Budget brings relief

Saturday, 25 October 2014 00:00 -     - {{hitsCtrl.values.hits}}

  • Not election-focused, benefits to encourage public and energise private sector: Cabraal
  • Budget shows increase of 14.98% in expenditure with salaries bill up by significant Rs. 90 b, subsidies by Rs. 66 b
  • Opposition slams it as “inward-looking and protectionist,” says words not matched by numbers
  President Mahinda Rajapaksa presenting his 10th Budget to Parliament yesterday afternoon     By Uditha Jayasinghe The much-awaited Budget 2015 was yesterday presented by the Government as focused on national development and industries, but dismissed by the Opposition as election-targeted relief. President Mahinda Rajapaksa punctually delivered the extensive Budget, beginning with an exhaustive recap of economic fundamentals that prevailed before 2004 and initiatives that were put in place subsequently by his Government. “Having restored security and peace during the first five years and having got important infrastructure and economic activities in place during the last nine years to satisfy the basic needs of the people, our next phase will be to double our efforts towards strengthening education, skills and human resource development so that our economic progress will be driven by knowledge and skills,” he told Parliament. Following the reading, he quipped to the UNP: “How is the country bumpkin’s Budget?” President Rajapaksa outlined extensive targets for 2020 that centred on meeting the target of $ 7,500 in per capita income, encouraged investment in rural areas and targeted improving technology-related industries. Sri Lanka’s budget deficit will be reduced to 4.6% of Gross Domestic Product (GDP) in 2015 from this year’s estimated 5.0%. Official Budget documents showed the Government has revised public investment down to 5.6% of GDP this year from an original 6.7% to cut down the deficit to 5.0%. By 2017, the budget deficit can be down to 3.0% of GDP, Reuters reported. However what most analysts found striking was the high number of relief measures included in the Budget that covered almost all sectors of the economy. Reuters calculated the Budget shows an increase of 14.98% in expenditure, with the salaries bill up by a significant Rs. 90 billion and subsidies by Rs. 66 billion. These expenses are largely driven by the Budget decision to add special allowances currently being paid to public servants to the basic salary and the minimum salary to be increased up to Rs. 15,000. The cost of living allowance will be increased by Rs. 2,200. Casual and temporary employees who have completed 180 days of service in corporations and statutory boards will be made permanent. Correcting the salary anomalies of railway employees alone received an allocation of Rs. 2 billion. Rajapaksa also urged the private sector to increase the minimum wage to Rs. 10,000 from January 2015. Central Bank Governor Ajith Nivard Cabraal defended the relief-oriented Budget, insisting it was not targeting elections but rather “very much part of the plan”. “This Budget merely continues what was begun several years ago. People think reduction in electricity charges, for example, is an election gimmick, but it was clearly set out in the ‘Mahinda Chinthana’ in 2009,” he told a post-Budget gathering organised by KPMG last evening. He insisted it was important for all segments of the public to feel included in the development process and the Budget simply enabled trickling-down of benefits. He also promoted the decision to put fixed prices on a range of items, including milk, paddy, onions, potatoes and fish, as empowering the rural community. “We will continue to aim for 8% growth, 3% unemployment, poverty at 1%, 50% debt to GDP ratio, a stable rupee, current account surplus, equitable growth and greater infrastructure. There is additional space in the Budget to provide benefits as there has been a massive turnaround in these numbers. Benefits are also necessary to energise the private sector and show the public no one is being left behind.” However, United National Party (UNP) MP Eran Wickramaratne was quick to dismiss the Budget as little more than an election goodies list. “It’s an inward-looking, protectionist and giveaway Budget. It’s full of promises of pensions, subsidies and concessions. Clearly aimed at an election. The giveaways included vehicle duty reductions for Sri Lankans working overseas, the elderly, unemployed and others. The budgetary framework is largely unchanged. The private sector and exports will continue to be subservient to other socio-political objectives,” he charged. Wickramaratne also pointed out the Budget failed to deal with larger issues of governance and improved financial accountability. “There is much talk about development and modernisation, but the words were not matched with numbers. The increase in technology and research expenditures was a paltry Rs. 500 million. A country building a technological and innovative capacity should be spending about 1% of its GDP. Many words but no numbers to match,” he added. Presenting the private sector take, Ceylon Chamber of Commerce Chairman Suresh Shah acknowledged that at first glance the Budget “gives the impression as being one of relief,” but admitted closer study was needed to understand if the proposals could work towards a per capita income of $ 7,500 by 2020. He praised positive policies for the Small and Medium Enterprise (SME) sector and exports, but warned that reduction of taxes could mean the deficit target needed a closer look.

 Rupee forwards up on bank dollar sales

  Reuters: Rupee forwards ended slightly higher as banks sold dollars to cover short position in the local currency as President Mahinda Rajapaksa, also the Finance Minister, presented the 2015 Budget in the Parliament. Rajapaksa, presenting the Budget in Parliament last afternoon, said Sri Lanka in 2015 would trim its Value Added Tax and reduce its budget deficit to the lowest level since 1977. The spot currency was quoted at 130.85/95 per dollar but not traded, dealers said. It was not traded during the week after closing at 130.60/80 on 17 October. The three-day forwards, or spot-next, actively traded in the absence of spot, ended at 130.90/131.00 per dollar, tad firmer from Thursday’s close of 131.00/05. “We have seen some bank selling with the Budget speech,” a currency dealer said. Dealers said they are waiting to see the impact of the Budget and the exporters were reluctant to sell dollars ahead of the Budget announcement. Dealers said the Central Bank’s moral suasion was not seen on the spot, but it persuaded some banks not to trade the spot-next below 131.10 in the early trade. Central Bank officials were not available for comment. Nandalal Weerasinghe, a Central Bank Deputy Governor, said on Monday the monetary authority would intervene to prevent short-term volatility in the rupee and said moral suasion was to prevent sharp changes. Weerasinghe said the Central Bank has been preventing a sharp appreciation in the currency by intervening to maintain some stability over the last 12 months. Overseas investors sold a net Rs. 30.9 billion ($ 236.24 million) worth of Government securities in the five weeks through 22 October, data from the Central Bank showed.

 Stocks gain for second day on banking shares

  Reuters: Stocks gained on Friday for the second straight session as investors bought banking shares, but the turnover was moderate as the market awaited cues from 2015 Budget announcement. Sri Lanka in 2015 will trim its Value Added Tax and reduce its budget deficit to the lowest level since 1977, President Mahinda Rajapaksa told Parliament on Friday while presenting the 2015 Budget. Sri Lanka’s main stock index rose 0.33%, or 23.97 points, to 7,213.48, further moving away from its lowest since 9 September hit on Tuesday. “Foreign activity picked up from yesterday with buying interest in large cap counters,” said Dimantha Mathew, Manager, Research at First Capital Equities Ltd. The day’s turnover was Rs. 870.7 million ($6.7 million), less than this year’s daily average of Rs. 1.36 billion. Foreign investors bought a net Rs. 260.7 million worth of shares on Thursday, extending the year-to-date net foreign inflows to Rs. 10.56 billion, exchange data showed. The gains were led by Carsons Cumberbatch Plc, which rose 1.65% to Rs. 443.90, while Commercial Leasing & Finance Plc added 2.17% to Rs. 4.7. Nestle Lanka Plc rose 0.98% to Rs. 2,099. Stockbrokers said trading in local shares may be volatile due to the revised poll schedule and a possible bottoming out of interest rates.