export products that have gone to the next level of value addition, whilst the majority of the exporters are still continuing on traditional and bulk exports with minimal value addition. Hence, I see this as a major setback why our exports have not grown compared to the competitive economies in the region. It is equally important to uplift the SME exporters, particularly in supporting them to access finance and markets. Recently, I came across a group of SMEs in my electorate and they requested to help them find containers to ship their goods. As imports have been restricted, we are now faced with a dearth of boxes to ship our goods. Though large-scale companies have managed to find sufficient containers, SMEs are still grappling with it. Urgent steps should also be taken to increase agriculture exports which are at around $. 2.5 billion as against $ 45 billion in the Netherlands. Sri Lanka must inculcate technology into agriculture to be able to compete in commercial and agro exports. I must also tell you that, no matter what concept the Government comes up with, in Sri Lanka the bureaucracy can annihilate anything because we experienced it first-hand.
End of a successful session
Following the successful discussion NextGenSL Convener Rasika Jayakody delivered the vote of thanks and concluded the session.
“We are great full for the time and insights shared during a period of almost three hours. I hope the young audience also had a great experience having a one-to-one conversation with the MPs and getting their questions answered. We hope the post-Budget forum has been a knowledgeable time spent and look forward to seeing you all with another interesting initiative soon,” he added.
He also extended a special appreciation for the Friedrich Naumann Foundation For Freedom for understanding and supporting the NextGenSL community, its initiatives and its endeavours to address topics of national interest given the crucial economic conditions in Sri Lanka.