“A Happy New Year to broaden the frontiers of Sri Lanka”: PB
Wednesday, 1 January 2014 00:05
Treasury Secretary shares with local industrialists and exporters details of Budget 2014, improvements in the economy and his view on doing business
By Shabiya Ali Ahlam
A confident Treasury Secretary, who expressed he is “highly optimistic” on the recently-announced Budget 2014 and its outcomes, wished the local business community a Merry Christmas and a Happy New Year to broaden the frontiers of Sri Lanka – only this time he meant it.
Although Ministry of Finance and Planning Secretary Dr. P.B. Jayasundera customarily greets the local business community, he quipped he was never quite sure if it really was a “Merry” Christmas or a “Happy” New Year.
This year, however, Dr. Jayasundera is certain the year will end on a merry and happy note due to a number of reasons, which include the achievements of higher growth rates and better maintenance of the nation’s economy.
Listing reasons for his certainty at an awareness program on ‘Budget 2014: Its Importance to Industrialists and Exporters’ organised by the Ministry of Industry and Commerce, Dr. Jayasundera confidently said: “The economy is on a fast recovery from last June. This we have been closely monitoring and the President himself has been personally coaching and sharing the burden. The 2013 third quarter results showed a growth of 7.8%. Many were wondering the figures are correct and said it should be 7% or 6.5%. My response to this is that even if it is 6.5%, the rate is good. With the fourth quarter results yet to come, I am sure the growth will be as strong as the third quarter. With utmost confidence I can say this year can be concluded with 7% plus growth rate.”
Improvement in inflation rates
With the Government managing inflation rates well this year, it even announced a target of achieving mid-single digit in 2014.
Opining that Sri Lanka has done better than countries such as India in this regard, Jayasundera expressed confidence in 2013 ending with inflation less than 6%. “What does this mean to you? It means the country is having a growth rate higher than inflation and that is the real growth. We have had 15% nominal growth in the past. We had 6%, 4% and 3.5% growth, but inflation was 15%. This year we are getting this product with less inflation and more growth,” he stated.
This year, according to the Central Bank of Sri Lanka (CBSL), the nation’s annual inflation rate rose to 6.7% in October from 6.2%. However, the annual average eased to 7.6% from 7.8%, whereas core inflation continued to decline, falling to an annual rate of 2.6% from 3%.
Jayasundera noted that growth in 2014 would be strong and stable since the Government has taken adequate measures allowing the business community to be less impacted to external shocks, if any prevails.
Pointing out that experts say inflation is a monetary issue, Jayasundera noted that the money supply has been brought down. “The Governor of CBSL can proudly speak on these aspects. Although some people still call the country poor, poverty levels have been brought down. Now we have to promote the country differently. The labour market has changed and now it ensures that people are paid differently,” he said.
Entrepreneurs not using Budget as much as they should
Having narrated the contents of the 2014 Budget at many occasions, Jayasundera opined the Government has done much to create awareness on the subject. Whilst appreciating diverse segments across sectors for their enthusiasm in better understanding the document that has been formulated in consultation of the public, he said it is a fact that entrepreneurs do not use the Budget as much as they should.
“There are so many concessions available but not many know about them. I personally don’t like concessions but it is better to let the people know what is available to them so they can make better use of them,” stated Jayasundera.
Despite the document being made available in the languages of Sinhala, Tamil, and English, he said he was surprised that many were unaware of the concessions available. He pointed out that in addition to the challenge of making the document available on time in all three languages, the Ministry had an additional challenge of providing technical details as well, which previous Governments did not share when presenting the Budget.
and not politics
Alongside the Government, entrepreneurs and businessmen are eager to see the country develop. In understanding the growth of the country, Jayasundera asserted that the latter two groups need not think about politics but should instead understand if the set policies are right. “Most of the businessmen don’t look at these details. Get the experts in your organisation to look at the details and write you a memo so you are aware. Such details should then be discussed at board meetings,” he told the audience. Drawing attention to the efforts put in by the Ministry staff on formulating and maintaining confidentiality during the Budget process, Jayasundera stressed that “enormous” details were made available in the Budget, allowing better planning of business.
Import export balance
With Sri Lanka having an open economy, Jayasundera opined the process of doing business was either by engaging in the production of goods and services, importing goods and services for final consumption in the country, or generating income by re-exporting.
Sri Lanka having a high trade deficit over the years he said made the President feel the trading activity was unsustainable. The trade deficit as of October 2013 is noted to be US$ 494.420 million. The balance of trade from 2003 to 2013 is observed to be US$ -930.18 million.
In an attempt to overcome the deficit, Jayasundera said the President conceptualised an economic model where home production was encouraged. “When he (the President) sees people like you, he is confident. And he does not differentiate about being local or foreign. He wants the entire production that is currently replaced by imports to be produced in the country and help transform the economy,” said Jayasundera.
From 2003 to 2013, imports in Sri Lanka averaged US$ 2374.41 million. It reached an all-time high of US$ 5641 in 2011 December, and saw a record low of US$ 1314.40 million in 2012 September. The nation’s import products include petroleum, textile fabrics, food items, machinery, and transportation equipment, and its main import partners are India, China, Iran, and Singapore.
Stressing that it is the Government that is feeling the strain of the trade deficit and not the business community, he said many complain about Government borrowings.
Displeased with such opinions, he said: “The Treasury has to take the responsibility where the country’s national economy is concerned. What is the usual prescription? Devalue and not sell dollars in the market. The CBSL also resisted but we (the Government) took a bold step on the exchange rate flexibility. But then the global economy saw a crisis and the oil prices went up despite all the predictions. Even during the global crisis, oil prices did not come down. The message is that demand is more for all these resources,” stated Jayasundera, attempting to explain the import situation of the country.
"With the fourth quarter results yet to come, I am sure the growth will be as strong as the third quarter. With utmost confidence I can say this year can be concluded with 7% plus growth rateThere are so many concessions available but not many know about them. I personally don’t like concessions but it is better to let the people know what is available to them so they can make better use of themWe want business and the economy to grow. However we want clean and proper businessesWhat greater confidence is required when the Government itself is saying that before election the deficit will go to 3.8%? Obama won’t say this. These are political responsibilitiesThere is a misconception that the Government is trying to protect everything here and that we don’t want imports. This is wrong. What we are trying to promote is competitive business that allows us to compete with anybody – Ministry of Finance and Planning Secretary Dr. P. B Jayasundera"
Simple tax payments
and reasonable rates
In general the business community had complained about tax rates, but according to Jayasundera, ordinary people didn’t mind paying taxes as long as it was a one-off payment. While previously taxes had to be paid at different desks such as Customs, VAT, NBT, and a few others, to reduce the red tape the Government proposed and implemented new tax legislation, a special commodity levy which is a legal tax instrument in place of all other taxes.
“This year we have made a straightforward tax payment process which makes it easy for Customs to collect. Those small traders also feel comfortable since they go to one office. It is simple, transparent, and serves the purpose of consumer producer interest,” stated Jayasundera.
Sectors such as tourism, construction and exports are to pay 12% tax on profit. Emphasising the tax system has been sufficiently simplified, he highlighted that professions such as doctors, engineers, pilots and a few others who have been paying 28% tax will pay 16% instead as incorporated in the Budget 2014.
“We want business and the economy to grow. However, we want clean and proper businesses. This seminar for example is conducted for free at a Government premises, therefore cost has to be taken over. For such purposes, the Government is collecting taxes. If the Government is collecting exorbitant taxes, then you have a reason not to pay,” added Jayasundera.
Rationalised tariff structure
With regard to the tariff structure, he said Budget 2014 has rationalised it to a great extent.
Out of approximately 6,500 line items, 3,376 items are on 0% duty, 1,184 line items are at 7.5%, 1,600 intermediate goods are at 15%, and end user products are at 25%.
“Look at how open the country is. Tell this to international experts who argue about these policies. This is the new structure that has been brought into the 2014 Budget. I want you to see the areas in which we rationalise our tax structure,” Jayasundera told participants.
Focusing on the IT/BPO industry that has been high-performing recently, he said there were many distortions, with some IT products coming into the country with high tariff rates while some come in with 0% tax.
Jayasundera justified this by saying that for the IT/BPO sector, the mission is to generate US$ 1 billion foreign exchange earnings while ensuring that each member servicing the sector earns a minimum income of Rs. 70,000.
Emphasis on skills development
The Budget having a lot of emphasis on skills development, Jayasundera said the President believes for Sri Lanka to be on the top end of the world market, high-earning activities are required, which in turn requires high skills and efficiencies.
“Heavy investment is made by the Government in the areas of skills development and for these efforts to be realised, it may take some time. In the meantime we are encouraging workplaces to build skills and inculcate best practices.” For the nation to have a workforce with improved skills, the Government has recognised a set of activities which include accelerated skills development programs, aiming at producing 50,000 new skills, across sectors such as apparel, fashion design, IT and shipping, to name a few.
No reason to complain
Since President Mahinda Rajapaksa took office in 2005, the public has been involved in the budget process. Jayasundera, pointing out views during consultations over the years, said double digit inflation, high budget deficit, inadequate infrastructure, limited electricity and taxes were key issues highlighted at consultations.
To this he said the Government has listened and acted accordingly. “The story he (the President) is telling you now is that it has been four years since the war was finished. Now the business community cannot complain about things such as power cuts. You have the prospects of having better electricity. In Singapore the cost of electricity is much higher but people still do business there. That is because of the promise they offer,” he told participants.
He added that while previously people complained about the inability of the port to bring in larger vessels, now the new built port is ready and waiting for ships. With the building of ports and expressways, Jayasundera emphasised that Sri Lanka has undergone massive transformation in terms of infrastructure development which greatly helps business in the country.
Tackling budget deficit
With regard to the deficit, Jayasundera said: “The amount of revenue and expenditure the Government adds to the existing debt by way of borrowing is growing at a lesser rate, or is not growing in comparison to the expenditure. Therefore the economy is growing faster and the amount of money spent is less.”
While it is only two years for the next election, Jayasundera said the President promises to have the deficit brought down to 3.8% of GDP by that time.
“What greater confidence is required when the Government itself is saying that before election the deficit will go to 3.8%? Obama won’t say this. These are political responsibilities. So the President is committed and the budget deficit is now brought down from 9.9% and 10% of GDP to 5.6% of GDP this year. The Treasury must work to ensure that it achieves 5.2% in 2014 and by the time he (the President) is ready to speak to the nation for another mandate, it will be 3.8% GDP or less. Why? The President) believes that in his regime the deficit should be lowered to make the nation more solid,” shared Jayasundera.
Misconception about Government
“There is a misconception that the Government is trying to protect everything here and that we don’t want imports. This is wrong. What we are trying to promote is competitive business that allows us to compete with anybody. We are asking to expand manufacturing and business here (in Sri Lanka),” asserted Jayasundera.
Pointing out that though the country produces 50% of requirements for products such as onion, potato and dry chillies, he noted that Sri Lanka still imports US$ 250 million worth of such items.
“This import cost is high. If we do it right, the way we did for rice, maize, soya, green gram and black gram, these are commodities which have the potential to export. That’s why we support such produce. Therefore economists trying to give wrong interpretations in this regard is unfair,” said Jayasundera.
Pix by Lasantha Kumara