The challenging task of implementing the Budget and achieving its objectives

Implementing the reforms in the 2023 Budget and achieving its objec-tives of high economic growth is indeed a challenging task. The political conditions in the country, production constraints in all sec-tors of the economy and the recessionary conditions abroad, make the implementation of reforms and the achievements of its objectives unlike-ly.

Internal opposition

Although the 2023 Budget was passed by 121 votes to 64 with one solitary member abstaining, its implementation is a tough task.

Voting

The voting on the Budget was as expected. It was based on party strengths and was buttressed by most members not risking an election if the Budget was defeated. The number of absentees (36) at voting has po-litical and economic implications.

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Former President and leader of the governing party, Mahinda Rajapaksa’s speech on the Budget exemplified the internal policy conflicts and con-tradictions within the Government. It disclosed the severe opposition of his party to reform of public enterprises.

Strange bed-fellows

Mahinda Rajapaksa blamed the Yahapalana Government of then Prime Minister Ranil Wickremesinghe and opposed key policies in the Budget, especially the privatisation of State enterprises.

He said his party was opposed to selling government assets and will con-tinue to oppose privatisation. Several opposition parties too opposed pri-vatisation of State-owned enterprises.

Political paradox

This paradoxical situation of the governing party has to be interpreted in terms of the populist politics that has gripped the country for decades.

This is what President Ranil Wickremesinghe spoke of when he asked: “Is the longterm development of a country based on popular decisions or the right decisions?”

He said in many times, popular decisions were taken instead of correct decisions for the country.

What the President said after presenting the Budget is in retrospect a re-sponse to Mahinda Rajapaksa’s speech later.

“Even today, many people seek to make popular decisions. What was the result of this popular ruling tradition?” the President asked.

Economic implications

As far as the economy is concerned, the pertinent issue is, how will Presi-dent Ranil Wickremesinghe implement his key programme of privatisa-tion?

Main objective

The primary objective of the Budget is to usher in a competitive marketoriented social market economy with high economic growth. It is ex-pected to achieve high economic growth. The GDP is expected to grow by five percent next year and by seven to eight percent from 2024 to 2028.

This high growth is expected by increasing international trade as a per-centage of GDP by more than 100 percent and through an annual growth of US$ three billion from new exports from 2023 to 2032.

Possibilities

However, the recessionary conditions in Western countries, that are the main markets, are likely to shrink rather than expand. Current indications are that the apparel industry, which accounts for one half of our exports, will shrink drastically next year. This could also happen to other manu-factured exports.

Foreign direct investment (FDI) of more than US$ three billion is expected in the next ten years by creating an “internationally competitive workforce with high skills in the next ten years.”

These are laudable objectives. Can they be achieved?

Ground realities

It is good to hitch your wagon to a star, but your feet must be firmly grounded to take-off.

The reality is, the growth of vital sectors of the economy is hampered and there is a retardation of the economy.

The economy that was shrinking in 2020 and in 2021 is projected to continue to decline by a further four percent this year. Indicators such as the Central Bank’s Managers’ Purchasing Index indicate an economic de-cline.

Economy in decline

The country’s economic output (Gross Domestic Product) has been de-clining in the last two years by three and four percent, respectively, and is expected to shrink by a further four percent this year. This trend has to be reversed by increasing agricultural and industrial production.

Focus on production

While the focus of discussions on the economy in Parliament and outside is the severe shortage of foreign currency, the vital need of the hour is to get the economy producing at its potential. This includes coming up with the ways and means of ensuring foreign debt sustainability to obtain the agreed Extended Finance Facility (EFF) of US$ 2.9 billion from the In-ternational Monetary Fund (IMF). Moreover, there is a paramount need to enhance agricultural and industri-al production and ensure essential services are operating to keep the wheels of industries functioning.

The hardships imposed by the 2023 Budget and increasing poverty and malnutrition in the country, are also of immediate concern.

Getting the country’s economic production going, is a priority. All three sectors of the economy are functioning at much lower capacity than their potential owing to severe constraints in essential inputs.

Agricultural production is hampered by a shortage of fertiliser and agro-chemicals, industries by a lack of industrial raw materials and services by lower demand and high costs of production, among other reasons.

Improvement

No doubt there has been some improvement in production conditions but serious constraints persist. The availability of petrol and diesel and less power cuts has enabled factories to operate at fuller capacity as well as transport inputs, produced goods and workers. These were severe con-straints for several months.

Agriculture

Agricultural production has been affected by a shortage in fertiliser. This shortage has affected paddy and food crops, as well as tea, the country’s main agricultural export.

Paddy production in Maha 2022/23 is expected to decrease by about 30 percent owing to the lack of appropriate fertilisers.

In spite of pronouncements that fertiliser is available, the ground reality appears to be that fertiliser is not available in sufficient quantities on time. Fertiliser delayed is fertiliser denied.

Tea

Tea production has decreased by ten percent in the past ten months of this year.

During the first ten months of this year (January to October 2022), tea exports of 211.6 kilograms showed a decrease of ten percent, when compared to the same period last year.

This is particularly unfortunate as international prices rose sharply this year. Tea production has also been affected adversely by a delay in the availability of fertiliser and the lack of glyphosate which is vital for weed control on tea lands.

Conclusion

Although the 2023 Budget was passed by a comfortable majority, there are serious doubts that some key proposals in the Budget could be im-plemented. This is clear from the statement by the leader of the governing party, which is akin to the stand of several opposition parties. In addition achieving the targets in economic growth, FDI and export growth are un-likely owing to the growing global recession.