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As expected, political leaders from the opposition criticised the Government Budget 2003 for not granting relief to the poor, lacking a development framework, extending VAT to the retail and wholesale trade, reducing the individual and corporate tax rate from 35 per cent to 30 per cent (to favour the rich), creating too many special funds and for extending the debit tax. Politicians from the ruling party hailed the Budget, often citing narrow or micro issues such as granting benefits or incentives to certain sectors of the economy.

The Government, led by the Prime Minister, seems to have taken a position that the sick economy needs to be cured with bitter medicine, although such treatment will take time to show results. This is a courageous and far-sighted view taken by a political leader, his Finance Minister and the Cabinet who realise as politicians that administering bitter medicine is a sure way to lose voter support and perhaps make way for another party to come to power and reap the benefits of an austere budget.

The Budget 2003 seeks to correct the economy by reducing the budget deficit and public debt, containing inflation and interest rates and stabilising exchange rates. The most laudable feature of the budget is the absence of voter attractive hand-outs such as salary increases, correction of some of the anomalies caused by the previous budget and proposing innovative revenue enhancement mechanisms through the banking and telecommunications sector specific levies that do not burden the poor or tax paying individuals.

The relief granted to importers and traders in the previous budget by way of import duty reductions and replacement of GST and NSL with VAT did not reduce prices of goods.

This time round, can the Government be blamed for moving import duties slightly upwards? What needs to be watched is whether importers and traders will maintain the retail prices or resort to irrational one direction price adjustments.

Critics of the management of the economy argue that the (projected) GDP growth rate of 3 percent is a dismal performance when compared with growth rates of other south Asian and South East Asian countries ranging from 5 per cent to 8 percent. They seem to forget that Sri Lanka's economy contracted by 1.4 percent in 2001 and that economic fundamentals cannot be changed overnight as in 1977 when a tightly controlled economy that had stagnated for years was liberalised. What one sees now is the continuation of free market economic policies by Governments of the two major political parties.

In the same vein, critics of the previous regime should be reminded that 2001 was a disastrous year for anyone to manage. The drought, the power shortage, the surge in fuel prices, the July attack on the Airport and the September 11th events in the US wiped out the projected growth rate to the end the year with a negative rate of 1.4 percent.

The announcement in the Budget of the proposals to enact a Fiscal responsibility Law, establish a Foreign Exchange Management Authority and a Public Debt Management office is laudable.

These statutes and authorities will curtail politicians from taking short sighted and irresponsible actions that have over the past 50 years damaged a once robust economy. All in all the Budget 2003 is sound. Implementation is the challenge.

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