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Friday, 17 November 2017 00:00 - - {{hitsCtrl.values.hits}}
By Skandha Gunasekara
Sri Lanka’s macroeconomic conditions have largely stabilised, Finance Minister Mangala Samaraweera said in Parliament yesterday, insisting that conditions are ripe for the fast-tracking of liberalisation to foster rapid economic growth.
Addressing Parliament ahead of the second vote on the Budget, which the Government won by 93 votes, Samaraweera threw his support behind developing an economy where growth was driven by private investment and an economy which generates foreign inflows through exports and FDI to finance Sri Lanka’s emerging external debt obligations.
Having identified key areas, the Government would focus on widening bottlenecks and creating the right policy framework to induce growth, he told lawmakers.
“The land legislative reforms we propose are with a view to freeing up this unproductive or unused land for productive use for investment, for enterprise. This will in no way undermine the land rights of citizens. Today our farmers are not free to produce the crops that yield them optimal returns. We want these reforms to empower our farmers to have the flexibility to produce the crops that give them the best returns,” he said.
Reforms would also cover labour laws, capital for SMEs and entrepreneurs and capital market liberalisation.
“The next Google or Facebook could be developed in Sri Lanka but in today’s capital market it will probably go unfunded. This is why we need reform – we need to fix systems that are not working. The Enterprise Sri Lanka credit scheme, the SME guarantee fund, the Development Bank, will work together to mend our dysfunctional capital markets. This is the kind of reform I intend to drive in this Budget.”
Samaraweera noted that the role of the Government ought to be in setting the institutions and rules of the game whilst regulating the market to ensure competition, fairness and social equity. The business of Government is not in doing business, he told Parliament, adding, “This is especially so when the Government’s legacy in running SOEs is an accumulated debt of Rs. 1.4 trillion.”
“Sri Lanka must move on from the shackles of excessive state controls and return to its roots of vibrant free enterprise.”
If Sri Lanka is successful in implementing reforms and fostering growth the country could potentially have a Budget surplus, the first time in 60 years, by the end of 2019, Samaraweera estimated. Participating in the final debate of the Second Reading of Budget 2018, Minister Samaraweera said that the country would be able to complete repaying foreign debt in the coming few years, leaving room for a surplus in the Budget by years in 2019.
The current total outstanding debt of the country was Rs 10.2 trillion, the Minister noted.
Thereafter, the Minister made clarifications with regard to statements made by him during his Budget speech on 9 November.
The Minister pointed out that those who have open Letters of Credit in their names for vehicles imported on or before 9 November, would be allowed to clear those vehicles at the rate of the duty prevalent before the Budget, noting that these vehicles must be cleared before 1 April 2018.
The tax concession proposed in the Budget 2018 for brand new electric vehicles would also be extended to electric vehicles which have been used for a period of not more than one year.
The gazette notification issued by Minister Samaraweera states that the duty of electric cars that have been used for not more than year will drop by an estimated Rs. 1 million. As a result, the duty rate applicable for electric vehicles used for a maximum period of one year will be Rs. 12,500 per KW for a vehicle that has capacity of 100 KW.
The Minister further asserted that the Loan to Value (LTV) ratio for motor cars, which is 50:50 at present, would also be relaxed for hybrid vehicles.
Accordingly, the revised LTV will be 50% of the value for petrol and diesel motor cars, 70% of the value for hybrid cars and 90% of the value for electric vehicles.
The duty on vehicles assembled locally will remain at 30% and will not be increased to 40% as stated in the Budget Speech on 9 November.
Furthermore, the Minister explained that the VAT on the sale of a condominium unit will be liable only from 1 April 2018 onwards and that sales made under a sales agreement before 1 April would not be liable for VAT.
The Minister then slammed the former regime for leaving the country’s economy in shambles at the end of their tenure.
“When the Coalition Government took over, the political dilemma was apparent but what was not so clear was the economic crisis the country was in. The former regime has taken all steps to hide the truth and the economic crisis was well masked by careful manipulation of macroeconomic data. Even the Central Bank had manipulated official date for the former regime.”
The Minister then noted that the Coalition Government had in fact been able to increase Government revenue in comparison with the former Government.
“When our Government came to power, Government revenue to GDP was around 11% - easily the lowest in our region and amongst the lowest in the world. It was in this context that our Government came to power in 2015. Our first action was to provide relief to a public that had been saddled with numerous economic burdens. We eased prices for a number of products, relaxed monetary and fiscal conditions and gave respite to a struggling populace.
“Since then we have gone about stabilising the economy. A series of significant fiscal reforms were undertaken, most recently the Inland Revenue Act. Revenue has accordingly increased from 11% of GDP to 14.6% of GDP – a remarkable achievement for such a short period of time. We are now on the cusp of a current account surplus in the Budget for the first time in decades. External reserves have stabilised after being decimated by the significant external debt repayments that had to be made to service the debts of the previous regime. The confidence of global markets has returned as indicated by the spike in foreign investments in debt and equity markets this year.”
