All eyes today on AKD’s maiden Budget

President Anura Kumara Dissanayake yesterday putting the final touches to the 2025 Budget, along with Treasury Secretary Mahinda Siriwardana 

• Deliverable and credible Budget envisaged whilst fixing imbalances in economy
• Decentralisation and poverty alleviation key focus, with emphasis on meritocracy, equal opportunities, level playing field
• Salary hike for public servants and relief for working class would require extra revenue
• Expect “pro-poor Budget” says Prime Minister in Jaffna
• Analysts tip 2025 Budget to unleash opportunities for private sector and local industries
• Given continuity in IMF program, measures to sustain reforms and transformation envisaged
• MSMEs want President to ensure more practical and genuine relief from banking sector in terms of debt relief and restructuring
• Two minor elections could tempt NPP Govt. to be populist via Budget 2025, analysts caution

 By Nisthar Cassim 

President and Finance Minister Anura Kumara Dissanayake will present his maiden Budget for 2025 today in Parliament, with stakeholders maintaining a mixed view given the country’s overall weak financial status, ‘wait and see’ attitude of businesses, struggles by the SMEs, and relatively slow consumer spending despite improving macroeconomic indicators.

The President’s Media Division yesterday released the customary picture of President Dissanayake putting the final touches to the 2025 Budget, along with Treasury Secretary Mahinda Siriwardana. The President will make the presentation on the Budget 2025 today at 10:30 a.m. in Parliament.

Analysts expect Dissanayake, given his pragmatism, to present a Budget that they described as “deliverable or doable and credible” as opposed to unrealistic and far too ambitious. The President and Sri Lanka have committed to proceed with the four-year program of the International Monetary Fund (IMF) under the $ 3 billion Extended Fund Facility (EFF), widely seen as critical to sustain the stability achieved post the external debt-standstill announced in April 2022.

Given the unprecedented mandate he received nationwide, including the north and east, in the September 2024 Presidential Election, and the super majority in the November 2024 Parliamentary poll, Dissanayake is also expected to present a Budget that will focus on decentralisation and poverty alleviation. Prime Minister Dr. Harini Amarasuriya in Jaffna yesterday said a “pro-poor” Budget will be delivered, with emphasis on the weakest or most vulnerable sections of society, including those in poverty, pensioners, and the differently-abled.

Most analysts also expected the 2025 Budget to unleash opportunities for the private sector, being the country’s engine of socio-economic growth, to ensure fuller recovery from this year onwards. An emphasis on meritocracy, equal opportunities, and a level playing field is also expected. Others believe a greater emphasis on expanding and strengthening local industries can be envisaged in the Budget.

However, the Micro, Small and Medium Entrepreneurs and Enterprises (MSMEs) are expecting the President and the Government to ensure a more practical and genuine relief from the banking sector in terms of debt relief and restructuring. On his own admission, the President during the launch of the ‘Clean Sri Lanka’ program said with the upcoming Budget, the Government aims to steer economic programs towards the eradication of poverty in our nation.

At the ceremony held on 1 January, Dissanayake also assured a new economic policy framework which will address challenges in the economic system.

“Economic reforms are being formulated to ensure that economic benefits reach rural communities, as an economy concentrated in the hands of a small group can never bring stability to society. Such an imbalanced economy fosters instability for the nation and its people. Therefore, achieving economic stability requires extending economic benefits to rural populations. With the upcoming Budget, we aim to steer economic programs toward the eradication of poverty in our nation,” the President stressed.

In the 2025 Budget, he is also expected to further solidify measures towards digital transformation, thereby minimising inefficiency and corruption while enabling citizens to interact seamlessly and effectively with State mechanisms.

A similar stance is expected with regard to the ‘Clean Sri Lanka’ initiative as well. In this regard, the policy statements under the Budget 2025 will be specific measures to curb the trafficking, spread, and use of substances, especially among youth.

The move to increase salaries to public servants and offer relief to the working class via reduced tax on employment would require additional revenue.

The background amidst which the 2025 Budget comes, according to the Central Bank, comprises economic recovery gaining momentum supported by improving business confidence and market sentiments, as well as the robust expansion of private sector credit, reflecting relaxed monetary conditions. The economy in 2024 is estimated to have bounced back to achieve 5% growth as against 2.3% contraction in 2023 and by 7.8% in 2022.

Earnings from merchandised and services exports hit an all-time high of $ 16.17 billion in 2024, with merchandised exports growing 7% to $ 12.7 billion. However, a rebound in imports – up 12% to $ 18.9 billion – saw the merchandise trade deficit widening to $ 6 billion from $ 5 b in 2023. Workers’ remittances grew by 10% to $ 6.5 billion and earnings from tourism jumped by 53% to $ 3.17 billion. Gross Official Reserves rose to $ 6.1 billion from $ 4.4 billion in 2023. Last year also saw the external debt restructuring process, except for a small portion, being completed successfully.

Government revenue in 2024 rose by 22.7% to an all-time high of Rs. 4.14 trillion. Government expenditure remained more or less unchanged at Rs. 4.8 trillion up to November 2024 in comparison to a year earlier, whilst the Budget deficit declined to Rs. 1.2 trillion as against Rs. 2 trillion.

The country is in an unprecedented situation with 2% deflation as of end 2024 and likely to last till 1Q or beyond. Despite CBSL perspective, consumer demand remains subdued with FMCG companies opting to value additions and budget solutions. Most expect consumer spending to uptick from March ahead of Sinhala-Tamil New Year. With two minor elections slated for the rest of the year, the President Dissanayake-led National People’s Power could become populist via the 2025 Budget though independent analysts have cautioned otherwise.