Posted on November 21st, 2020


The main focus of the budget speech of the prime minister for 2021 has reported that the reduction of the budget deficit, and creating a production economy in the country.  The idea has been written in my articles during the past several years as I observed that macroeconomic issues have been less concentrated by the government since the 1990s. The world bank had developed and stressed policy correction as a vital policy direction for reviving economies. The world bank advice was practically result-oriented, and many developed countries followed the advice and achieved quick results during the last decade of the 19oo century and the first decade of 2000. Sri Lanka was the country where adapted radical market economic policies in the late 1970s, however, the country achieved less economic outcomes from the market policies compared to many Asia-Pacific countries as the policies have been implemented without disciplines and clear targets for achieving the economic strength of the country.

In this effort, it shouldn’t forget that a successful solution to macroeconomic problems could not be given by ignoring microeconomic issues. For example, if it takes a jungle, which has systems of different kinds of plants, the problems of plants in the jungle as a whole could solve only if it provides solutions to individual trees or plants in the system. This is the fundamental idea that the government should understand when policy directions are made on macroeconomic issues. If we look at the world economy after the cold war developed countries were efficiently done was while making microeconomic reforms they concentrated on macroeconomic problems, and it was successful. For example, many developed countries solved problems of public enterprises by privatizing a large portion of enterprises holding the control of firms and saved a significant volume of budget expenditures to retire budget deficits and public debt.  This should be a fundamental step to reduce the budget deficit. 

Sri Lanka has tremendous microeconomic problems in various firms, it is not only in public investment programs but also in privately owned firms that are concerned about the many issues such as productivity, excess labor, and various problems.  Reforming public and private enterprises would be the best solution for strengthening the macroeconomy that is involved in issues such as government budget deficit, public debt, unemployment, trade-related problems, and many others.  When the problems of individual trees are solved the entire jungle would be quality, productive, and give high value to the economy. However, the initial policy of Sri Lanka Podujana Peramuna was not supported to sell public assets overseas and the same idea expressed by the president expressed addressing the public recently, it is a good policy, and some local investors are willing to invest for gaining the ownership of public enterprises.  If public enterprises are reformed to higher returns to shareholders local people ready to invest in shares of public enterprises and prop up the stock market and job opportunities in the country. 

It is an alternative to selling assets overseas and getting the private sector for the better management of enterprises.  In the current dynamic environment, public enterprises need to invest more funds for innovation, technology, and managerial changes, but the owner government has no funds to allocate such purposes and needs to give the responsibility to the private sector to manage public enterprises. It will not harm the policy of the government.    

Although the budget speech of the prime minister focused on the two major macroeconomic problems, many other issues such as population, unemployment, higher interest rate, foreign and local debt, and many other problems are associated with the macroeconomy in the country.  Many macroeconomic issues are associated together with the ideas of the vicious circle of poverty, and investment is the breaker of macroeconomic problems that are circled with problems. Mr.Gotabaya Rajapaksa, the president of Sri Lanka expressed while presenting credentials by the new Chinese Ambassador to Sri Lanka, Mr. Qi Zenhong that Sri Lanka needs investment instead of further borrowing in its development drive.  My personal view is China can make a massive investment in Sri Lanka at less risk and take back profits or reinvesting profits in other fields.

Sri Lanka wants to stop migrating its labor overseas and investing them in the country to keep happy people.  It will help to reduce the government’s massive spending on foreign relations and integrating the culture for development purposes.   

The motives or direction of the prime minister should be treated as excellent purposes of the budget, opposition politics may not comprehend the motives of the budget and reported that many irrelevant points raised. They are like beggars with destitute wounds with an entirely single purpose to gain an advantage out of the economic problems.  I read a news item that Ms. Diana Gamage wants to grow cannabis and export them when there are many opportunities for export developments.  The opposition politics are so stupids and Sri Lanka is not an immoral country with desperation for engaging in black economic activities.    

Since the Korean War in the 1950s, Sri Lanka followed the deficit budget system to increase the aggregate demand of the country.  There is no doubt that aggregate demand may have increased with the support of an increasing population.  The negative impact of the deficit budget was enlarging taxes and borrowing.  Many developed countries used similar types of fiscal strategies, the difference between Sri Lanka and developed countries was that developed countries had a clear plan to reduce the budget deficit, Sri Lanka has been blindly hanged in the budget deficit without considering effective methods to reduce the deficit with fiscal strategies.

The major strategy to reduce the budget deficit is creating a production economy in the country. It is a very good strategy, however, the negative impact on the tourism industry and foreign employment by the COVID 19 crisis directs that the contribution from the agricultural and industrial sectors need to be massively increased then only Sri Lanka can drive to a production economy.  However, the recent statement of the EU on the restriction of imports showed that Europe is against creating a production economy and Sri Lanka doesn’t want to respect such self-centered policies. The experience of Asian countries such as Japan, China, Korea, and India indicate that they did not hesitate to reject the self-centered policies of other countries.

The production economy could be achieved only if the country attracts more investment for the agriculture and industrial sectors.  There has been a trend in expanding the service sector in developed countries after the cold war, the COVID crisis showed that the economy is depending heavily on services would not be helpful always because a crisis in the world may change the economy quickly affecting the service sector, and balanced growth is the best policy direction.

Sri Lanka cannot ignore economic fundamentals and since the 1990s it has been persistent with popular trends ignoring fundamental problems.  The message is that the budget always needs to focus on reducing the burdens of macroeconomic issues while reforming the microeconomic problems in individual institutions.  

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