Friday’s Budget 2022 presented in Parliament was significant in more ways than one.
It was the first to be presented by new Finance Minister Basil Rajapaksa and also the first Budget focused on a post-pandemic world.
It is indeed a challenging time for presenting a budget, with the local as well as global economy left reeling from the adverse effects of the Covid-19 pandemic.
It is worth noting that we are not out of the woods yet as far as Covid-19 is concerned. It remains a threat, especially with people mostly disregarding health guidelines. But on the whole, the pandemic is on the wane.
But the economic effects of the pandemic will be felt for years to come. The economy took a huge hit from the pandemic, mainly due to the frequent lockdowns and other restrictions. Moreover, funds had to be diverted to Covid-related expenses from development and social welfare projects. The Government has spent a staggering US$ 700 million on importing WHO-approved vaccines alone, without counting the costs of medical treatment, quarantine centres, PCR and Antigen Tests and contact tracing. This is almost unbearable for an emerging economy like ours. Nevertheless, we will have to continue some of these measures for at least a couple more years at considerable expense to keep Covid at bay. Hence the Budget’s firm focus on health, which is one of the two free services enjoyed by all Sri Lankans from birth.
The other is of course, education. Sri Lanka is one of the few developing countries to offer free education at all levels. And this year’s Budget has given a huge boost to education, allocating more than seven percent of the GDP for the first time ever in post-Independence history. Seen in the context of an earlier campaign by the university teachers for a six percent allocation, this is a huge and unprecedented leap. The Budget also contained a Rs.30 billion allocation for the enhanced salaries of teachers and principals. They had stayed away from conducting online classes for students over this issue, which has dragged on for over 24 years.
The Government has finally resolved this longstanding grievance. It is indeed a miracle that the Government could turn this into a reality given the economic constraints it faces in the current environment. Now the teachers must reciprocate and try to catch up on the syllabi as students have missed almost two years of lessons. The online lessons, when they were conducted in the early phases of the pandemic, were accessible only to a certain segment of the student population. Thus the return to the physical classrooms is a welcome development for students, parents and teachers.
As expected, the Budget allocated a significant sum for defence. Sri Lanka cannot afford to let the guard down as there are multiple threats to national security from transnational terrorist networks (as seen in the Easter Sunday attacks), transnational organised crime, maritime poaching, sea piracy, illegal migration, people smuggling/trafficking, drug running, cybercrime and white collar crime. Indian investigators also believe that attempts are being made to revive the LTTE which was militarily crushed in 2009. All these require enhanced surveillance on land, sea and air. Our Security Forces and Police/STF must maintain constant vigilance. They also have the added burden of playing a leading role in pandemic and natural disaster mitigation efforts.
The Budget focused heavily on creating a production economy as opposed to the present import-driven model. We have been used to importing everything from the humble pin to the motor car, completely neglecting local production and industry. Even fruits and vegetables that can be locally grown were imported in large quantities. The pandemic put a spoke in the wheel of this import dependency and forced a major rethink. The first step was the decision to stop the import of 14 crops that can be grown locally. Another decision was to opt for import substitution where possible. The Government also temporarily suspended the import of certain high value items such as motor vehicles to save foreign exchange. These steps have led to a saving of almost US$ 2 billion over the last two years.
All countries that reached the ‘developed’ stage within the last few decades such as South Korea had done so by moving to a production economy and through exports. This is the strategy that Sri Lanka too should follow. Our exports have recorded impressive gains during the last few months and this momentum should be carried forward. We have to stop being confined to traditional exports, diversify our export product portfolio and seek new markets too. Exports will be our sole earner of foreign exchange, at least until tourism and expatriate remittances return to pre-pandemic levels.
The focus on renewable energy is also timely as Sri Lanka spends around US$ 6 billion annually for fuel imports, most of which goes for power generation. The authorities hope to generate around 70 percent of the power mix from renewable energy and also have more electric cars on the road by 2030, both of which will lead to a considerable saving on fossil fuel imports. Besides, we have to phase out fossil fuels to meet the new emissions targets discussed at the recent COP26 Climate Change Summit in Glasgow, Scotland.
A Budget cannot please everyone and it should not also be a short-term ‘popular’ fix. This Budget has set a bold new course for Sri Lanka as it emerges from a devastating pandemic. Only far-sighted thinking and decisions will enable us to face the future with confidence.