Pvt. sector raises concerns over budget deficit, debt and governance

* Use of ad hoc mid-night tariff changes signs the govt. is having difficulty maintaining fiscal discipline
* Transparency, policy consistency, good governance and upholding law and order important ingredients to build investor comfort

The country’s private sector has begun to raise concerns over the government’s fiscal performance, mounting public debt and low FDI and export earnings.

The government has made significant macroeconomic gains over the last few years but economists have pointed out that much more needed to be done. The Sri Lanka Economic Association has warned that unless export earnings and FDI flows improved, the country could get into a debt trap. It has argued that fiscal and monetary policy were not conducive to export growth and that governance, transparency and the rule of law were much to be desired and was preventing the country from realising its potential for attracting FDIs. Economists have also warned that government-spending led GDP growth was not sustainable and military involvement in business activities were counter productive.

The IMF has warned that fiscal consolidation was moving at to slow a pace and that inflation was still too high.

Now, business leaders have also joined in the debate.

Sri Lanka Ceramics and Glass Council President Mahendra Jayasekera addressing the council’s recent AGM said, "The taxation reforms introduced a few years ago including reduction of corporate taxes has been encouraging. We also welcome the protection provided to local industries with the introduction of CESS to ward off unfair competition from cheap imports. It is time that the government seriously considers introduction of Anti-dumping legislation which has been in the backburner for over a decade.

"The country has enjoyed stable growth with low inflation for three years. However, the non-achievement of Government fiscal targets and the lack of control on state expenditure have resulted in increased government borrowings and foreign debt. The use of ad hoc mid-night tariff changes we have experienced recently are signs the government is having difficulty maintaining fiscal discipline. The high level of public debt has stunted growth compared with many other economies and put pressure on the banks. Building investor confidence is very important to attract FDI’s and stimulate growth and towards this, transparency, consistent policies, good governance and a vastly improved law and order situation are imperative," Jayasekera said.

Industrial Association of Sri Lanka Chairman Pravir Samarasinghe said, "Although we have enjoyed high and stable growth with low inflation for over three years, an area of concern has been the non-achievement of government fiscal targets and the overshooting of state expenditure resulting in increased government borrowings, and more particularly, foreign debt and the consequential external sector vulnerability."

"The sound management of the economy with consistent policies and maintaining an investor friendly environment is important to sustain economic growth and private sector investment. An important aspect to attract much needed investment and FDI to support the desired growth levels is investor confidence. Transparency, policy consistency, good governance and the upholding of Law and Order are important ingredients to build investor comfort," he said addressing the association’s AGM.

Samarasinghe commended the government for some its policies, but said suitable conditions must be created to maintain industry competitive and development, especially with regard to the exports sector.

"We are very pleased with the taxation reforms introduced three years ago with greater rationalization, simplification and reduction of taxes. Steps taken in the last budget by the government to harmonize the BOI and Inland Revenue Department tax regimes are encouraging. These were areas we have continuously highlighted to create an even playing field. We are also encouraged by the government’s increased investment in infrastructure which helps build the foundation for economic development. We, however, await more meaningful reforms to our education system to bring about a more demand driven talent pool," he said.

"The lower inflow of FDI and investment into the Industry sector is of concern. Although industry accounts for 30% of our GDP and the factory sub-sector has a major 17% share of this, manufacture grew only by 5% in 2012 down from 8% a year ago. It is important that suitable conditions are maintained for industry competitiveness and development.

"We strongly believe the manufacture of actual tangible goods have true potential to create real value addition to the economy, employment generation to our work force and bring about a meaningful upliftmentto our economy and living standards of our people. Hence, it is important that we nurture, protect and foster the growth of industry through the implementation of sound Industrial Policy.

"We strongly believe for us to have a healthy and well balanced economy with high sustainable growth the export sector is of vital importance. Today Industry accounts for 75% of our exports, although its share to GDP has gradually declined over the last two decades. Further, our industrial export growth declined to 7% last year and has been negative this year with depressed North American and European markets.

"Both the private and government sector must play an important role in reviving our export industry. We must look at alternative markets in Asia and diversify our value added product portfolio.

"Only 5% of our exports are to India. This large and fast growing market provides huge opportunities to our industrialists. Exporting branded and finished goods to the large consumer market and intermediary products and components to the growing manufacturing base in India should be aggressively pursued by our industrialists and we need continued State support to eradicate the unfair barriers for entry into India," Samarasinghe said.

animated gif
Processing Request
Please Wait...