The Hon. Kathiravelu Shanmugam Kugathasan

¶ 01 Hon. Deputy Speaker, I wish to present my analysis and recommendations on the 2025 Budget. The Budget proposes many good initiatives aiming at economic transformation, digitalization, and expansion of social welfare. However, many proposals lack clarity on implementation strategies and expected impacts. The Government should explain in detail how these initiatives will be executed to give the public and stakeholders a clear understanding. Under each key sector, I will outline observations, concerns, and recommendations.

¶ 02 - Economic growth, trade and investment: Expansion of FTAs, especially with ASEAN and RCEP, and reforms like the Economic Transformation Act amendment and PPP framework aim to improve business confidence and infrastructure. However, there is no clarity on which sectors are targeted, how the agreements will be structured, and expected sectoral impacts. Leasing underutilized state lands may promote productive use, but without safeguards it risks misuse and corruption. The Government should publish a transparent implementation plan, including sector-targeted FTAs, land allocation criteria, and PPP structures.

¶ 03 - Digital economy and technology: The SL-UDI initiative is a key step in building a trusted digital ecosystem, and the US$15 billion digital economy target is ambitious and credible. But there is insufficient clarity on how cyber security, process digitization, and digital literacy will be implemented. Startups and small tech firms need specific tax incentives and finance support. The Government should lay out actions to expand digital infrastructure, cyber security protocols, startup funding, and ensure digital transformation reaches rural communities.

¶ 04 - Public finance and revenue: The Budget targets a 6.7% of GDP deficit while increasing social spending. Liberalizing vehicle imports, extending VAT to digital services, and raising corporate tax will raise revenue. But beyond temporary measures like vehicle import taxes, the Budget does not show how long-term revenue sustainability will be ensured. The plan to raise public sector salaries by Rs. 325 billion over three years could strain finances if not matched by revenue, reforms, and expenditure control. The Government should announce comprehensive fiscal strategies, including alternative revenue streams, tax reform, and spending discipline.

¶ 05 - Social welfare and incomes: Increasing social protection to Rs. 232.5 billion and enhancing public sector and plantation worker benefits can improve living standards. However, a staggered, generalized wage approach may cause dissatisfaction and inflation risks if not aligned with productivity. The Budget lacks details on sustainable financing of these benefits. Consider productivity-linked pay, targeted cash transfers instead of broad increases, and phased fiscal consolidation. Notably, the allocation for the Ministry of Women and Child Affairs has been cut from nearly Rs. 20 billion last year to Rs. 15 billion this year, despite 52% of the population being women and a large number of female-headed households—about 92,000 in the East—lacking stable income pathways. Funding for income-generating self-employment for female-headed households should be significantly increased.

¶ 06 - Agriculture and rural development: Despite agriculture’s significance, the Budget lacks clear plans for irrigation upgrades and mechanization. This neglect risks food inflation via low productivity and does not address supply-chain efficiency or rural market access. A clear framework for agricultural modernization, including mechanization and rural infrastructure, is needed. Roughly Rs. 13 billion has been allocated to the handloom/cottage industries sector; demand elasticity tends to be greater for manufactured goods than primary products, and countries with larger industrial shares of GDP achieve development. Capital allocations to industry should be increased accordingly.

¶ 07 - Education, higher education, and research: The Budget does not present a clear plan to align education with labour market needs. We need robust TVET, research funding, and STEM skills development within a coherent education reform strategy. While public education funding is included, higher education institutions, especially in lagging regions such as the North and East, suffer poor infrastructure and limited research funds. If we aim to become a knowledge economy, universities must have modern facilities, research grants, and qualified faculty. Prioritize funding for infrastructure, research grants, and industry collaboration to improve higher and technical education quality.

¶ 08 - Tourism and services: Despite being a primary foreign exchange earner, the Budget provides inadequate allocations or recovery incentives for tourism. Without strategies for tourism development, infrastructure upgrades, and investment promotion, recovery will be slow. The Government should present a tourism recovery roadmap covering international marketing campaigns, infrastructure improvements, and investor tax incentives.

¶ 09 The proposal to launch “Lanka Day” to showcase Sri Lanka’s heritage globally and attract tourists is commendable. It can enhance soft power and promote tourism, especially during the peak season. To maximize results, develop a clear marketing strategy using digital platforms, social media, and international partnerships, and mobilize the Sri Lankan diaspora for overseas promotion. Ensure inclusivity across all provinces and communities and integrate with tour products—festivals, cultural tours, regional packages—to generate local economic benefits for SMEs and artisans. Beyond a single annual event, embed culture in year-round tourism policy.

¶ 10 Overall, while the Budget signals a strong direction towards transformation, digitization, and social welfare, key gaps remain in fiscal sustainability, private-sector participation, agricultural modernization, and implementation clarity. The Government should publish detailed implementation plans, timelines, responsible institutions, expected outcomes, and establish regular updates and transparent reporting, with consultations involving business, academia, stakeholders, and the public. Transparency will build trust and improve policy effectiveness. Thank you.