PM’s Economic Policy Statement and Budget 2016: Good for the country, biz and people?

Sri Lanka’s 2016 Budget was commented by most as a mixed budget. Biz and the people were looking at the Budget based on the Prime Minister’s policy reforms statement presented in Parliament on 5 November. The following were included in the PM’s statement:

“Our final goal is to improve and enhance the living standards of the people; it is the goal for which we have obtained the approval of the people at the election.”

“To take us on that journey, to enable us to climb to those heights, I believe the right political climate has now been created in the country. The two main political parties in the country have come together to form a National Government of Consensus. The main objective in forming a National Government is to provide a common platform to deliver long term social economic solutions that can solve the key problems of the country. This would be towards achieving stability and embark on a speedy journey of progress. We may not get another opportunity such as this.”

“When looking back at our history, we can be proud of the open market economy practiced during the time of Manawamma to the period of prosperity under Maha Parakramabahu. We traded in spices, precious stones, elephants and rice with the world. We were considered a key import and export hub. We believe that with the planned economic remedies, we will be able to bring back such an era of prosperity for the nation once again.”

“In order to be able to do so, we must be able to get the economic foundation right. Multi-disciplined economic strength; local competitiveness, international trade and investments must be in our sights. A knowledge based Social Market Economy built on social justice principles must be fostered. The key areas to build this economy are the availability of global opportunities for education, strengthening of the health system to face health concerns of the 21st century and the ability to ensure mobility successfully.”

“Accordingly, I believe that is our collective responsibility to make the best use of the opportunity we have been given. In such a setting, we plan to pay attention in the medium term to a few important areas of concern:

1. Generating of one million job opportunities.

2. Enhancing income levels.

3. Development of rural economies

4. Ensuring land ownership to rural and estate sectors, the middle class and government employees

5. Creating a wide and a strong middle class”

“Let us learn the lessons from the past. We will celebrate 75 years of independence in the year 2023. If we walk the right path, we have the potential to become one of the strongest economies of Asia. So let us seize the opportunity – let us rise higher towards our goal.”

“What has happened today? Once recognised as the most open economy of South Asia, we have today been given the infamous title as the most corrupt economy of Asia.”

“We all agree that State enterprises must be more efficiently run. This can be achieved by ensuring that good economic management is practiced and efficient managers are put in place.”

“We will also need to review the tax concessions given to investors. We must question whether we have achieved our objective with the tax concessions given so far. We need to re-evaluate these measures and bring them in line with changing times. We should ideally become a low tax regime.”

The PM’s statement was quite positive and promising. However, some of the areas the PM addressed in his policy statement are not reflected fully in the Budget. We as a country need a clear-cut economic policy which can win the confidence of the Business, Foreign Direct investors and the People of our country.

Generating one million job opportunities is the first priority of the PM’s policy statement. He mentioned in his speech this requires Foreign Direct Investment (FDI). As it is we are one of the countries in Asia which attracted the lowest FDIs. Chart 1 indicates 2000-2014 FDIs in Asia. We are not even in the picture. Then how are we going to achieve this big target? Are we using the same strategy, same people?

We need to think of a good strategy and a process to execute. This should be the next step and hope the government will implement the right mechanism in order to realise the goal of one million jobs in three years.

I believe the PM wanted to create a large amount of jobs in the private sector and not in the Government. If this is in the private sector then the Budget urging the private sector employers to increase the salary by at least Rs. 2,500 per month is quite unethical.

Sri Lanka has a free market economy and the salaries of the private sector should be based on the supply and demand. Most of the private companies today practice and promote productivity based wages. The workers have the talent to achieve higher productivity tend to make more money and this will improve the competitiveness and productivity both.

In addition the Employers’ Federation of Ceylon (EFC) is there to address the issues related to this area with the State and with the chambers involve in the trade and commerce. There was no consultation with the Chambers or with the EFC and announcing this in the Budget can create a negative impact in generating the one million job target.

Charts 2 to 4 will indicate us some of the areas we should improve in order to attract FDIs. Ease of doing business is very vital for Sri Lanka and needs quick improvement.

Enhancing income levels is the second priority. Chart 5 shows us the situation in some of the Asian countries. We have come up a long way from 1980 to 2014. However comparing with the countries like China and India which have over a billion people, they have done well with their huge populations.

Our country has a very high literacy rate supported by IT literacy too. We should create good opportunities for our talented youth to stay in the motherland, create a higher value addition and enhance the income levels. As it is we are performing much lower than the potential. We need a clear vision and a mission to improve the income levels in our country. The agricultural based rural areas should be assisted by the government with new technology and innovation to improve the productivity.

Development of rural economies: Ensuring land ownership to rural and estate sectors, the middle class and Government employees. Creating a wide and a strong middle class.

This has become more of a political promise for a long time. This is something easy to say but difficult to handle with the existing system. We found this is a subject addressed from the election campaigns until end of regimes. The results produced in the past is unsatisfactory.

The biggest challenge here is how to use the same old systems and the same old people and produce rapid results. There should be an innovative approach and a motivating mechanism to be created. Land ownership is also an identified problem for the development of rural economies. The delays should be minimised by changing bureaucratic system with more modern approach. If the Government is capable of handling the development of the rural economy, well that itself can create a wide and a strong middle class in Sri Lanka.

From the PM’s policy statement we find the Government has identified one weak area: “We all agree that State enterprises must be more efficiently run. This can be achieved by ensuring that good economic management is practiced and efficient managers are put in place.” We have to wait and see how good people will come to manage these State enterprises and how good results they will produce. If no good managers are appointed to places, this will create a hole in the bucket situation.

If we refer to the Budget 2016 we see a few conventional issues. How the Inland Revenue Department will increase tax net for personal income? It is very important to increase the number of personal tax files as well as Small and Medium Enterprises too. If this can be done they will also start good business practices which can benefit everyone in our country rather than putting more of a burden on poor people with more and more indirect taxes.

A new tax was imposed in Budget 2016 for withdrawals from banks of over Rs. 1 million. The Finance Minister requested recently all the Sri Lankans living abroad to bring their money to Sri Lanka and no questions will be asked. After bringing the money every time when they need to withdraw if they are taxed, the chances of investments coming to Sri Lanka will be very remote.

As a country we have to believe in creating a clear policy for the development of Sri Lanka. What we lack is a clear policy. If we can maintain consistent polices rather than changing time to time, in every budget surely there can be a clear progress. As it is we are at the best time for this and in the PM’s statement he explained as follows:

“To take us on that journey, to enable us to climb to those heights, I believe the right political climate has now been created in the country. The two main political parties in the country have come together to form a National Government of Consensus. The main objective in forming a National Government is to provide a common platform to deliver long-term social economic solutions that can solve the key problems of the country. This would be towards achieving stability and embark on a speedy journey of progress. We may not get another opportunity such as this.”

We are very hopeful and patient… We have to wait for some time and see the results, always reminding ourselves of this quote by Aristotle: “Patience is bitter, but its fruit is sweet.”

 

[The writer is Chairman of the International Chamber of Commerce Sri Lanka (ICCSL).]