Experts panel analyses pros and cons of 2024 Budget at Daily FT-Colombo Uni. MBAA post-Budget forum

An expert panel yesterday shared insights into the positive and negative aspects of the 2024 Budget during the annual post-Budget forum jointly organised by the Daily FT-Colombo University MBA Alumni Association with strategic partnership of the Standard Chartered Bank. President Ranil Wickremesinghe was the Chief Guest.

The panel featured John Keells Holdings PLC Chairperson Krishan Balendra, Standard Chartered Bank Sri Lanka CEO Bingumal Thewarathanthri, World Bank Sri Lanka and Maldives Country Manager Chiyo Kanda, Central Bank former Deputy Governor W.A. Wijewardena and Deloitte Sri Lanka and Maldives Country Managing Partner Channa Manoharan. 

The session was moderated by Daily FT Editor and CEO Nisthar Cassim.

Standard Chartered Bank Sri Lanka CEO Thewarathanthri highlighted the positive aspect of staying on course for debt restructuring with the IMF program. However, he raised concerns about over-ambitious revenue targets with VAT collection going up to 60%. 

 “The challenge going into next year is due to the revenue. There will also be a lot of domestic borrowing to cover the Budget deficit and that will come at a cost. We all must put our efforts around restructuring as we can’t go beyond 31 March 2024,” he added.

Thewarathanthri also called for a mechanism to be implemented to collect taxes voluntarily. “The public is responsible to pay taxes voluntarily and it is not the Government’s responsibility to collect taxes. In other countries, people evading taxes are put behind bars,” he said.

World Bank Country Manager Chiyo Kanda applauded the resilience of Sri Lanka to revive the economy with drastic measures but noted that the country is not yet out of it.

“Stabilisation and rebuilding efforts need to be done and it is challenging. However, it is important that Sri Lanka restart its economic engine again to move forward with reforms,” she added.

She said there is scope for growth via external trade activities and private sector investments.

Noting that there are ways and instruments to help the private sector expand, Kanda assured continuous support of the World Bank.

Former Central Bank Deputy Governor Wijewardena welcomed the introduction of a new budgetary philosophy by the President.

“New budgetary philosophy should be continued for Sri Lanka for the next 25 years to be a rich country by 2048,” he added.

However, he expressed scepticism about overestimated revenue, describing it as a ‘black box’ with limited viable borrowing options.

“Inability to meet the revenue targets will push Sri Lanka to resort to borrowing. Given our limited options to borrow internationally, we will have to rely on borrowing from the local market and it will shoot up interest rates once again. This in turn will interfere with the monetary policy implemented by the Central Bank,” he cautioned.

Wijewardena stressed the importance of disciplined expenditure and increased revenue to prevent Budget targets from going off track.

“The success of the Budget can depend on its implementation and not on the Budget speech which is being debated in Parliament now. In modern days, the taxes are paid not on the real income, but on the nominal incomes. The 2024 Budget plans to increase tax revenue to Rs. 4 trillion up from Rs. 3 trillion in 2023. But at the same time, it is important to be cautious about a ‘spillover effect’ on the expenditure, which has to be controlled very strictly. If a spillover effect happens, all Budget targets will go haywire. However, strict discipline of expenditure can help meet the revenue targets,” he added.

JHK Chief Balendra emphasised the need for restructuring and diversify funding sources while cautioning that falling short of revenue targets could lead to high-interest rates for the private sector.

“If Government falls short of the revenue targets there is a risk that the private sector could get high interest rates,” he said. He also cautioned on the Government’s increased credit share, reaching 70% of the GDP.

He expressed satisfaction with the progress in privatisation, citing the Government’s expressions of interest in divesting a 20% stake in two State banks, potentially attracting strategic investors as the stock market needs the liquidity of large-cap stocks.

“It is good to see that the privatisation is now on track with the Government expediting the process,” he added.

Commenting on tourism as a ‘low-hanging fruit’ Balendra hailed the Government for recognising the sector as an important contributor to the economy.

“Our target is 5 million but I think we can go beyond that target soon. A couple of priority areas are the airport and the new airport terminal to be built quickly. The Budget mentioned a promotion campaign and it is important, but I think what was allocated Rs. 1 billion which is $ 3 million is not sufficient — but it is a good start. In 2018, we earned $ 4.4 billion from tourism; it can easily grow up to $ 7 billion. Tourism is a low-hanging fruit that should be our focus,” he said.

Deloitte Sri Lanka Country Managing Partner Manoharan highlighted positive aspects, such as the inclusion of the digital economy, Digital ID, AI centres and opening up the education sector to foreign universities.

However, he flagged concerns about the Government’s capacity to implement proposals, citing a cost-cutting approach in State agencies and inefficiencies in the public sector.

Manoharan also addressed the impact of taxes on the salary of IT professionals, stressing the need for retaining middle-level IT professionals to further migrate. He called for prioritising initiatives in the Budget for effective implementation.