Columns

The debate on the second reading of the JVP/NPP government’s second budget dwelt on many diverse issues. As usual, many of the speeches had no relevance to the budget.

Policy change

One issue that was raised by opposition members was whether the JVP/NPP government’s economic policies have veered away from left-oriented Marxist–Leninist policies to a neoliberal direction. Many opposition members criticised the government for adopting policies they had said during the elections that they would abandon when they formed a government. In particular, the JVP/NPP had said they would not continue with the IMF agreement when they came to power.

In fact, the budget debate has been punctuated more with this criticism of the government’s change of policies than with the budget proposals.

Private sector

Not only did the budget proposals raise this issue, but also the government statements that it is the private sector and not the government that should do business have evoked this view. It is also the government’s assertion that it is not the business of the government to do business.

Liberalisation

The catchphrase that it is not the business of the government to do business reminds us of the slogan often used by J.R. Jayewardene’s neoliberal UNP government that liberalised the economy in 1977.

Continuity

The government’s continuation with the IMF’s Extended Fund Facility (EFF) and its conditions has been criticised by the opposition as a deviation from election promises. The plain truth is that although the JVP/NPP made this vote-catching promise, they would have realised when in power that they had no alternate way of stabilising the economy.

Election promises and party ideologies apart, the government has moved in the right direction. The JVP/NPP compass is now pointing towards private sector-led growth. This does not imply that the government has veered away from certain socialist measures, such as retaining key economic enterprises in the ownership of the state. After all, even the J.R. Jayewardene government retained most state enterprises. Despite the government’s slogan of not doing business, it may make the mistake of not privatising large loss-making enterprises such as SriLankan Airlines.

Reflection

It is indeed interesting to ponder why the JVP/NPP coalition has veered away from Karl Marx and Lenin to Adam Smith and Hayek.

The best explanation is perhaps in Chinese Premier Xi Jinping’s famous saying, “I don’t care whether the cat is black or white as long as it catches mice.” In other words, the government was pragmatic in the financial bind that the country was in to continue with the IMF’s EFF programme and comply with the attached mandatory conditions.

Opposition

The opposition’s critique of the government’s policies on the grounds that the government has changed its policies and not that the policies are wrong does not make economic sense. It is, however, salient politically.

Welcome continuity

It would have been better for opposition members to congratulate the government for adopting and continuing the policies of the opposition, as Dr Harsha de Silva did!!

Other country experience

The policy transformation could also have been due to the development experience of China and Vietnam. Although these are communist countries, their success has been due to market-friendly economic policies. This experience too could have made the government veer towards a market-oriented approach. NPP members of the government are different. Undoubtedly, the policies of the NPP would have had an important influence on the economic policies pursued, as key ministries are held by NPP members who are not Marxists but are trained in economics. Whatever the influences, the JVP government’s approach has been mostly market-orientated, though there are areas such as agriculture and state enterprises where the party is for state intervention or state ownership. These vestiges of statism are likely to continue in the government’s agrarian policies, among others, during the next few years.

Other explanations

Another explanation is that the government realised that the economy was in a crisis that required the continuation of the IMF’s Extended Fund Facility (EFF) and the conditions attached to it. However, it has been slow to undertake some reforms, such as the privatisation of state-owned enterprises.

Economists

Another explanation is that the NPP, in particular, had a large number of academics and economists who were market-oriented and not Marxist economists. The former deputy finance minister, who is the current finance secretary, Dr Harshana Suriyaperuma, and the present deputy finance minister are among the academics who would have influenced government economic policy. In addition, when they turned to advisors, they were market-oriented economists.

Officials

Another source was the officials. The Central Bank Governor, Dr Nandalal Weerasinghe, and the former Finance Ministry Secretary, Mahinda Siriwardena, would have played a significant role in the policy transformation.

Advisors

The government has also turned to advisors who are market-orientated and experts in digitalisation. This too would have influenced the government’s tilt towards a market economy. While the government’s market-friendly policies have gained the plaudits of the private sector, there are disillusioned orthodox Marxists in the government and among its far-left supporters and academics.

Since even some of the JVP leaders are of this view, there could be internal party tensions. How the President manages these party tensions would be of paramount importance for the country.

Implementation

The ineffective and inadequate implementation of budget proposals for the development of agriculture, rural infrastructure and development projects has characterised fiscal performance for decades. Had the litany of promises to develop the rural economy been accomplished, there would have been no need to repeat these projects in next year’s budget. We have to fervently hope that the government will implement the developmental programme it has promised in the 2026 budget, if not next year, at least by its end of office in 2029. That would be a big step towards a rich and beautiful country for all.

What is important is not whether the government has or has not changed its policies, but whether the budget will achieve fiscal consolidation, stabilise the economy and be conducive for economic growth. For the most part, the change in policies has been in the right direction. It is vital that the policies and promises of the budget are effectively implemented and growth with equity is achieved.