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Finance Minister Mangala Samarweera last week declared that the Government has delivered on the much desired macro-economic stabilisation enabling the private sector to grow better. He made this observation during his keynote at the Ceylon Chamber of Commerce Annual General Meeting. He also emphasised that reforms are being implemented with a view to unlocking the space for the private sector to thrive. “The foundation has been laid for economic growth to take off,” he added.
Following are excerpts.
It is a pleasure for me to be here today at your Annual General Meeting. The Ceylon Chamber consists of some of the largest and most established players in the private sector of Sri Lanka. Therefore, it is apt that I speak to you about the key role of private enterprise in today’s economic environment.
Many governments over the years have parroted the phrase that the private sector is the engine of our national economic growth. However this government intends to walk the talk. This is the context in which we launched Enterprise Sri Lanka last week. Enterprise Sri Lanka is one of several measures that are being taken to stimulate economic growth and inject fresh youthful energy into the economy.
I want to start with some comments on the macroeconomic situation and outlook. The focus of the Ministry of Finance, the Central Bank, and other economic bodies in government has been on macroeconomic stabilization over the past 3 years. Without macroeconomic stability it is impossible for private enterprise to operate smoothly.
Amidst a turbulent global economic environment with disruptions in global interest rates, oil markets, geopolitical security concerns in the Middle East, and political turnover in Europe, Sri Lanka’s economy has been navigated into calm waters.
Inflation has declined to 2.1% in May 2018, a manifestation of concerted efforts to bring down the cost of living. Interest rates have moderated as the prime lending rate has declined by over a 100 basis points in the last 12 months. Today’s Prime Lending Rate (PLR) has dipped below 11%. Sri Lanka’s official reserves have reached comfortable levels of US$ 9.9 billion by end April.
Accordingly, stability has been achieved in capital markets, external markets, and in prices.
However, the most important achievement has been the consolidation of the fiscal position. Historically the biggest source of macroeconomic instability has been Sri Lanka’s persistent budget deficits and fiscal weakness. The Ministry of Finance has focused on fiscal consolidation and in 2017 we achieved a primary surplus in the budget for the first time in several decades. This has been through both improvements in government revenue collection and by prudent management of expenditure.
Going forward, the government is committed to achieve responsible fiscal management. This is essential for us to be able to manage the upcoming debt repayments that this government inherited.
Much has been said about the recent depreciation of the currency. The policy of this government is that the currency should be determined by market forces. The recent depreciation of the Rupee is due to external factors, particularly the rise in policy interest rates in the United States. This has affected all emerging and frontier market economies all over the world.
Whilst the Sri Lankan Rupee has depreciated 3.3% this year, the Indian Rupee has depreciated by 8%, the Pakistani Rupee by 10.5%, Indonesian Rupiah by 5.2%, and Thai Bhat by 5.4%. In fact in the last couple of days the Sri Lankan Rupee has appreciated slightly as macroeconomic fundamentals do not warrant a serious depreciation of the currency.
We are already seeing the positive materialization of the benefits of this overall macroeconomic stabilization. Listed corporate earnings in the first quarter of 2018 had grown 29%. Exports and FDI had their best years respectively in 2017. Unemployment was down to 4% in 2017.
Whilst recognising these important gains in macroeconomic stabilisation through the reform agenda, the government is acutely aware of the need to drive near term domestic economic activity. We must be mindful of doing so without upsetting the delicate economic balance so as to not jeopardize our ability to meet the demanding external debt repayments.
The government has designed a multi-pronged strategy to stimulate near term economic growth. The key component of this strategy is Enterprise Sri Lanka.
The Enterprise Sri Lanka loan schemes focus instead on investment which will generate growth today and in the future. The scheme offers attractive concessionary financing to stimulate investment and expansion by entrepreneurs, SMEs, and even large business.
Stimulating such private investment will create jobs, innovation, and will enable economic expansion across the economy and to revive the entrepreneurial spirit of our forefathers. This will no doubt result in multiplier effects which will create dynamism for the value chains that your companies operate in as well.
The Enterprise Sri Lanka loan schemes were introduced in the 2018 budget and were launched last week. The loans will be aggressively expanded, targeting the most productive investment sectors. It is private enterprise that is created and expanded through these programmes which can drive Sri Lanka’s future growth and our objective is to create 100,000 entrepreneurs.
In addition to the revival of private investment driven by Enterprise Sri Lanka, it is necessary for the state to invest directly in the rural economy. Towards this end, the government has identified a fast tracked rural infrastructure investment scheme.
This includes the rehabilitation of identified rural tanks which will have a major impact on agricultural productivity and agricultural incomes.22,000 tanks to be repaired all over the country. Within the next 6 months we will be repairing 1968 tanks and the work will start on the 15th of next month. One of the biggest causes of the reduction in economic growth is the fact that the rural economy has been badly affected by two successive years of drought. Even though agriculture is only 8% of the GDP, the sector dominates rural employment and has a major indirect impact across multiple value chains. It is therefore unsurprising that the ripple effects of these droughts continue to be felt in the economy.
By investing in the rehabilitation of small irrigation tanks, the government expects to increase the resilience to drought and to enable agricultural incomes to remain more sustainable going forward. We expect to renovate over 4000 rural tanks within a short period.
The government will also invest in the development of rural roads, rural markets, and other public works including small forgotten rural places of worship. These measures will collectively inject more cash into the rural economy which will help improve economic activity and kick start broader consumption across the country in a sustainable manner. In fact, every divisional secretariat will get a green park. 20 places have so far been identified. This will contain a gymnasium, a library in keeping with the Athenian concept of body, mind &soul. A roof garden as well to conduct spiritual activity.
This major rural infrastructure drive will be collectively known as the Gampereliya scheme which was launched last week and the Prime Minister will be going to Jaffna & Monaragala within the next 02 weeks to formally launch this idea in the villages and will be a primary focus of the government’s economic agenda over the next two years. We have allocated Rs. 64 billion for Gamperaliya this year.
Whilst working on the short to medium term economic priorities, we are not losing momentum on the ongoing reform agenda. This government took over an economy dominated by the state and crony capitalism – there is a lot of work to be done to liberalize the economy to unleash the productive forces of private enterprise.
We remain committed to the liberalization of trade to ensure that Sri Lanka’s industries remain competitive and our consumers enjoy fair prices. Para-tariffs are being progressively eliminated and we are negotiating trade agreements with strategic regional partners. We have eliminated Para-tariff on 1200 goods and we are in the process of eliminating the Para-tariffs for all the other items by the year 2020. We are also going ahead with the liberalization of the shipping industry.
The divestment on non-strategic state assets has taken longer than expected but this process is being fast tracked and we expect to see results soon. This will help raise finance for the treasury and more importantly will create space for private enterprise to drive these sectors.
Reforms of the business environment are also being fast tracked with special focus on digitalization to enable fewer processes and faster execution. The results are beginning to materialize and today you can register a company from one online location within 24 hours.
A number of reforms in the legislative framework around the factors of production – land, labour, and capital, were announced in budget 2018. These are all progressing under different teams, with the Ministry of Finance monitoring progress and helping unlock bottlenecks and I’m also in the process of putting the final touches to the Customs Ordinance Act and by the end of next month, we are hoping to bring to Cabinet the new Excise Ordinance Act.
These and many other reforms are being implemented with a view to unlocking the space for the private sector to thrive. The foundation has been laid for economic growth to take off.
Macroeconomic stabilization has been delivered. The government is opening up access to major global markets, starting from EU GSP + to trade agreements with Singapore, India, Pakistan and China, creating opportunities for the private sector to grow. We are also providing concessionary finance through Enterprise Sri Lanka to drive investment through a number of sectors. It is now the opportunity for the private sector to take these opportunities and steer our economy towards greater prosperity.
