Business Times

Highlights/analysis of the budget

Economist and statistician Dr Anila Dias Bandaranaike made a well-crafted presentation of the budget at various panel discussions she addressed this week. Here is a synopsis of her presentation:

On Past Performance vs. Future Targets

  • Targets have been lowered since the Central Bank Annual Report 2010, indicating that goals have been moderated since early 2011.
  • (The focus is to) maintain, rather than increase, annual economic growth
  • (Aiming at) lower investment target
  • Higher budget deficit and inflation targets
  • 3% exchange rate devaluation acknowledges past misalignment

Recent Budget Estimates vs. Actuals

  • Revenue down, Recurrent Expenses above targets upto 2009
  • Expenditure more than double revenue upto 2011
  • Recurrent expenditure exceeded revenue upto 2011
  • Debt servicing used most of revenue upto 2011

Proposed economic actions to goals

  • Infrastructure to improve regional economic access
  • Private investment for development (This means higher state involvement in economic activities)
  • Export competitiveness with value addition (means consumer imports for domestic retail and tourist market)
  • Education reforms towards vocations, better language, IT, soft skills. (There was no reference to the unmet demand for university education)

Lower commercial borrowings (The conceptual framework not clear; the capacity to deliver uncertain, and need to address inconsistencies)


  • Consultative process – with 3,000 stakeholders
  • Recognises need to modify market economy to local conditions – build on post conflict dividends
  • Recognises key structural problems – regional disparities, inadequate investment, losing export competitiveness, rising import bill, rising debt
  • Recognises key social problems – aging and health, remaining poverty, environmental protection, social security, access to tertiary education, food security, idle armed forces
  • Overall broad policy consistency


  • No reconciliation of Proposals, Estimates, Performance – Investment, Revenue, Expenditure
  • Implementation regression from 2011 Budget
  • Reversal from broad macro to narrow sector specific incentives
  • Reversal from simplifying rates and taxes
  • Back to tax holidays and ad hoc tax relief measures
  • Conflicting signals to Private Investors
  • Wanting private investment vs. New Expropriation Bill, 37,000 hectares (being taken over)
  • Pushing foreign employment vs. meeting local HR needs
  • Backtrack on previous medium term strategy
  • lowering of targets with less direction
  • Poor consolidation of recent gains
  • poverty decline not reflected in welfare measures
  • Rhetoric vs. Proposals – lack of clarity in rationale
  • Why Rs 100,000 for 3rd child in forces or police families?

General observations

  • Anti-climax - 2011 Budget a hard act to follow!
  • Overall policy consistency with some confusing signals
  • Does not clearly connect objectives with proposals
  • Regressed on consolidation, simplicity, direction
  • Some strange proposals indicate government’s need to accommodate all stakeholders’ requests
  • A “tired”, less optimistic outcome than early 2011.

Current risks

  • Credibility with investors: Mixed signals affecting investor confidence
  • Borrowing for state expansion, infrastructure spending: Debt servicing affected by lower investment and growth targets.
  • Commercial Debt: Lack of transparency on terms and conditions of recent market and bilateral commercial debt affects stakeholder confidence
  • Continuity: long-term sustainability of economic growth, investment, inflation, interest and exchange rate targets.
  • HR capacity: Impact of migration and brain drain on growth targets
  • Infrastructure: Effect of road congestion on efficiency, productivity.
  • Global: Impact of slowdown in EU/US and import prices of oil, grain

Current challenges


  • National unity – ethnic/religious communication barriers
  • Diplomatic ties with Western world – uneasy relationship
  • Private participation – uncomfortable Private-Public partnership
  • Labour market rigidities –tertiary education, labour laws
  • Long-term plan for armed forces – Government relationship with large force without a cause sending conflicting signals


  • Investor confidence – conflicting signals; State crowding out Private
  • Official communication - lacks balance, transparency, consistency
  • Migrant employment – reduces Sri Lanka’s HR capacity
  • Soft skills – weak progress on link languages, English, IT
  • Exports - dependent on EU/US, explore markets in India, China
  • Road congestion – Need public transport reforms
  • Performance - Outline delivery and monitoring mechanisms
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