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The Federation of Chambers of Commerce and Industry (FCCISL) yesterday commended the 2021 Budget, saying it had taken into consideration many factors that were important for the revival of the economy.
“We observe that Government keeping in line with its election manifesto has focused on programs for economic development, social welfare, etc., we also understand that the Government has to make this Budget in a very challenging and depressed economic environment, perhaps the biggest ever since winning independence in 1948. We also see COVID-19 has changed the priorities of every government all over the world,” FCCISL said, in a statement.
The salient features of the Budget with regard to social welfare are ambitious programs to develop the rural economy, which includes a housing program, providing drinking water to all, urban walking paths, and a road improvement program covering all 25 districts, in addition to expressways and construction of 50,000 kilometres of rural roads, it noted.
FCCISL commended Government efforts to develop and upgrade infrastructure such as fisheries farm zones for fish production for commercial purposes.
“It’s important that the Government further focuses on exploiting the concept called Blue Ocean Economy – the Exclusive Economic Zone in the sea area (sq.km 517,000) which is eight times larger than the entire country (sq Km 65,610 ). We consider the proposed budgetary allocation of Rs. 2 b to upgrade the fishery industry as a stepping stone towards a much larger sea-based economy in the future. The Blue Ocean Economy is one aspect of the Budget proposals of FCCISL sent to the Government.”
FCCISL said it was happy to note that the Government had embarked on ambitious infrastructure development projects such as fully-fledged plug and play Techno Parks in Galle, Kurunegala, Anuradhapura, Kandy and Batticaloa Districts, establishment of a modern investment zone for local and foreign private investors for the purpose of manufacturing pharmaceuticals under the Strategic Development Act and the development of the plantation sector. FCCISL opined that these proposals had a positive impact on export as well.
FCCISL observed the above mentioned projects would increase money circulation in the country including SMEs provided the Government considered preferential treatment to Sri Lankan industrialists. “We have seen in the past various governments award tenders to overseas contractors despite local companies with the required level of competencies offering lower prices than overseas companies. We hope the present Government will change the discriminatory and unfair tender practices that happened in the past.”
FCCISL said it also noted that the Budget had provided number of cash and non-cash incentives such as startup capital of Rs. 500,000 at the rate of 4%, per annum, a special loan scheme up to Rs. 500,000 at an interest rate of 7.5% per annum for the purchase of dairy cattle, setting up of eco-friendly cattle sheds, etc., relief on Customs duty and in the energy sector the Government is to facilitate private entrepreneurs at rural level, to install solar power plants connected to 10,000 transformers. “We expect these measures to provide many business opportunities to SMEs in the country provided the implementing agencies adopt a more flexible approach towards disbursement of these schemes.”
FCCISL also stated that even though the Budget was investor and business friendly it did not mean that it was all good and without any disappointments.
“The tourist sector is one such disappointment and FCCISL and other trade chambers had repeatedly requested a reasonable grant to sustain life for those who were totally dependent on tourism and who do not now have any income source. It is regretted that no solution was given through the Budget.”
It said the most significant aspect of the Budget was the declaration by Prime Minister Mahinda Rajapaksa that the Sri Lankan Government would have a consistent tax policy for five years: “We appreciate this bold step taken by Government to instil confidence in the business community. This has now solved a major issue faced by investors and business community so far.”
FCCISL said that in pre-Budget proposals it had pointed out the need to address the cost of PCR tests done for the work force, the expense of which has to be absorbed by companies. “This is a substantial cost for a SME company, which has a work force of 100. We appreciate that Government has proposed an insurance scheme for work places at a subsidised rate and we hope this insurance cover includes health issues as well. FCCISL considers this as a timely move.”
Stating that the International Monetary Fund (IMF) expected the global economy to shrink by 4.4% this year, it said almost all developed and emerging economies were experiencing a pandemic-led recession, “except for China, where it had recorded a 5% growth in the GDP for the third quarter compared to the third quarter results of 2019. The Sri Lankan economy too contracted by 1.6% in the first quarter of 2020. In this context can Sri Lanka achieve its ambitious economic targets such as growth rate of 6 %?”
It emphasised that social and infrastructure development measures needed a lot of money in the context of a budget deficit of 9% of GDP: “Practically every year Government expenditure is likely to be higher and revenue shortfalls can be expected. In addition, the Government’s commitments to salaries, pensions and debt servicing, loss-making State-Owned Enterprises and finally financial impact of COVID-19.”
FCCISL said another challenge to be faced by the Government was in view of falling income and expenditure of the middle class, adding that due to COVID-19 effects such as salary cuts, loss of employment, etc., both direct and indirect tax income was likely to drop. The Government imposing a ban on many imports such as vehicles and lower or zero import duties on some items related to construction and spare parts too would add pressure on Government income, it noted.
It asserted that in Sri Lanka, another notable lapse was that once the Government introduces the Budget, there was no proper or scientific impact analysis taking place after one year. “We sincerely request the Ministry of Finance to submit a report of impact analysis to the country for the benefit of taxpayers.”
When analysing the Budget 2021 one stark reality is that as a strategy the Government will depend more on incentives-driven infrastructure development and the construction sector for economic growth instead of productivity-led growth, it noted, adding that it considered the current budget a reflection of Government’s thoughts to achieve medium and long-term economic stability and said it would serve as a stepping-stone towards productivity-led growth where the country has to focus on labour productivity, use of new technology, efficient management and production systems, etc.
It said a good example was the substantial waste of food and fruits taking place in Sri Lanka. “It’s calculated that in Sri Lanka 50% of the agriculture produce is wasted while transporting from the cultivation to the end consumer, skyrocketing the wholesale retail price and creating unbearable cost to consumers and food manufacturers. We request the Government to implement measures to tackle this issue by taking necessary steps, which is possible even outside the budgetary guidelines.”
It also called for the introduction of IT to facilitate paperless trade/a national single window, which would restrict the movement of workers to a large extent, in turn providing a strong answer to mitigate COVID-19. It said that overall, except for the apparel industry, all other industries needed a major productivity drive to be competitive in the world market and expressed regret that the policymakers were yet to fully focus on this important aspect.
FCCISL asserted that Sri Lanka needed a national drive for innovation and sustainability from the education system, especially university level for innovations, as a matter of urgency.
Programs such as the Accelerating Higher Education Expansion and Development (AHEAD) Operation of the Ministry of Education and University Grant Commission, funded by the World Bank Group, could be extremely useful for trade chambers and other stakeholders to access innovations from universities to generate economic development, it noted.
“Finally, we like to emphasise that before taking decisions to enter into any trade negotiations or trade agreements, the Government needs to introduce a progressive national trade policy through consultations with all stakeholders. We hope the Prime Minister’s assurance during the Budget speech to review the agreements signed in the past will have a positive and realistic impact on the future course of Sri Lanka’s foreign trade,” it concluded.
