Ravi K briefs National Chamber of Experts on macroeconomic approaches

From left: Minister of Finance Ravi Karunanayake flanked by NCE President Sarada De Silva (right) and NCE VP Ramal Jasinghe

Minister of Ravi Karunanayake Finance addressed the Council of the NCE consisting of sectoral heads of export-oriented products and services sectors recently and thereafter engaged in a discussion to clarify issues of concern. The event was held at the ballroom of Hotel Ramada.

The Minister in his brief address explained the difficulties faced by the Government due to the substantial debt obligations foisted on the country by the previous administration. He added that the extent of the debt figures came to light after the presentation of the first Budget of the Government as the figures had not been disclosed even to the IMF previously. As a result several adjustments had to be made to increase the revenue of the Government to meet the additional expenditures arising out of debt obligations. This in turn necessitated rationalisation of taxes including VAT. 

He further stated that previously revenue of the Government were not sufficient to cover recurrent expenditure. However, for the first time due to adjustments made, revenue would cover recurrent expenditure, enabling the use of external financial assistance received by the Government for capital expenditure and for development activities. 

He also disclosed that only 28,000 people out of a population of 21 million in Sri Lanka had tax files, highlighting the extent of tax avoidance. As such through the introduction of digitalisation and rationalisation of taxes, the Government will ensure that all those who are liable for taxes comply, because currently people at large are burdened with several indirect taxes as a result.

The Minister also disclosed that the expected Budget deficit of 7.2% of the GDP was due to a carryover of over 1% from the adjusted accounts for last year arising out of hidden expenditures of the previous administration. However, the prudent macroeconomic policies of the Government will ensure strengthening of the economy, and consolidation of macroeconomic parameters in the medium term, to achieve the targeted growth of the economy. 

He also disclosed that as a result of the measures already put in place by the Government, there was a substantial increase in revenue collection by the Inland Revenue Department, Excise Department, and Customs, posing the question as to where these funds had disappeared previously.

Following the address by the Minister, the undernoted concerns expressed by Council Members were discussed:

The dearth of skilled workers across most product and industry sectors which hampers both production and productivity was highlighted. It was pointed out that most workers after receiving training by their employers were leaving for overseas jobs. It was proposed that the Government should prevent the brain drain of skilled workers for overseas jobs in the interest of the country. The Minister responded by stating that the trade chambers should take up such issues collectively in view of their sensitive nature to achieve the desired results. He added one possible solution may be to raise the minimum ceiling of $ 300 per month that is imposed at present through the Sri Lanka Bureau of Foreign Employment (SLBFE), to obtain overseas employment to ensure non exploitation of our workers by foreign employers. 

With regard to the recently imposed regulation for repatriation to Sri Lanka of export proceeds within 90 days, the Minister disclosed that around 26% of Sri Lankan exporters were retaining their export earnings in overseas accounts. He added that it had been found that some of them had even utilised such funds to invest in Government dollar bonds issued by the Treasury, earning interest on the funds that should have been remitted to the country and also utilising such investments as security to obtain foreign loans. In regard to the concerns expressed by exporters that the 90-day period is insufficient, as credit has to be given to some buyers vis-à-vis their competitors to retain them, the Minister stated that the 90-day rule will be flexible for the present to a certain extent, but will be strictly enforced from September onwards. However, in the case of genuine transactions where the period has to be extended, such exporters could obtain a SLECIC insurance cover and guarantee for the extended period that is required, and obtain Central Bank approval for the extended period on that basis. 

The 24-hour trade facilitation measure introduced by the Sri Lanka Customs in coordination with the Ports Authority to streamline the procedures and reduce costs was discussed. It was pointed out by some Council members that although this system was operating smoothly for the benefit of exporters it has been found that there was resistance from certain quarters internally to block the system and revert to the earlier procedure for their benefit. The Minister stated that reverting to the old system will not be allowed, and that the system will be further improved with the installation of a scanner to inspect cargo, and also ensure payments to the Government could be made at a single point. 

The issue of obtaining a loan facility from the Bank of Ceylon for a substantial investment in the garments sector was discussed. It was pointed out that the fixed interest rate offered for a long term loan was too high, and not viable. The Minister advised that the loan facility be negotiated on a floating interest rate basis if possible, since interest rates could decline in the future. In the alternative it was suggested to negotiate the facility from a private bank which is able to offer funds at a lower interest rate, since the cost of funds in the case of State banks was relatively higher as a result of the proportionately higher staff costs due to excess staff. He added that the objective of the government is to encourage competition in the financial system to provide a better service at reduced cost to customers. This will be facilitated through the implementation of the proposed ‘Financial Hub’, where foreign banks will be able to establish in Sri Lanka and provide offshore financing facilities as well. 

Delays encountered in regard to the receipt of funds approved by UNIDO for the proposed Spice Academy was discussed, with a view to funding a solution.

An issue in regard to the minerals sector wherein a company engaged in the processing of Silica Sand for export was discussed. It was pointed that in recent times grant of licenses by the relevant authorities had been delayed citing environmental issues, etc. The Minister suggested that the issue be taken up at the higher forum of the Ministerial subcommittee on Economic Affairs.