The moment of truth for NPP govt., fast approaching

by Vishvanath

Supermajorities for governments often come with great expectations of those who vote them into power. In Sri Lanka, political parties make numerous election promises, and the one that wins is left struggling to deliver on its pledges in double-quick time.

Patience is not a virtue Sri Lankans are known for; they expect quick delivery. There’s the rub. The economic crisis is far from over, and it may not be fair to pressure the new government to grant pay hikes and reduce taxes, at this juncture, but it has got to do just that for its political survival. That is the way the cookie crumbles in this country.

The JVP-led NPP was lucky last year that it faced a general election only about two months after winning the presidency, and therefore it did not come under pressure to fulfil its promises made during the presidential election campaign; it had only three ministers including President Anura Kumara Dissanayake, and public sympathy was with the NPP. So, it managed to convince the people that it had to gain control of the parliament with a comfortable majority to carry out its promises, and the people gave it a supermajority with 159 seats. Now, it has had to make good on its promises, and the people are in a hurry.

All eyes will be on the 2025 budget to be presented shortly. Prime Minister and Minister of Education, Higher Education and Vocational Education Dr. Harini Amarasuriya presented the Appropriation Bill on Jan. 09 to provide for the service of the financial year 2025. The second reading of the Bill will be on Feb. 17, and it will be followed by a debate, and the final vote on the budget is scheduled to be taken next month.

Securing the passage of the 2025 Budget must be the least of the NPP government’s concerns, given its steamroller majority in the House, but it obviously has other worries. It has had to contend with some political vicissitudes, which have the potential to take their toll on its electoral performance in the future. Besides its numerous policy about-turns on vital issues including the Debt Sustainable Analysis stipulated by the Internal Monetary Fund (IMF), proposed power and energy deals with India, it has incurred the ire of the farming community, the backbone of its rural vote bank.

There have been unmistakable signs of a considerable erosion of the NPP’s grassroots level support base. It has already suffered a string of losses in co-operative society elections, which are believed to serve as a political windsock. During the SLPP-UNP government, the NPP was on a winning streak in cooperative elections, and its leaders, especially Wasantha Samarasinghe, boasted that the then regime’s defeats in those contests had marked the beginning of its end. The NPP bagged most of the cooperative societies and went on to win the national elections that followed.

The Local Government (LG) elections are to be held in April. This must be a worrisome proposition for the NPP. Speaker Dr. Jagath Wickramaratne recently claimed that he had not received the much-awaited Supreme Court (SC) decision on the Local Authorities Elections (Special Provisions) Bill, and therefore the vote on the Bill, the enactment of which is a prerequisite for conducting the LG polls, has been delayed.

The Opposition would have the public believe that the government is trying to postpone the LG elections on some pretext or another. But the government has said it will reveal the SC ruling to the Parliament on Friday. If it does so, the country may be able to go to the polls to elect local councils in late April. Former Chairman of the Election Commission Mahinda Deshapriya has said he is confident that the LG polls will be held before the end of April.

The NPP government is facing the unenviable task of having to make everyone happy before facing the LG polls. Governments usually present what are known as ‘election budgets’ when they have to face mid-term polls, but this time around, the NPP administration has its work cut out to present such a budget.

The Budget to be presented will have to conform to the International Monetary Fund (IMF) guidelines. The government will have to operate within the confines of its agreements with the IMF and the Economic Transformation Act in achieving its economic and political targets. Otherwise, it will run the risk of losing the next tranche of the IMF’s Extended Fund Facility and even facing resultant credit rating downgrades. This is the last thing the new administration wants for obvious reasons.

One of the biggest challenges the NPP government faces is achieving the high revenue targets set by the IMF. It will have to ensure that its tax revenue increases to at least 15.1% of GDP in 2025, and this works out to a whopping Rs. 5.5 trillion, according to experts like former Deputy Governor of the Central Bank of Sri Lanka, Dr. W. A. Wijewardena. That will be an unnervingly difficult task.

President Anura Kumara Dissanayake has promised personal tax reductions in a bid to retain the support of the middle-class voters. The government is said to have decided against implementing a property tax its immediate predecessor was planning to introduce.

The success of the government’s efforts to retain IMF support, without which it will not be able to achieve the country’s full economic recovery, hinges on its ability to increase its tax revenue substantially. This may be the reason why it has removed vehicle import restrictions.

The suspension of vehicle imports owing to the country’s foreign currency woes led to a sharp drop in government revenue during the past couple of years. But raising tax revenue with vehicle imports is a balancing act, which has to be performed extremely carefully. The government has to be mindful of the country’s foreign exchange reserves, which are woefully low.

If the existing foreign currency reserves diminish rapidly, the economy will go into a tailspin again, with the rupee depreciating equally fast and the prices of imports increasing, as was the case in 2022. Such an eventuality will have disastrous economic and political consequences for the government and the country.

If the NPP government fails to achieve its revenue targets, that will amount to a violation of the Economic Transformation Act. It may be able to overcome that legal issue by amending the Act, but it will not be able to make the IMF bend to its will, and may forfeit the fourth tranche of the Extended Fund Facility as a result.   

In Sri Lankan politics, what matters most is whether a government delivers on its promises or fails to do so, and not why it cannot honor its election pledges. Paddy farmers are demanding higher guaranteed prices for their produce regardless of the fact that there will be steep rises in rice prices if the government accedes to their demand. They are asking the government to implement its promise that they would be paid as much as Rs. 150 per a kilo of paddy. State workers are also demanding a bigger pay hike than the one which they are likely to get from the upcoming Budget. Unless the government manages to sell its Budget to the public, so to speak, it will find the task of maintaining its electoral performance at the 2024 level, in future elections, especially the upcoming LG polls, even more difficult. The upcoming Budget will be the moment of truth for the NPP government.