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‘In a very unfavourable global environment Sri Lanka has done exceedingly well. We are proud of the fact that there have not been very serious consequences in this country to date from the world economic crisis. Nevertheless, the government has a duty to intervene to prevent any possible future fallout from the crisis, on Sri Lanka. This accounts for the series of comprehensive proposals the Cabinet of Ministers adopted on December 30, 2008, to address crucial issues in some sectors of the local economy’, Minister of Export Development and International Trade Professor G. L. Peiris said.
‘No country could be entirely isolated from the repercussions of the global crisis. Different countries have been affected in varying degrees. Sri Lanka, during the last three years has been able to maintain a growth rate of about seven percent and this year we hope to maintain 6.5 to 6.6 percent growth. We learn that in China some 67,000 factories have closed down. In Sri Lanka there has not been a significant loss of employment, retrenchment etc. up to now’, the Minister explained in an interview with this newspaper.
The Minister highlighted the following findings on the world economic crisis contained in a Bloomberg report filed last month:
* US retailers face a wave of closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years
* Retailers will close 12,000 stores in 2009; among them the New York- based AnnTaylor Stores Corp, Talbots Inc and Sears Holding Corp.
* Consumers spent at least 20% less on women’s clothing, electronic items and jewellery during November and December
* Probably 50,000 stores could close without any effect on consumer choice
* The US economy shrank in the 3rd quarter at a 0.5% annual pace, the worst since 2001
* The Standard & Poor’s 500 Retailing Index has shed 34% this year
‘The main thrust of the government’s proposals is to maintain the budget deficit of approx. 6.5%.That is very important because it is only if one is able to do that can one continue the programmes which have been initiated to ensure economic progress, social equity, infrastructure development, the prosperity of the rural hinterland etc.’, the Minister explained.
Excerpts of interview:
‘We believe that a sharp focus is required in respect of the export sector. The export sector today is the lifeline of Sri Lanka’s economy. What the government has done is to identify the critical issues in the different sectors of the economy and to come up with relief measures which would mitigate the problems identified in the different sectors.
‘It is important not to focus exclusively on one aspect, like petrol for example, because that involves a distortion of the total picture. You have to give maximum relief to every sector and to be able to do so, a balanced approach is essential. That is what this government has done through the package of proposals announced on the 30th.
‘To begin with, the gas price reductions are very considerable. These reductions will make a substantial impact on living costs.
‘Apart from reducing the price of petrol by Rs.2, the reduction in the prices of diesel, kerosene and furnace oil has been much more significant. That is, down by Rs10 per litre. Then we have made provision for petrol to be made available at much less for use by three-wheelers. We want the benefit to be passed on to the commuters from the Rs. 20 reduction in price of petrol for three-wheelers. So, government will come-up with administrative proposals like meters and whatever is appropriate to achieve that.
‘In the apparel sector, which is by far the largest foreign exchange earner for Sri Lanka today, it is very important to retain its competitiveness. About 350,000 people are dependent on it for employment. If you take into account indirect employment, it is about a million. If you consider the dependents of families, you are talking about three million in a population of 19 million.
‘These are the incentives for the apparel sector:
* The 15% electricity surcharge will not be levied
* For 2009, there will be exemptions from the economic service charge
* There will be reduction in the interest rate. This is enabled by the fact that inflation has come down very considerably. In June last year this was almost 30%; it has come down to almost 13%.
* Very considerable benefits from furnace oil and diesel price reductions. Sectors like ceramics too to enjoy these benefits.
* Exporting companies to be given incentive payment of 5% of total For Ex. earnings for 2009, if they maintain production levels of 2008, bring in the same value of For. Ex. and do no retrenching
‘All export-oriented industries and indeed all companies will find it a great boon that all VaT refund repayments will be made within six months, so that they will not need to borrow from banks; they will be able to get their own refunds.
‘These relief measures are not adhoc. They fall into place within a structured programme with an objective. What we are trying to do is reduce the cost of production through these incentives. We also encourage these companies to enhance value-addition, which means employment opportunities and also a stimulation of backward linkages. We are also encouraging the use of local raw material.
‘While encouraging exports, we are also encouraging import substitution industries because this will result in the conservation of For.Ex.
‘With regard to the tea industry, the following incentives have been provided:
* Tea factories will receive one month’s working capital
* Moratorium on loans taken to modernize tea factories. We will not insist on repayment of these loans in 2009.
* A sum of Rs. 45 to be given to green tea leaf, to stabilize prices, protect local producers
* Tea Board to increase to Rs. 300 the cost of tea which is to be exported
* Negotiations with Iran, Iraq and Russia for new markets
* Imposition of cess to ensure that low quality teas do not enter country
‘Rubber sector incentives as follows:
* Through cess mechanism, control of imports like tyres for buses, to stimulate local production
* Reduction of interest rates on loan repayments, obtained for development of rubber factories
* Rubber factories to be exempted from 15% electricity surcharge
* Reduction in the price of furnace oil litre by Rs.10
‘Sri Lanka produces 80% of the world’s cinnamon and this sector too is facing some problems. A series of welfare measures are being provided:
* Modernizing methods of peeling
* EDB to provide resources for modernizing production techniques
‘Tourism sector to benefit as follows:
* Concessionary interest rates to be provided
* Extension of loan repayment periods
* Abolition of penal rates of interest on defaultment of loan repayments
‘Construction industry to be relieved thus;
* Reduction of interest rates
* Beneficial spin-off from fuel price reductions
* Government to expedite allocation of counterpart resources to enable joint projects of WB,ADB and Japan to go ahead without interruption
* Impediments to implementation of BoI-approved projects to be cleared
‘In order to do all this the Government has decided that growth in money supply will be targeted at 15% for 2009.This will create the liquidity required. To facilitate this monetary growth, the Central Bank will introduce appropriate policy instruments and issue guidelines for commercial banks to divert credit to export industries and production activities as well as restructure loans and interest payments at lower rates of interest and also issue instructions to all commercial banks to suspend legal action under debt recovery laws, for loans provided by banks for production purposes after 2008. The application of penal rates of interest will also be suspended to industries which have been affected by global conditions. The CEB will suspend the 15% electricity surcharge on hotels and industries.
‘As a result of the fuel price reductions, bus fares will go down by 4%. Apart from that there will be a ripple effect. As diesel prices fall by Rs. 10 per litre, there will be immediate relief for the fishing community and also for lorries that use diesel to transport fish, vegetables etc. This reduction will result in a decline of living costs.
‘One of the most significant growth areas of the economy, during the last nine months has been the agriculture sector which has shown a growth of almost 12%. Domestic agriculture is doing really well.
‘To stimulate growth of agriculture the government has decided on a supply of mixed fertilizer at Rs. 1000 to tea small holders to bring down production costs. We are ensuring the rubber growers at least Rs.150 per kilogram and rubber manufacturing industrialists will be given a subsidy.
‘One of the most important features of the last budget is the allocation of Rs. 500 million for the development of Export Agriculture Villages. Not only are we trying to develop exports by means of this package but we also need to ensure that the benefits percolate down to the grass roots. We have, therefore, set aside considerable sums of money to establish linkages between the grower and the exporting company, and the outgrower concept is being resorted to in a big way. That is, the exporting company will make available to the farmer the seed material, know how etc.
‘The challenge before the government is to achieve a balance among the different sectors. The war is reaching its final stages and adequate provision has to be made for the military action to be continued. Side by side with that it is crucial to ensure that other sectors are not neglected.
Q: There is a widely prevalent view that the relief measures announced by the government could have been incorporated into the last budget, rather than come at this time when Provincial Council elections are round the corner. How do you view this opinion?
A: I think that is a completely wrong view. Not only in this country but outside too, nobody has been able to anticipate the extent of the global crisis. It is a situation that changes every week. The budget was presented on November 6 and a great deal has happened since then. The government has to have the resilience to respond to the rapidly changing circumstances. Governments have had to revise their decisions in keeping with dramatic trends taking place in the overall environment. Some of the proposals of British Prime Minister Gordon Brown were very different from the initial response of the US Treasury. So, you have to keep abreast of developments and that is what the government has done and we make no apology for that and it is the duty of the government to take into account the evolving situation and to structure its social and economic policies accordingly to ensure the conferment of maximum benefits on the public.
Q: Local export development would hinge on demand abroad growing for our products. But at the moment that does not seem to be possible on account of the recession. How do you intend getting over this problem?
A: That is a problem that is not capable of a complete solution. Obviously, the level of development of the export sector will depend on the level of demand. But there are things we could do to mitigate the problem. What the govt. is doing is to help the export-oriented industries in every way to preserve their competitiveness by helping them to contain their production costs, to find new markets for them etc. Russia, Iran, Iraq, for example, are new markets. Local industries will also be helped to try out new methods of production, use technology more which will contribute to their competitiveness. We will also concentrate on backward linkages so that producers here will benefit. All these aspects have been taken into account in coming out with these proposals.
