President and experts dissect new Govt.’s maiden Budget 2025

• Key insights and crucial engagement standout at Daily FT-Colombo University MBA Alumni post-Budget Forum 2025

By Charumini de Silva

President Anura Kumara Dissanayake yesterday participated as the Chief Guest at the 15th consecutive post-Budget forum organised by the Daily FT, in partnership with the University of Colombo MBA Alumni Association and sponsored by Standard Chartered Bank at the Cinnamon Life, Colombo.

This was President Dissanayake’s first in-person public forum since presenting the 2025 Budget on Monday, where he engaged in an open, candid  discussion on the country’s economic direction under the National People’s Power (NPP)-led Government.

He was joined by an eminent panel of economists and business leaders, comprising The Ceylon Chamber of Commerce Chairman and Senior Adviser to the President on Economic Affairs and Finance Duminda Hulangamuwa, Standard Chartered Bank Sri Lanka CEO BingumalThewarathanthri, Veritè Research Executive Director Dr. Nishan de Mel, Advocata Institute Chairman Murtaza Jafferjee, Sri Lanka United National Business Alliance Chairperson Tania Abeysundara and Colombo University MBA Alumni Association President Suraj Radampola. The discussions were moderated by Daily FT Editor and CEO Nisthar Cassim.

Q: In your view, what is the most transformative proposal in the 2025 Budget?

President: Our digitalisation efforts, aimed at transitioning to a cashless economy, stand out as the most transformative initiative. While the country can continue in its current state, we aim to elevate the economy by digitising key systems. A cornerstone of this plan is the introduction of the Unique Digital ID, a proposal that has been in discussion since 2012 but has yet to be implemented. We are committed to making it a reality, ensuring that the system operates efficiently around it. Ultimately, we envision creating an entirely new virtual ecosystem.

Q: What are your expectations from the private sector?

President: Currently, for example whenever public sector job opportunities arise, nearly 50% of the applicants come from private sector employees. This indicates that the private sector needs to improve working conditions and make their jobs more appealing to young professionals, so the public sector is not seen as the only desirable option. Additionally, I urge the private sector to stop bribing public officials to get things done. Corruption is a two-way street—it thrives when there is both demand and an uninterrupted supply. Businesses must take a stand against corruption and actively discourage such practices.

Moreover, the private sector should align its corporate and industry goals with national objectives.

Q: Your message to foreign investors?

President: I want to stress that there should be no intermediaries involved in attracting Foreign Direct Investments (FDIs). In the past, some leaders encouraged both legitimate and illegitimate channels, but I urge everyone to go through the proper route—the Board of Investment (BOI).  

Below are questions posed by the panelists to the President;

Jafferjee: There is strong public support for ending corruption. In the Budget 2025 speech you set the tone at the top. Yet the top bureaucracy doesn’t seem to grasp this urgency. What is your practical solution to eliminating bureaucratic corruption?

President: The first step is for political leadership to take a firm stand and lead by example. This must be followed by fostering a system-wide commitment to combating corruption while simultaneously strengthening institutional frameworks to prevent it. A key component of this effort is digital transformation, which will eliminate cash transactions and transition towards a cashless system. The Police Department has already taken decisive action by disciplining 200 officers involved in bribery and corruption. Beyond the police, institutions such as the Attorney General’s Department, the Criminal Investigations Department (CID), and the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) are also playing a role. By ensuring the law is implemented properly and consistently across the entire system, we believe corruption can be eradicated over time.

Dr. de Mel: How do you plan to reassess some of the Budget proposals, and what steps will your Government take to ensure their successful implementation?

President: Unlike previous administrations that selectively withheld data for the benefit of certain groups, we believe Government processes must be fully transparent and accessible to the public. There should be no monopolies when it comes to governance—our responsibility is to serve the people.

Additionally, tackling corruption requires a cultural shift, as it has become deeply ingrained in our society. To address this, we have introduced new legislation to scrutinise sources of income when there is no reasonable explanation. By fostering a societal attitude that rejects corruption, we can create lasting change.

Thewarathanthri: Can we expect quarterly progress reports on Budget implementation?

President: We have allocated Rs. 1.4 trillion for capital expenditure in 2025, but with the Budget rollout beginning in April, we have just eight months to implement the proposals effectively. That said, we are committed to monitoring progress and ensuring transparency in the implementation process.

Abeysundara: There is an urgent need to strengthen the SME sector. How can access to working capital help SMEs contribute to a manufacturing-based economy?

President: The SME sector must be promoted enthusiastically, particularly among young entrepreneurs. To support a manufacturing-based economy, we have proposed a raw materials policy to assist industries. Although past experiences with development banks have been challenging, we have evaluated the situation and found that the two state banks—People’s Bank and the Bank of Ceylon—are capable of integrating SME support units within their existing structures. While this could impact commercial banks, the Industries Ministry has committed to providing technical assistance and loans, with additional backing from the Industrial Development Board. We also plan to strengthen our foreign trade missions to help SMEs identify market opportunities and establish strategic partnerships. While SMEs are not a neglected sector, financial constraints limit our capacity to provide support. Rather than imposing additional taxes, we chose to first focus on economic stabilisation. However, we aim to extend further relief measures for SMEs in the coming year. In parallel, we are managing extensive social welfare programs, which require substantial funding. Our approach this time is to reduce purchasing power parity distortions, as they negatively impact the economy. We are making policy adjustments to create a more business-friendly environment—it is all about finding the right balance.  

Here are excerpts of comments made by panelists at the forum:

Q: What’s good, bad and the ugly in Budget 2025?

Jafferjee: The Budget incorporates many elements of a market-driven system, which is a positive direction. It places strong emphasis on competition, free trade, exports, and the development of industrial zones. However, there is still some misconception regarding its ideological orientation. Given the theme of the event— “Left, Right or Centre?”—my view is that the focus is clearly on the centre.

A key legislative reform is the introduction of a procurement norm, which will enhance competitiveness. Additionally, the establishment of a Holding Company for SOEs is a welcome move toward improving their efficiency and governance. The President also highlighted the push towards a cashless economy, noting that Rs. 1.4 trillion is currently in circulation, which accounts for about 15-20% of total deposits. If these funds can be brought into the formal banking system, it would contribute to lowering interest rates.

However, certain proposals are of concern. The Tariff Committee and the reintroduction of CESS are flawed decisions. The initial plan seemed to be phasing out CESS in favour of a broader, more transparent system, but reinstating it introduces distortions in the market.

The more problematic aspects include the Tax Appeals Commission and protectionist policies. The Government must reconsider its approach, as excessive authority in taxation could have unintended consequences, including discouraging compliance.

Another contradiction is the Government’s plan to recruit over 30,000 graduates. If these individuals are struggling to find employment in the private sector, it raises the question—why are they being absorbed into the public sector? This approach does little to address the root issues of employability and skill development.

Thewarathanthri: It is a well thought through Budget. However, the Government has a delicate balancing act between economic ambition and fiscal reality.

We see a lot of good proposals such as trade treaties, public-private-partnerships (PPPs), and industrial zones. Successive Governments have said similar things before, but there is a lot of emphasis on trade treaties, which is good. There is emphasis on improving the ease of doing business. Let me give an example — in 2012 Sri Lanka was ranked 83 in the Ease of Doing Business with just $ 1.3 billion FDIs, while in the same year Vietnam was ranked 99 in the Index with a $ 16 billion FDIs. Fast forward to 2017, Sri Lanka attracted $ 1.7 billion thanks to Hambantota Port; while Vietnam attracted $ 80 billion and today Vietnam is not even comparable for us. The Southeast Asian nation has progressed so fast, particularly with its ability to attract investments and integrate into global supply chains. Vietnam’s access to markets such as the US has been a crucial driver of its success. Thus, Sri Lanka could learn valuable lessons from this approach and there are ample opportunities in terms of trade pacts with few under discussion.

Dr. de Mel: There are a lot of improvements in transparency, particularly in the disclosure of fiscal data. In terms of integrity, there are three parts to it. One is the numbers, reasons for good ideas or bad and you must not misrepresent the numbers. In terms of numbers, in most interim Budgets 100% of the proposals are not matching the numbers to the proposals, however, in this year’s Budget of 119 proposals only 14% are not matching the data. Another major factor is the misinterpretation or misallocation in Budget numbers in the past. The foreign interest component, one of the easiest things to be projected, was misrepresented by 50% every year on a five year average. In addition, one of the most glaring issues was the misclassification of public sector expenditure, particularly within the Defence budget allocation. A striking anomaly was an exceptional rise in allocations for ‘diets and uniforms’ within Defence spending —escalating Rs. 29.4 billion to Rs. 134.4 billion in just three years, with an additional 33% increase this year compared to 2024.

This increase was either an instance of procurement-related corruption or an intentional misrepresentation of costs. The Government, when challenged, clarified that these were actually allowances paid to personnel in cash. However, if that was the case, such expenses should have been categorised under salaries and allowances rather than procurement. The misclassification, conceal the true scale of public sector wages from scrutiny, making fiscal accountability impossible.

Sri Lanka already has one of the world’s highest per capita defence expenditures — second only to North Korea. Given the country’s dire economic situation, the rationale behind such large and opaque Budget allocations are unwarranted where there is need for greater fiscal discipline.

Abeysundara: This Budget is far from SME-friendly. What was promised has not been delivered, leaving no breathing space for SMEs. The President has asked us to be patient, but for how much longer? Entrepreneurs in the SME sector are resilient—we will fight to keep our businesses alive until the very last breath. However, the Government must understand that our need for support is not due to our own failures but the result of multiple crises beyond our control.

A Development Bank alone is not the solution. Many of our members have fallen into the NPL (Non-Performing Loan) category due to structural challenges, not mismanagement. The Government had promised to bail us out and provide a sustainable way forward, but so far, these commitments have remained empty words.

Globally, developed nations prioritise SMEs because they are the backbone of their economies. Unfortunately, Sri Lanka has not followed suit. The Government aims to collect Rs. 4.5 billion in tax revenue this year, but how do they plan to achieve this without ensuring the survival of SMEs? More importantly, what is the point of tax collection if the very businesses that drive economic activity are struggling to survive?

The Budget places emphasis on export-led economic growth, but how does the Government expect SMEs to scale up and compete internationally when they lack the necessary support? This Budget is a huge disappointment for the SME sector.

Radampola: The economic future hinges on three critical pillars; education, digital infrastructure and policy adaptability. Without significant investment in these areas, sustained growth will be difficult to achieve. A major focus should be digital transformation, which is not just about economic expansion but also about reducing corruption and inefficiencies across sectors. The Government has set an ambitious target of growing Sri Lanka’s digital economy to 15 billion, but achieving this requires a clear, structured roadmap. The IT and BPO sectors will play a crucial role in this growth, with projections indicating a $5 billion market opportunity and a $1.23 billion transfer value. That said, there are risks associated with our heavy reliance on outsourcing. Countries like the US, Canada, Australia, and New Zealand—which are key clients for our IT sector—are increasingly developing in-house capabilities. If this trend continues, demand for outsourced services could decline, affecting not just Sri Lanka but also other outsourcing-dependent economies like India. To stay competitive, Sri Lanka must rethink its long-term economic strategy. Rigid, decade-old policy frameworks may no longer be relevant in the face of rapid technological advancements. The Government must adopt a more agile and adaptive approach to economic planning to ensure we remain competitive in an evolving global market. We remain optimistic about our growth potential. The Government’s 5% economic growth target is achievable, but only if policymakers, businesses, and citizens work together. This is a collective effort, and every stakeholder has a role to play in driving national progress.

Q: With the increase in basic salaries, what impact will this have on the pension burden?

Jafferjee: The Government has allocated Rs. 400 billion for pensions this year. With Sri Lanka’s population aging rapidly, any salary increase will directly affect future pension benefits, as retirement salaries determine pension entitlements. One way to address this growing pension liability is through inflation, though this is not a sustainable solution. As per the Central Bank’s flexible inflation targeting policy, pensions are expected to become an even greater challenge. A more practical approach would be to increase the retirement age or transition to a contributory pension system for all new employees. It is surprising that this Budget did not introduce such reforms.

Dr. de Mel: The root of this issue has existed for decades. The problem is exacerbated by accounting practices that do not recognise pension liabilities as official debt, effectively making it a hidden liability. Since it does not appear on the books, there is no urgency to allocate funds for it. A necessary first step is to implement notional accounting to assess whether the country’s tax capacity can sustain future pension obligations. Ignoring this issue—even within the IMF program—has serious implications for national debt and macroeconomic stability.

Thewarathanthri: Downsizing the public sector, which currently employs over 1.3 million people, is a major challenge. While the financial burden is substantial, mass layoffs are not an option, as they would trigger social unrest and destabilise the country. Instead, a well-structured transition program is necessary, particularly for security force personnel, to prevent economic displacement. 

Q: What role does Budget 2025 play in the banking sector, and what proposals do you consider game-changing for the private sector?

Thewarathanthri: Banks are committed to supporting the Budget’s implementation. A key proposal is the introduction of Point-of-Sale (POS) machines at all VAT-registered businesses, which will digitize transactions, reduce cash usage, and bring a larger share of financial flows into the banking system. The increased digitalization of the economy will also encourage greater investment in financial infrastructure, strengthen anti-money laundering measures, enhance cybersecurity, and improve surveillance against financial crimes. The most significant game-changer in this Budget is its emphasis on policy consistency, particularly in fiscal management, ensuring stability through a consultative approach.

Below are questions posed by the audience to the panelists;

Q: Other countries particularly in the Middle East have much lower or no corporate taxes. Is it possible to see if corporate taxes could be amended to support businesses?

Hulangamuwa: The question isn’t just about whether we can reduce corporate tax to 24%. It is about whether we should—and if we do, what impact that will have on revenue and different sectors. In an ideal scenario, of course, lower taxes would be great for businesses, but we have to be realistic. The government has ambitious revenue targets, and with the way things stand, we have to ask—how do we make up for that shortfall? The real issue here is the income distribution. Around 85% of the population earns less than Rs. 100,000 a month, and 95% are below Rs. 200,000. That’s the reality we’re working with. So when you talk about revenue expectations, where is it going to come from? The Government can’t just keep raising taxes on the same group of people. That’s why we are looking at expanding the tax base, increasing compliance and driving economic growth. But that’s easier said than done.

Q: What needs to change for this to work?

Hulangamuwa: It is all about balance. You need policies that encourage investment and make it easier for businesses to grow while also making sure tax collection is fair and efficient. Right now, a lot of people are still outside the formal economy, and that’s a problem. If we want a lower tax regime and stable revenue, we need to find a way to bring more people into the system without overburdening those who are already paying. If businesses continue to struggle and individuals are already stretched thin, then pushing too hard on tax reforms could backfire. It has to be done carefully—otherwise, we risk making things worse instead of better.

Q: What is the recommendation to improve the structure of the Budget for next year i.e. 2026?

Dr. de Mel: A simple but crucial reform is the publication of audited reports, at least for the 52 strategic State-Owned Enterprises (SOEs). In 2023, the Government failed to publish even 10 of these reports. Sri Lanka’s economic crisis was preceded by a governance crisis. Without proper financial transparency, the IMF’s arguments continue to prevail. Many other countries have adopted transparent reporting practices, and Sri Lanka must follow suit. Publishing these reports will allow for proper analysis and accountability.

Dr. de Mel: Sri Lanka urgently needs tangible policy reforms, particularly State-funded maternity benefits. Currently, private employers bear the full cost of maternity leave, discouraging the hiring of women and reinforcing gender disparities in the workforce. Women aged 22-40 are six times more likely to be unemployed compared to other age groups, primarily due to this discriminatory cost burden on employers. Implementing State-funded maternity benefits would cost just Rs. 7.4 billion—a fraction of the recent increase in defence spending—and could boost female labour force participation by 10-20%. Moreover, Sri Lanka is violating its obligations under the ILO Convention, which mandates that maternity benefits be State-funded rather than employer-funded. Professional associations and business leaders must push for this reform, as it is a “no-brainer” from a cost-benefit perspective. Additionally, the lack of strong female leadership in policymaking highlights the need for greater activism from both the private sector and civil society to advocate for more equitable economic policies.

Abeysundara: Despite women making up 52% of Sri Lanka’s population, only 25% of entrepreneurs are women. This disparity represents a missed economic opportunity. To address this, Sri Lanka needs policies that actively support female-led businesses. Expanding financial access, mentorship programs, and policy reforms could significantly boost women’s participation in entrepreneurship, ultimately contributing to broader economic growth.

- Pix by Upul Abayasekara and Lasantha Kumara