Growth amid challenges

Friday, 25 May 2012 03:14 - - {{hitsCtrl.values.hits}}

Finance Ministry launches Annual Report, says economy on track despite tough trade deficit, adopts wait-and-see approach with policies; urges banks to lend more to agriculture and manufacturing sectors

Treasury Secretary Dr. P.B. Jayasundera yesterday gave the economy a clean bill of health for 2012, saying that the Budget goals were on track and that the deficit of 6.2% would be met, but suggested caution on the weather front as the impact of the prevailing drought had yet to be considered.

Speaking at the launch of the 2011 Finance Ministry Annual Report, he acknowledged that there were challenges ahead that would require strong policies to deal with a troublesome trade deficit. Despite being “happy” with the policies introduced so far, Dr. Jayasundera proposed caution since numbers of constrained imports were yet to flow in at significant level.

Touching on the need for more credit to filter into the real economy Dr. Jayasundera called on banks to reduce consumer loans and provide more long-term credit to agriculture, dairy and fisheries sectors.

He pointed out that despite credit increasing, the bulk of the loans were on vehicle imports and other goods that did not result in overall economic benefits.

“We found that only 1% of loans are for agriculture and 0.5% for fisheries. This is too low and I believe we should set aside 10%-20% in loans for these sectors. I have already made an appeal to the Central Bank Governor to increase credit to the real economy of this country.”

Import substitution was also another key focus of the Government, Dr. Jayasundera stated, reiterating the ‘Divi Neguma’ programme had reduced inflation and provided an increase in exports. He called on the public to increase consumption as prices of liquid milk and eggs had reduced, thus expanding the market.

“The trade deficit has been troubling us,” he admitted, adding that one of the reasons for the high amount of imports was that basics such as milk, sugar and other foods were being imported at high cost. He insisted that it was time for companies to consider investment to reduce the US$ 2 billion imports on food.

He also took the tourism sector to task, urging the industry to “stand on its own two feet” by conducting promotional campaigns on its own so that suitability of growth rates would be assured. He admitted that increase in domestic savings, taxes and reduction of losses in State-Owned Enterprises (SOEs) also needed the attention of the Government.

“Directors of loss-making SoEs should be replaced. They are the responsible trustees of public wealth and SoEs can be profitable companies. But for this, they need competent chairmen and boards of directors that can work as a team.”

International oil prices, the need for energy and environment conservation, malnutrition and non-communicable diseases, the lagging education sector, food security and inflation were all highlighted as challenges moving forward.

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