The budget out turn compiled in economic terms based on the accounting information provided in the year 2001 draft budget estimates shows a provisioning of Rs. 298,949 million (20.7 per cent of GDP) for current expenditure and Rs. 118,315 million (8.2 per cent of GDP) for capital expenditure on public investment. With the provisioning for restructuring expenses as well as loans and advances to public servants, net of receipts on account of loan repayments to the government, the total expenditure amounts to Rs. 417,264 million (28.9 per cent of GDP). The expected revenue including a sum of Rs. 7,000 million from the recently introduced Customs surcharge amounts to Rs. 252,979 million (17.5 per cent of GDP). Accordingly the recurrent expenditure exceeds revenue by Rs. 45,970 million (3.2 per cent of GDP). This together with capital expenditure implies a budget deficit of Rs. 164,285 million (11.4 per cent of GDP) which is unsustainable particularly after having experienced a large budget deficit of Rs. 124,341 million (9.8 per cent of GDP) last year.

Recurrent expenditure in excess of revenue requires the Government to borrow funds for its day to day operations. This situation has developed due to high expenditure on war, enhanced outlays on personal emoluments, pensions, interest on public debt, subsidies and losses in many commercial enterprises in the public sector. An excessive recurrent expenditure financed by borrowings is neither justifiable nor sustainable when the country still has half a million unemployed, about 3 million living below poverty line, high cost of living and inadequate investments on infrastructure.

Our country requires higher savings of over 30 per cent of GDP. Although during our government, savings have increased from 16 to 24 per cent of GDP, this level is still below our expectation. If the Government can contain recurrent expenditure below its revenue, the total national savings could be increased to the desired target of 30 per cent. Therefore, a concerted effort should be made to curtail recurrent expenditure within our means, however hard it may be. The country as a whole, and the richer sections in particular, must share a part of this burden in the background of high security expenditure by accepting the fact that tax concessions as well as inefficient and unproductive expenditure programmes are no longer affordable. Therefore, we propose measures designed to improve the budgetary out-turn in the medium term. These would generate a current account surplus of 3 per cent of GDP and reduce the budget deficit below 6 per cent by 2003, as shown below:

While adhering to this medium term strategy and our Vision 2010 development programme, we must also pursue proposals that will provide income generating opportunities to our people to reduce unemployment, cost of living and poverty - the three major problems in the short run. Let me present a series of proposals designed to generate income to the people - the only durable solution to the rising cost of living.

1. Overseas Employment

As I have already explained to this House, annual overseas employment opportunities have increased to about 150,000 with further prospects of improvement. Their income, standards of living and future prospects have improved. The estimated employment opportunities in nursing, accountancy, middle level technical jobs, high paid personal services such as beauticians, tailors, hoteliers, and pre-school teachers are in excess of 500,000. Therefore, in order to increase overseas employment in these categories, the Government will increase the intake of youth for vocational training institutes to 75,000 each year. The target for such employment over the next 3 years will be around 150,000.

Following incentives will also be offered:

(a) Housing loans at concessionary rates of interest upto twice the amount maintained in a foreign currency account with a minimum balance of US$ 2,000.

(b) Insurance compensation to dependents on account of death whilst abroad to be increased from Rs. 250,000 to Rs. 300,000 and funeral expenses from Rs. 25,000 to Rs. 50,000. Compensation for migrant workers returning due to accidents also to be increased from Rs. 100,000 to Rs. 200,000.

(c) Monthly pension benefits commencing at the age of 55 for migrant workers who return after successful completion of employment overseas.

(d) Scholarship awards to children to be raised from Rs. 25,000 to Rs. 30,000 for technical and university education and from Rs. 10,000 to Rs. 15,000 for primery education. Full scholarships will be offered for children who obtain IT training from approved institutions.

(e) Dedicated money changing counters will be set up by the two state banks for returning migrant workers at the Airport and authorised agents will be appointed in selected countries to provide banking facilities.

(f) A transit lodge at the Airport will be set up to facilitate in bound and out-bound travel and embarkation tax will be borne by the Foreign Employment Bureau.

2. Handloom, Powerloom and Handicraft Industry

Traditional and rural industries have tremendous potential to create employment opportunities to our people. The action programmes which are already in place aim at generating gainful employment for over 300,000 over the next 3 years. Following incentives will be offered towards achieving this target:

(a) Special credit schemes with government guarantees to support working capital requirements for product improvement and up market promotion. Leasing and other long term financing facilities to acquire modern equipment and technology will also be formulated.

(b) Exporters of handicrafts will be given a 3 year tax holiday and foreign currency borrowing facilities subject to exposure limits.

(c) Kiribathgoda, Ratnapura, Ambalangoda, Moratuwa, Weweldeniya, Rambukkana, Galgamuwa, Nikaweratiya, Dodangaslanda, Tissamaharama and Welimada will be developed as handicraft and small industrial townships. These townships will be assisted jointly by Laksala, Industrial Development Board, (IDB), Export Development Board (EDB) and National Craft Council (NCC) to promote international marketing for such products. An additional allocation of Rs. 125 million will be made available for this purpose.

3. Apparel Industry

The apparel industry has become the country’s largest single industry generating nearly US$ 2,500 million foreign exchange earnings, providing direct and indirect employment for over 1 million people and being a driving force for many ancillary industries in the country. In order to re-engineer this industry to become globally competitive, it is proposed to set up a dedicated find to provide medium term financing facilities to upgrade technology and management practices to meet the challenges of the quota free era. Accordingly, the present quota cess of Rs. 1 per garment will be increased to Rs. 3 per garment. A cess of Rs. l will also be imposed on nonquota exports. The entire proceeds will be credited to the fund, which will be managed by selected banks to be supervised and guided by a Presidential advisory panel and the Ministry of Industrial Development. This Fund will finance professional trade negotiators to promote Sri Lanka’s interest in international destinations and also finance a design and product development centres to promote up market products.

4. Information Technology

The IT sector in Sri Lanka has shown an impressive growth in response to several incentives offered by the Government in 1996. The export earnings of software have increased to US$ 55 million in the year 2000, virtually from zero in 1996. Nearly 50 new software development companies have already been setup generating 4,000 direct employment. There are also 25 IT training institutes providing training facilities to over 3,500 persons per annum.

Table I

Medium Term Fiscal Policy Direction 2001- 2003

(Percentage of GDP)

2000 2001 2002 2003

1. Total Revenue 16.7 18.3 19.5 20.0

2. Recurrent Expenditure -20.1 -19.5 18.0 17.0

3. Current Account Deficit (-)/Surplus -3.4 -1.2 1.5 3.0

4. Public Investments -6.4 -7.4 8.0 8.5

5. Restructuring Expenditure -0.3 -0.4 -0.5 -0.6

6. Other Expenditure 0.3 0.5 0.5 0.6

Budget Deficit (-) = (3+4+5+6) -9.8 -8.5 6.5 5.5

The Government has also taken a series of other initiatives including the setting up of IT training centres at Colombo and Kamburupitiya with 700 youth undergoing training. A modern training institute capable of training 2,000 IT professionals is now under construction at Malabe. Several IT Parks are also being developed by the private sector. Fifty IT centres are being developed under private - public partnerships in rural areas. For further development in this sector, I propose the following:

(a) An Information Technology Development Fund will be established as a government owned limited liability company and Mahapola income will be used for providing 1,000 scholarships annually for IT education, in accredited training institutes approved by the Government.

(b) A National Information Technology Centre with an annual training capacity of 300 trainees in Galle and two regional IT centres with an annual training capacity of 100 will be established in Anuradhapura and Hambantota with the assistance of the ADB.

(c) IT parks will also be set up at Kamburupitiya, Pugoda, Malambe and Veyangoda to increase IT training and skills as well as related services.

(d) An allocation of Rs. 25 million will be made available to the Ministry of Higher Education and Information Technology to formulate a national IT policy and co-ordinate and implement public sector IT development projects and programmes.

Following tax concessions will also be offered:

(a) Export of IT enabling services, call centres, medical transcription, web farming, insurance claim processing, legal data base, data warehousing, logistic management etc. exclusively made for export markets would be exempt from NSL and GST. The 5 year tax holiday currently available for the software export industry will be extended to cover these services as well.

(b) A 5 year tax holiday will also be given for non-export oriented software development companies upon reaching a minimum turnover level of Rs. 40 million per annum. This tax holiday will be extended up to 8 years, provided 70 per cent of the output is exported.

I expect at least 50,000 jobs to be created in the IT sector over the next 2 years.

5. Incentives for the Remittance of Foreign Earnings

A large number of Sri Lankans living abroad are currently prevented from purchasing capital assets and shares in companies due to archaic exchange control laws. I propose to exempt Sri Lankan citizens who are living abroad and are non-residents in terms of the Exchange Control Act, from the applicability of the provisions of the Exchange Control Act provided their transactions are channelled through special accounts to be approved by the Central Bank of Sri Lanka. Income of such remittances will also be exempt from taxes and will be free to take back without exchange control restrictions.

Earning in foreign currency by resident companies or partnerships engaged in any profession, vocation or any other service including construction work is liable to pay 15 per cent income tax on their remittances. I propose to exempt such earnings from this tax provided such income, after deducting expenses, is remitted to Sri Lanka through a bank. Individuals earning such income are already exempt. I also propose to reduce the tax rate from 15 per cent to 10 per cent for local residents who are engaged in a vocation or profession and earn in foreign currency by rendering services to persons outside Sri Lanka. This is expected to promote Sri Lankans to engage in foreign currency earnings and will also encourage inflow of foreign income to Sri Lanka.

6. Industrial Townships with Integrated Community Development

The new industrial zones which are now in operation at Polgahawela, Hiriyala, Mawathagama, Wathupitiwala, Mirijjawila, Pallekele, Mirigama, Malwatta, Horana, Seethawaka and Koggala will be converted into fully pledged industrial townships with integrated infrastructure facilities including housing, feeder roads, play grounds, marketing outlets, restaurants, medical and recreation centres. This programme is expected to develop about 50,000 new housing units and several other infrastructure facilities and generate over 20,000 direct and indirect employment opportunities. The two large existing export processing zones at Katunayake and Biyagama face the problem of filling vacancies mainly due to lack of social infrastructure facilities. It is therefore proposed to relocate some of the industries in these zones elsewhere and develop the required social infrastructure facilities. These programmes will be funded from the BOI provisions

7. Industrial Relocation and Expansion at Regional Industrial Estates

Relocation of industries at regional industrial estates and expansion of existing industries at regional level will be encouraged in order to promote a balance regional development. I propose to grant 5-8 year tax holidays based on the location. This facility will be granted only for those who undertake such activities on or before 30.06.2002.

8. Worker Transport

Incentives offered in the 1998 budget to promote worker transport has made a significant impact providing additional vehicles in excess of 500. In order to further encourage this facility, importation of passenger transport vehicles with a capacity in excess of 25 seats will be exempt from Customs duty and excise taxes provided such organisations employ over 50 persons and have strictly complied with EPF, ETF and other statutory requirements. The capital expenditure incurred by such organisations in the provisioning of transport services will also be allowed to be deducted from income tax.

9. Integrated Fisheries Villages

Integrated Fisheries Community Development Programme was launched as a pilot project in the 1998 Budget. This has made, good progress and enabled to develop 14 such projects providing facilities for nearly 20,000 families. The Government proposes to develop such villages in Galle, Matara, Hambantota, Kalutara. Dehiwela, Moratuwa, Wennappuwa, Nattandiya, Chilaw, Wattala, Negombo and Kalpitiya with housing, public utilities and community infrastructure in order to upgrade their standard of living. This programme for which funding has already been arranged, aims at reaching 15,000 families this year. An additional allocation of Rs. 100 million will be made available for this purpose.

10. Fishery Resources Development Fund

In recognition of the vast potential in the fisheries sector and also its high vulnerability to vagaries of weather and natural disasters, a fund will be set up to assist prawn farming, inland fisheries and related activities. A cess of Rs. 5 per kg. on export of all fisheries products will be imposed under Fisheries and Aquatic Resources Act, for this purpose.

11. Incentives for Infrastructure Development

Private sector participation in the development of commercial infrastructure has made significant progress during the last 6 years. Therefore, the existing transitional provision providing relief for infrastructure investments which have commenced for the provision of services such as healthcare and housing presently exempt from GST will be extended by one year from 01.04.2001, as implementation of such projects have been affected due to administrative delays. I also propose to bring within the taxable activities, the supply, rent or lease of residential accommodation and the supply of healthcare services by large medical institutions to enable such service providers to reduce their cost. This provision will apply to enterprises which will enter into agreements with the BOI with a minimum investment of US$ 10 million.

The Government also proposes to grant tax holidays up to 20 years depending on the quantum of investment and economic benefits of infrastructure projects such as warehousing, storage, industrial parks, sanitation, solid waste management systems, roads, electricity, water supply, urban housing etc.

12. Agricultural Marketing Infrastructure and Dedicated Wholesale Marketing Centres

Economic centres which have already been set up to promote market infrastructure for agricultural produce at Dambulla, Walpita, (Marandagahamula), Keppetipola and Hiriyala will be further expanded by connecting them to new markets to be set up at Embilipitiya, Kandapola, Weerawila, Wellawaya, Bibile, Denipitiya, Deniyaya and Hingurakgoda. Forward market contract arrangements will be further encouraged. In addition to the provisions made in the budget, a further Rs. 100 million will be allocated for this programme.

13. Simplified Collections of EPF/ETF Contributions

It has been reported that a large number of employers have not registered with the EPF/ETF. There are also occasions where such contributions are not made regularly to the employee accounts. In order to improve the enforcement of EPF/ETF laws and also to streamline the collection procedure, it is proposed to have a unified collection arrangement. Accordingly, employers will make a single pay order which will be appropriately credited to the EPF and ETF.

14. Harmonisation of BOI, Non-BOI regimes for the Apparel Industry

Apparel industry at present is serviced by the Ministry of Industries as well as by the BOI. As a result, there is a considerable distortion in the level playing field. It is necessary to have a common regime for this industry for its development. Therefore, in future, all regulatory functions will be handled by the Ministry of Industrial Development while tax and Customs matters will be handled by the Inland Revenue and Customs Department.; The BOI will focus entirely on investment promotion as well as required investor facilitation with the assistance of relevant agencies.

Companies engaged in the apparel sector which do not currently enjoy concessions under the BOI law will be given such concessions provided the company has an accreditation from an internationally reputed buyer and has an annual turnover of US$ 1 million or employs a minimum of 150 employees.

All BOI enterprises other than those located within export processing zones are proposed to be brought under the direct supervision of Customs. Preparatory arrangements will be made jointly by the BOI, Customs and the Apparel Industry Associations to make a smooth transition to ensure that required facilities will be available at Customs. This will streamline the activities of the BOI and also prevent revenue leakages and abuses of various concessions and facilities.

15. Rationalisation of Existing Holidays

Applicable holidays to Government and banks are governed by the Holidays Act while the private sector including corporations are guided in terms of the Shop and Office Employees Act. Banks also enjoy two special holidays under the Holiday Act. Additional one day or half day holiday is also given under Shop and Office Employees Act if a holiday falls on a Saturday or Sunday. As a result, these sectors in the economy observe different holidays causing considerable losses and inconvenience to the people. It is proposed to introduce appropriate amendments to these statutes to rationalise holidays and adopt a uniform system of holidays for all sectors.

Table II

Summary of the Budget Estimates 2001 (Accounting Format)

Total Receipts (excluding borrowings) 309,580

Revenue 277,080

Divestiture Proceeds 25,000

Foreign Grants 7,500

Total Payments 510,074

Recurrent Expenditure Net of

Identified Savings -285,948

Less Under Expenditure +8,878

=277,070

Capital Expenditure Net of

Identified Savings -144,294

Less Under Expenditure +5,081

=139,213

Debt Repayments 92,291

Advance Accounts 1,500

Gross Borrowing requirements 200,494

16. Incentives for Housing Loans

The concessionary rate of stamp duty of Rs. 1 per Rs. 1,000 which is available in respect of mortgages will be further reduced to Rs. 0.50 cts. and extended to licensed specialised banks, EPF, ETF, registered finance companies and similar institutions in order to encourage the grant of housing loans by all financial institutions, with immediate effect. Increased turnover is expected to neutralise the revenue loss.

17. Life Time Health Insurance Scheme

A new health insurance scheme will be launched with direct payment arrangements with hospitals, at a concessionary; premium for policy holders. This insurance scheme will enable policy holders to have access to high quality medical care in any paid hospital either government or private.

18. Primary and Preventive Healthcare Camps in Backward Areas

(a) Weekly health camps targeting 10 - 20 villages in each round will be conducted in backward areas to address specific health problems and for preventive healthcare.

(b) Accelerated development of special units in district hospital diabetic, surgery, cardiac care, cancer etc. will be undertaken to cater to the backward districts.

19. Concessions to Public Servants

Public servant salaries were raised by 10 per cent in September last year subject to a minimum of Rs. 1,000 per month as an interim relief, pending the findings of the Salaries Commission. Further increases of salaries to public servants, armed forces and payments to pensioners will be implemented from the next budget considering the recommendations of the Salaries Commission and the Committee on Pension. Following concessions will also be extended to public servants:

• Housing facilities in urban areas on easy terms

• Scholarships for children

• Medical insurance at government expense

• Special facilities for setting up business enterprises for retiring public servants.

20. Enterprise Development Bank for Small and Medium Industries

A wide range of special loan schemes implemented by the two state banks with the assistance of the government should be separated from commercial banking activities of these banks in order to promote development lending for small and medium enterprises. Therefore, a National Enterprise Development Bank will be set up by the Government with the capital contribution from the Central Bank as well as other financial institutions. Regional Development Banks will be further developed in order to assist small and medium sectors in the economy.

21. Import Duty on Raw Material

Import duty on most of the raw material which goes into the production of finished goods are subject to zero duty. These include fibre, yarn, various inputs for pharmaceuticals, fertilizer, computers, garments, buses etc. The raw material generally processed or manufactured in Sri Lanka are subject to 5 per cent or 10 per cent duty. It is harmful to apply zero duty on all raw material, as there are industries which engage in the processing and manufacturing of such products. Therefore, the Government will reduce duty on raw material on the basis that they are essentially primary processing material in nature and not produced in Sri Lanka. This process will be implemented by a joint inter-ministerial committee.

Let me now turn to my revenue and expenditure proposals which are directed towards reducing the budget deficit:

1. Surcharge on Corporate Income Tax

As I explained, the level of government revenue is inadequate to meet expenditure particularly due to large defence expenditure, on the one hand and the erosion in the tax base due to the provisioning of a wide range of concessions on the other. Revenue cannot be raised only through indirect taxes. As economic stability is the primary concern of our fiscal strategy this year, I am compelled to propose a 20 per cent surcharge on corporate income tax for a period of 1 year commencing 01.04.2001. Rs. 2,600 million is expected from this measure.

2. National Security Levy (NSL)

Defence expenditure including the deferred payments for last year procurements is estimated at Rs. 75 billion in 2001. This is too high and I am compelled to raise this levy by 1 per cent to 7.5 per cent from 01.04.2001. I also propose to remove the exemption applicable to gem and jewellery from this levy. The basis of calculation of NSL on local goods and services will be adjusted next year in order to remove the cascading effect. Expected revenue from this measure is Rs. 6,100 million.

Table III

Summary of the Budget (Economic Classification)

Rs. Billion Ratio of GDP(%)

Total Revenue 264.5 18.3

Tax Revenue 234.1 16.2

Non-tax Revenue 30.4 2.1

Total Expenditure and Net Lending -387.5 -26.9

Recurrent Expenditure -281.4 -19.5

Public Investments -106.3 -7.4

Restructuring -6.0 -0.4

Other 6.3 0.4

Current Account Deficit -16.9 -1.2

Overall Budget Deficit 123.1 -8.5

Foreign Grants 7.5 0.5

Net Foreign Borrowings 21.5 1.5

Net Domestic Financing 69.1 4.8

Divestiture Proceeds 25.0 1.7

3. Revision of Administrative Fees and Charges

In the context of high operational costs of administration in providing various government services, I propose to raise all charges on Government publications, registration fees and other services by 15 per cent with effect from 01.04.2001. I also propose to introduce appropriate amendments to relevant statutes and regulations to raise fines and penalties. I expect to raise Rs. 200 million from this measure.

4. Resident Visa Tax

Several categories of foreigners are exempted from the payment of Resident Visa Tax. It is proposed to remove this exemption and make all categories of foreigners except staff of diplomatic missions liable, to Resident Visa Tax. The visa fees for these categories will also be increased to Rs. 5,000. Charges for the issuance of Citizenship Certificates will also be revised. Anticipated revenue from these changes is Rs. 200 million.

5. Embarkation Tax

Embarkation tax has not been revised for many years. It is proposed to increase this tax from Rs. 500 to Rs. 1,000 with effect from 01.04.2001. However, this tax will be borne by the Foreign Employment Bureau for those leaving for overseas employment under its registration. Expected revenue from this revision is Rs. 250 million.

6. License Fee for the Usage of Frequency Spectrum for Broadcasting

I propose to increase the license fee by 100 per cent for the usage of frequency spectrum for radio and TV broadcasting, at the point of renewal. Expected revenue is Rs. 250 million.

7. Levy under Betting and Gambling Levy Act

Under Betting and Gambling Levy Act, Rs. 100,000 per annum is levied on betting centres and Rs. 1 million is levied on gambling places. These are totally unrealistic considering the turnover of these activities. I propose to raise these levies to Rs. 1 million per annum on betting centres and Rs. 25 million per annum on gambling centres. All such establishments failing to comply with these levies will be liable to a 100 per cent penalty, with a forced closure. The Act will also be amended to strengthen the enforcement mechanism and to regulate such establishments as well as to prevent the proliferation of such centres in the country. Expected revenue from this is Rs. 500 million.

8. National Lottery

The National Lotteries Board will be restructured and modernised to change its conventional operations and use new technology to conduct online lotteries as well as dedicated lotteries for tourists, returning migrant workers etc. Licenses will also be issued to conduct specialised lotteries. Expected Revenue is Rs. 300 million.

9. Suspension of Import of Motor Vehicles on Concessionary Terms

In the context of the prevailing foreign exchange difficulties, it is not affordable to provide concessionary duties and taxes to import motor vehicles by Parliamentarians, Provincial Councillors, Heads of Local Authorities, public servants and others. I propose to suspend such facilities with immediate effect except for those who are entitled to such facilities as a retirement benefit and for those who have already established Letters of Credit. The granting of duty waivers for motor vehicles will be further restricted. Expected revenue is Rs. 500 million in addition to considerable savings of foreign exchange.

10. The Liberalisation of Telecommunication Services

In the context of the rapidly expanding communication technology and enabling services, the liberalisation of telecommunication services will provide a significant boost to the country’s economic progress. Therefore, the Government proposes to issue licenses through an open bidding process for a second international gateway and a second fixed wire line operator. Licenses will also be issued for a national internet exchange (internet hub), a cable television services and dedicated transmission networks, operational from August 2002, creating further competition. I expect to raise over US$ 150 million (Rs. 12,750 million) from the issuance of new licenses.

Proceeds when realised will be maintained in reserves and additional budgetary support for infrastructure development projects will be made in the priority sectors or use for debt retirement.

11. Tax Administration

It is necessary that revenue administration is made tax payer friendly and efficient in order to improve compliance of taxation. It is proposed to computerise all aspects of tax administration and simplify procedural and legal formalities in order to reduce compliance costs of tax payers. It is also proposed to expand and revamp the presently available facilities for tax collection so that tax payers will have convenient arrangements to pay their taxes.

For better enforcement of tax laws and other revenue statutes and to improve surveillance, the activities of different departments and agencies involved in revenue administration will be integrated. Revenue from various sources of taxation due to administrative improvement is estimated at Rs. 750 million.

Expenditure Control and Management

Restraint on expenditure is necessary as taxes alone cannot generate the required level of resources for the Government. Furthermore, until defence expenditure is brought to a manageable level, the Government must prioratise its other expenditure programmes having regard to the resource constraints. Therefore, I propose to introduce the following measures and further tighten expenditure control and management:

1. Strict limits on expenditures relating to personal staff, use of vehicles, telephones and traveling, for Ministers and Deputy Ministers.

2. Strict application of expenditure ceilings prescribed to public servants and government agencies, corporations etc. for the use of fuel, electricity, water, telephones, travelling and other services.

3. Freezing of the provisions pertaining to purchase of new vehicles, equipment such as photocopiers, office furniture, fax machines and other establishment costs by all ministries, departments and statutory agencies.

4. Strict enforcement of (a) overtime regulations, (b) cadre management.

5. All on-going expenditure schemes will be subject to rigorous budgetary scrutiny. A complete impact assessment of all public expenditure programmes will be undertaken and unproductive, outdated and redundant expenditure programmes will be discontinued, merged or rationalised.

6. Public entities which can be made economically viable and meaningful will be restructured and the others will be closed down. Nearly 35 such redundant entities have already been identified and are in the process of being liquidated.

7. Budgetary support to statutory boards will be reviewed with a view to encouraging them to generate their own revenue.

8. All major procurements of food items will be handled by the Food Procurement and Monitoring Unit of the Treasury in order to reduce wastage and high costs.

9. Borrowings by public enterprises and institutions to be allowed only with prior Treasury approval and subject to Treasury ceilings.

10. The commencement of construction of new buildings and non-priority projects to be postponed by 6 months, other than those funded by foreign aid.

In accordance with the expenditure control measures, the National Budget Department has already identified Rs. 8,052 million from recurrent votes (object code 1906) and Rs. 6,635 million from capital votes (object code 2502). I also propose a minimum 10 per cent reduction should be applied to all recurrent expenditure programmes other than salaries. Accordingly, a total sum of Rs. 16,930 million or 3 per cent of estimated provisions from recurrent expenditure targeted to be reduced to economise expenditure. Within these savings a re-allocation will also be made to increase provisioning for the payment of interest on domestic debt by Rs. 2,000 million. In terms of past experience, a 4 per cent under expenditure will assume from capital provisions in addition to the identified savings as referred to above.

Authorised Limit of Treasury Bills

The authorised limit of borrowing through the issuance of Treasury bills is Rs. 135,000 million. In order to maintain a well distributed debt portfolio and adequate flexibility in selecting the maturity structure of Government debt instruments, I propose to raise the authorised limit of Treasury bills to Rs. 175,000 million.

Budgetary Out-turn 2001

Let me now summarise the impact of the budget proposals on the budget estimates. Revenue proposals together with the impact of the recent surcharge on Customs duties will generate Rs. 18,500 million of additional revenue. Additional expenditure due to new expenditure proposals is Rs. 250 million. The identified savings of Rs. 8,052 million together with the impact of expenditure control measures as well as the provisioning for normal under expenditure will reduce recurrent expenditure by Rs. 16,930 million. The identified savings of Rs. 5,081 million together with under expenditure from capital votes is Rs. 11,716 million. The summary of revised budget estimate is as follows:

Accordingly, the gross borrowing requirements for the year 2001 is estimated at Rs. 200,494 million. A sum of Rs. 6 1,677 million is available by way of concessionary foreign loans and a further sum of Rs. 7,500 million by way of foreign grants. The Government also proposes to raise a foreign loan to the value of US$ 200 million (Rs. 17,000 million) from the international market, to reduce pressure on domestic borrowings. The balance sum of Rs. 114,317 million is expected to be raised from the domestic market through the issuance of Government securities. As the available funds in the market are estimated at Rs. 150,000 million, the Government expects a decline in interest rates this year.

The summary of the final budgetary outturn in economic format is presented below:

Conclusion

The budget deficit for the year 2001 with all the revenue and expenditure measures will be Rs. 123 billion. This is a reduction from 9.8 per cent of GDP in 2000 to 8.5 per cent of GDP in 2001. Although this level of deficit is still too high, considering the financial difficulties faced by the people, the Government has decided that budgetary adjustments should be made gradually. Nevertheless the reduction in the budget deficit to 8.5 per cent will enable the reduction of interest rates, inflation, ease cost of living and stabilise the macro economic situation. The lower budget deficit will enable the Central Bank to reduce its interest rates and thereby bring down the lending rates to 16 - 17 per cent towards the middle of the year. This will enable high investment activities and thereby create income generation opportunities to the people. Economic stability will also enable the Government to gradually raise the income of the people. As our country is confronted with a very large defence budget and many other difficulties due to the prevailing high prices of petroleum products, the Government appeals to the people to refrain from demanding concessions at least for a period of 6 months and fully co-operate with us to re-strengthen our economic fundamentals.
Thank you.