New wave of growth, reforms via Budget 2013 – Dr. PB

By Cheranka Mendis

Treasury Secretary Dr. P.B. Jayasundera yesterday emphasised that the 2013 Budget was developed to unleash a new wave of growth and reforms to make Sri Lanka a poverty-free country by 2016.

Addressing an audience exceeding 1,200 persons at the first-ever post-Budget seminar organised by Ernst & Young, Jayasundera assured that the Government would maintain continuity, consistency and clarity in implementing the Budget decisions announced on Thursday and that the main thinking behind the formation of the proposals was to create a new wave of growth and not lose the momentum created thus far.

Noting that the reforms had been shaped with President Mahinda Rajapaksa’s vision of going beyond the Millennium Development Goals and a US$ 4,000 per capita income to become a ‘poverty-free Sri Lanka’ by 2016, he stated that “every single line in the Budget has been made to outline these aspects and looks at equitability in terms of opportunities, livelihoods, and way of power”.

Jayasundera firmly assured that the Government would not borrow in the capital market in the coming year, secure in the knowledge of having US$ 3 million worth of solid 10-year bonds, with good rates for Sri Lanka international bonds.However, the country needs capital in every way possible, he said. “Restrictions on capital formation have to move out. The country has developed activity to improve capital formation.”

“The country needs a mindset change, and this is what the Budget has done by driving actions such as import substitution and import replacement. Instead of money moving out, we need money to come in and do the value addition here. This is what we need and what the reforms will do.”

The Government has also created space for banks to go global without competing for the same customers locally. “Banks must also go global. They must raise the money and show their balance sheets and strength in the world market. BOC cannot always be the ‘Banker to the Nation’. Other banks must support it.”

What matters is the sustainability in the market in capital formation, he said.

Offering support for a financial boost, the Government has given the Municipal Councils an opportunity to raise capital by issuing municipal bonds, which are five times bigger than the Municipals’ Budget surplus. “We need certain reforms creating investment opportunities in the Municipal areas, because those areas must also be developed.”

With industries requiring long-term funds and not just short-term overdrafts, the country’s two development financial institutions, DFCC and NDB, with their ‘super balance sheets,’ must take more risks in the market.

Jayasundera stated that US$ 250 million has been earmarked for each of the institutions to take their balance sheets and go global to raise money. “We hope either together or individually they will bring this money to the country and lend for much-needed investment such as to plantation companies.”

On the tax front, the corporate large tax unit of the Inland Revenue Department will be strengthened while the department will be expected to carry out ‘decent tax audits’ of 30% more than at present and to give faster interpretations on tax, etc. The Tax Appeal Commission should be strengthened as well, he said.

“The tax system will not compromise for short-term gains. We were pressed for revenue mid this year but did not compromise. We balanced it by expenditure management, being more cautious, and delaying new project commencement rather than making ad hoc changes. We will continue this in the same manner as the theory has worked well for the country.”

He commented: “Policies have been created to set the stage on a much bigger ground of growth, maintaining single digit inflation, creating a strategic exchange regime not by running down reserves but by maintaining strategies on trade deficit and draining capital inflows rather than capital outflows. “

Noting that the country could have still gone for 8% growth if not for the drought, which did not just leave the earth dry but also the growth of the country, he assured that poverty reduction across all levels had significant importance in the 2013 Budget.

Presently the poverty level is at 8.9% and unemployment at 4.5%. He appealed to the private sector to join the Government in reducing poverty, not just by way of employment generation, but by addressing issues such as malnutrition, poor health and sanitary conditions, education, etc. He pointed out that this could be carried forward as companies’ CSR projects.

Skills development, IT and language literacy, and creating space for students who do not qualify to enter local universities must be addressed.

“We have identified the areas for improvement and the Government is doing all the changes in the next wave of reforms,” Jayasundera said. “The Government thought the Budget must spend, recognise, and design policies towards education, skills, technology, and research.”

Increasing research is also an integral part in the development process; hence the decision to extend a triple deduction of expenditure in research to the private sector in the Budget.

He also noted that the Government had committed 6% of GDP as public investment in infrastructure development as well.