Budget lacks medium and long-term policy direction
for investors, say economists:
Interim budget, a mixed bag of benefits
The public have hailed the interim budget as it has a bonanza for
government servants and consumers but economists said that there is no
policy direction for the economy for the medium and long term.
Dr. Sirimal Abeyrathne of the Department of Economics of the
University of Colombo said that the interim budget had addressed the
urgent concerns and focused on the cost of living and financial concerns
such as revenue, expenditure and wastage in government institutions.
Surprisingly, the budget lacks a medium and long-term policy direction
for investors, he said.
Dr. Abeyrathne said the surprising thing in the budget is
introduction of outdated policies of price administration and import
substitution. It is surprising because these policies are being
introduced by a UNP government which is considered as investor and
Administrated prices for the tea, rubber and the paddy sector is not
practical and the market driven system in tea and rubber sector function
without issue. Price reduction of consumer goods by reducing taxes is
possible but price administration by setting a minimum price will not
work. We have a long history of failure in this price administration
policies, he said. Economic analyst Lloyd Yapa said that policy
direction cannot be expected in this interim budget but we can expect it
in the next budget.
Opposition political parties said that the popular relief packages
proposed by the Budget merely target the upcoming general election.
Analysts said that it is partly true that the budget consists of popular
welfare proposals that can be considered as targeting the election.
The major problem is how does the government finance these huge
additional expenses in the backdrop of government tax revenue being
insufficient for debt servicing. It is inevitable that the Government
will have to further borrow from domestic and foreign sources.
On the other hand, the budget has addressed the issues that ordinary
people faced over the past eight to nine years.
During the Mahinda Rajapaksa period every budget gave prominence to
the business community and investors. Budget proposals were prepared in
consultation with business chambers but attention was not paid to the
voice of trade unions and other stakeholders. As a result at every year
in the post budget discussions business leaders and business chambers
hailed the budget proposals while working class and consumers hacked
During this period, the business community protected their
uncompetitive businesses using archaic policies of import substitution
and this is the reason for them to hail the budget proposals in the
past, analysts said. These relief measures will have multiple impacts.
Firstly it will increase government expenditure by many fold and will
further widen the budget deficit which will create many negative
impacts. The increase in public servants salary, price slash of consumer
durables will also boost the domestic demand and positively impact to
the GDP growth, they added.