Resolve issues related to slow growth: CCC

• Seafood will be first to benefit from GSP+
• First quarter VAT revenue increase by 100%
• New Inland Revenue bill this year, implementation in 2018/19 
• Says high sectoral credit growth needs to be addressed

By Charumini de Silva

While advocating cleaving to fiscal consolidation efforts, Ceylon Chamber of Commerce Economist Anushka Wijesinha this week called on the Government to seriously assess and address factors resulting in slow growth.

“Sri Lanka has not seen a substantial increase in the doing business climate. We haven’t seen FDI pick up substantially, exports continue to be weak, a tighter monetary policy, and all of this has come at the expense of growth. It is evident with the 2015 and 2016 numbers that is something we have to seriously consider,” he told a panel discussion recently in Colombo.

Wijesinha pointed out that not enough dialogue has gone into the slowdown in growth.

Given growth has not picked up from last year and pressure is mounting from grassroots levels, he warned against the Government backtracking on fiscal consolidation with a handout budget, which he claimed was not necessary.  

While non-tradable sectors like construction and financial services have been doing well, an improvement in tradable sectors has not been visible, Wijesinha said. 

“This is where I am hopeful with GSP+. Not to make magic but certainly to pick us up from where we are at present. Whether it is in seafood, fresh fruits and vegetables, porcelain tableware, toys and apparels; all of these are likely to see a pickup. Certainly not his year, as order books have been closed, but in 2018 and 2019,” he stressed.

Although apparel is the “sexy topic” to talk about when it comes to GSP+, Wijesinha asserted that seafood was going to be the quickest to pick up as it has the largest preferential duty, which came down from 23% to 0%.

However, he said the main concern was on the import bill of the country as it has inflated considerably. 

“In the last two years we had the luxury of a lower oil import bill despite our decline in stagnant export earnings. But in the last few months this has changed, both because oil prices are edging up and a greater reliance on non-hydro energy.”

With no revisions since the Government slashed oil prices in 2015 and with no fuel pricing formula, he cautioned of a possible crunch if there is upside pressure from increased consumption.

In terms of taxes he said VAT implementation has seen a significant increase from the Government revenue side. 

According to him, in 2016 VAT has increased by 29%, and was the single largest contributor to the increase in tax revenue by about 60%. In the first quarter of this year there is a 100% increase in VAT revenue compared to the same period last year.

He said that the new Inland Revenue Act along with RAMIS will boost tax revenue numbers.

Nevertheless, he said that although the new income tax Bill may be passed in Parliament this year, it would be implemented from financial year 2018/2019, which he believes will have a much better reflection on revenue rather than possibly complicating existing systems.

On the banking side, he said there is a need to consider things at a more disaggregated level as credit growth was concentrated in only certain sectors of the economy.

“If there is high credit growth in certain concentrated sectors such as in non-tradable it could cause high interest rates, which will then have to be faced by the tradable sector. Now along with various export promotions, FDI promotions and GSP+, all of us have to face higher interest rates which I think needs to be addressed immediately,” he pointed out.