Budget 2007

The fact that Budget 2007 wants to "cerate" a new Sri Lanka (page 7), illustrates the depths to which the GOSL's attention to detail and general professionalism have fallen. This blinding gaffe on an otherwise progressive and development-oriented budget illustrated the contrast between the soundness of the GOSL's big ideas (under any administration) and the stark stupidity of the subsequent implementation.

The Budget 2007 yields no real surprises. Mahinda continues to help his core constituency, the village poor by giving them access to the infrastructure that they need for industrial and agriculture production and to get these their goods to market. These policies are a rare mix of political skill and economic common sense. Improved and better distributed infrastructure will stimulate economic growth in a sustainable and equitable way. The budget deficit has also been narrowed (though it might have taken a warning from the IMF) by reducing incidental state expenditure, support for failing enterprises, imposing penalties on wasteful state organs and insisting that Ministries complete current projects before they are given more money. More interesting, though VAT on several goods has been repealed, income tax levels have been increased and an innovative new tax has been placed on public companies that do not pay atleast 15% dividends. I find this last an innovative solution to rampant agency problem in large Sri Lankan companies and a useful mechanism to stimulate capital market growth. Depsite my optimisim, it remains to be seen if all this fiscal tinkering (adjusting for graft and favour politics) can offset the rising cost of the war.

I find it interesting that Sri Lanka, under Mahinda, has taken a development path that many Indian bloggers advocate for India. These bloggers (www.indiauncut.com among them) claim that India's focus on technology and education is sidelining the poor in favour of producing high value technology and service exports. They argue that investment in physical infrastructure in the form of road, rail, port and airport services are more important to uplifting the standard of living for the whole country, not just for an educated elite. This seems to be Mahinda's vision for the future. I would be more optimistic about Sri Lanka's prospects if the LTTE wasnt' all out to spark their "final war". Despite his failings an English speaker, gentleman, politician and military strategist, I feel that Mahinda has hit upong a vein of gold as far as economic policy is concerned and I hope that the GOSL is given the confidence of the people to put the Budget into action.

As usual, it remains to be seen whether the fickle voting population and greedy politicians do not torpedo a solid economic plan.