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For a change from an otherwise overly-political focus in recent weeks, the country in general will be looking forward to today’s presentation of 2013 Budget by the Government, which is under Opposition flak for bad governance and pressurised to provide relief to people and also cushion the local economy from external shocks and other challenges.
At 12:30 p.m. today President and Finance Minister Mahinda Rajapaksa will present the 2013 Budget and the country’s fourth since the end of the 30-year conflict.
As per the Appropriation Bill, the estimated expenditure for 2013 is Rs. 2.52 trillion, up by 13.5% from the approved figure of Rs. 2.22 trillion this year.
A major chunk of the budget is allocated for the Defence and Urban Development Ministry with Rs. 289.5 billion, up by Rs. 60 billion from 2012. Allocations to the Education Ministry have been increased by Rs. 3.43 billion to Rs. 37.9 billion, while the Higher Education Ministry has been allocated Rs. 27.9 billion, up by Rs. 4.1 billion estimated for 2012.
The total maximum borrowing for 2013 has been increased by 12.6% from 2012’s figure of Rs. 1.3 trillion.
The Government in recent years has firmly stuck to a more disciplined fiscal consolidation path but the target of 6.2% of GDP for 2012 is under threat. During his presentation President Rajapaksa will give some clarity. Last year the target of 7% deficit was achieved.
To date 2012 revenue and expenditure targets as well as certain deficit financing measures have been off-mark due to lower revenue owing to downgraded economic growth and higher expenditure on account of high fuel bill, and other pressures. Previously the Treasury said it would curb current expenditure to meet deficit target without compromising public investment.
The majority of the private sector doesn’t expect major tax cuts because significant rationalisation was done last year. However, Budget 2013 is expected to further simplify procedure as well as give redress to some remaining anomalies.
Further support to domestic value addition and import-replacement sectors aimed reinvigorating local producers is likely.
“Unequivocal support for exports is a must if the country to recover in 2013,” experts emphasised.
There is general expectation that given widespread stakeholder consultation prior to and in preparation of the Budget by President Rajapaksa, the Government would be responsive and implement some of the urgent suggestions for revival.
Unlike last year, by which time the country was riding high thanks to the war-end phenomenon, the Government had faced a more challenging setting in the preparation of 2013 Budget. Its presentation today is nearly in a politically and judicially volatile atmosphere, especially in the backdrop of the attempt to country’s Chief Justice. This and what is likely to unfold have prompted some analysts to claim that Sri Lanka is amidst a ‘Constitutional crisis’.
With upward pressure on cost of living and labour agitation for wage hikes, some noted that despite limited fiscal space, the Rajapaksa administration will be forced to offer relief via the 2013 Budget.
However, Government sources played down exaggerated descriptions from the Opposition and analysts. They also said macro fundamentals have improved in recent months with exchange and interest rates being favourable and inflation kept under control.
Politically they argued that President Rajapaksa is a seasoned politician and knows exactly what he is doing. “The people, who are ever thankful for ending the war and terror, are behind him,” they opined.
Independent experts are looking forward for a fresh wave of reforms since such a course is critical to improve efficiency and cut costs in the economy. The recent progress in the Doing Business Ranking is likely to encourage the Government to introduce some degree of reforms whilst avoiding political sensitive structural reforms.
Economic growth for 2012 has been downgraded to between 6% and 6.5% after two consecutive years of 8% growth. Though the global economy has shown some signs of recovery, various setbacks have dented a more robust rebound. This, as well as regional issues, will make 2013 more challenging for Lankan economy though all multilateral donors and economists forecast Lankan GDP growth to rebound to 7% in 2013.
In terms of specific expectations, Federation of Chambers of Commerce and Industries (FCCISL) President Kumar Mallimarachchi said: “The Budget should support and benefit the SME sector of the country. The Government should also focus more on regional development without only concentrating on the north and east, thereby neglecting areas such as Monaragala and Puttalam. We also hope that the lending rate is kept below 15%, which currently seems like it would increase, putting immense pressure on the industries. Ideally the rate should be kept at 12%.”
Ceylon National Chamber of Industries (CNCI) Chief Preethi Jayawardena said: “Last time when I met the President and the Secretary to the Treasury, I asked them whether they could give some concessions to the SME sector. I said that because I believe the SME sector is the backbone of the economy. They are going through great hardship due to the rise in interest rates and they find it difficult to borrow from banks. What I suggested is to either create a venture capital fund or a guarantee fund. With Budget 2013 I expect some relief to be given to the SME sector. I don’t know how the Treasury will give this relief, but I hope that they will address this and I consider absolutely essential.”
Ceylon Construction Industry Sri Lanka (CCISL) President Surath Wickramasinghe said: “We have put across six proposals to the Government. This first is for the Government to establish an Infrastructure Development Fund to promote the capacity building and sustainability of the domestic construction industry, for the industry to be competitive with the foreign counterparts. Next is that it provides seed capital to formulate Urban Regeneration Project Templates to invite PPP proposals from investors/developers. We have also requested that the Government offer a minimum of 50% of the public sector work funded by the Consolidated Fund to the private sector consultancy and construction firms, for which private sector firms will offer a similar solution to State sector agencies, for expediency and simplification of the tender procedure. Also proposed are tax exceptions for the professional organisations and institutes, liberalisation of bitumin imports and improper classification for custom purposes of building material imports. We hope that the Budget will take into consideration the proposals put forward by the CCISL.”
Planters’ Association of Ceylon Chairman S.K.L Obeyesekere said: “From the industry, what is needed currently is productivity improvement and reduction of the cost of production. We expect a form of relief in terms of funding for replanting and support to increase production. We have discussed this with the Minister of Plantation Industries Mahinda Samarasinghe.”
Sri Lanka Ceramic Council President Mahendra Jayasekera said: “As a result of pre-Budget representation, the Government has, I believe, taken steps to protect the ceramic industry. What we expected was an increase in cess and an increase in the minimum value for Customs. We have not asked for subsidies in any form. We would be happy if the Government does not increase the costs in terms of higher taxes such as NBT or VAT as it will dampen the demand for what we manufacture. As it is, demand for ceramics is sluggish in the local market and the industry must now focus on developing the export market. In that respect we would welcome an increase in export rebates.”
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