“The key element is in ensuring macro-economic conditions remain stable,” said Koshy Mathai.
“Inflation, interest rates and the exchange rate must remain stable to create the environment for growth, investment and creation of employment.”
He said the IMF was pleased with the government’s 2010 budget presented to parliament Tuesday with the deficit reduced to eight percent of gross domestic products from 9.9 percent last year.
“It is critical to make sure the fiscal balance is kept under control,” Mathai said.
The government’s forecast of eight percent annual growth was “attainable” and not based on unrealistic revenue or capital spending forecasts.
Mathai said the IMF board had completed their second and third reviews of the program with Sri Lanka and made two disbursements and extended the programme to take into account the government’s medium-term growth strategy.
“This means the disbursement of 408 million dollars coming either today or tomorrow,’ he said.
“We have a fundamentally optimistic view on Sri Lanka’s economic prospects. For 30 years the country has grown at five percent (annually) despite the war absorbing so much human and economic resources.
“Now the burden has been lifted it seems obvious the economy is poised for great growth. But it presupposes that macro-economic conditions are kept stable.”
Sri Lanka’s ethnic war ended in May 2009 resulting in an economic revival.
Foreign exchange reserves have increased “dramatically” to over five billion dollars and there was room to build it further but it is no longer a short-term priority.
“Now the country has the luxury of thinking more about the medium-term economic prospects,” said Mathai.
“Monetary policy is going quite well – we think the central bank policy is absolutely appropriate for the current moment.”
Mathai said fiscal policy was the only area the IMF had raised some concern about given the government’s deficit which led to a “pause” in the IMF programme for Sri Lanka.
The IMF’s 2.5 billion programme was suspended last year when Sri Lanka failed to meet budget deficit reduction targets.
“The 2010 budget and related policy package of the government represents major progress towards strengthening Sri Lanka’s public finances,” Mathai said.
“The government’s aim to reduce the budget deficit is being done in a sensible way, not in an unrealistic reduction in spending, not through artificial curtailment in capital spending.”
The compression in the deficit is being achieved through a reduction in recurrent spending relative to growth in gross domestic product with capital spending kept constant in nominal terms.
As the scope for compressing current spending next year is limited the government plans to boost revenues.
“It is a very important element in the policy package that’s given us a lot of encouragement.”
These include tax reforms to simplify and broad base the system, and increase total revenue collection.
Government plans to reform its investment regime with a new strategy to promote important sectors and do away with tax breaks and reduce red tape for investors were also important, Mathai said.
“There’s also a lot of emphasis on measures to improve the efficiency of state enterprises so they are less of a drain on public finances.”
The extension of the IMF programme means there will more disbursements over a longer period of time. Disbursements are likely to be around 200 million dollars each.
© Lanka Business Online
Tuesday, June 29, 2010
"Sri Lanka budget will maintain economic stability": IMF Representative
Tuesday, June 29, 2010
Sri Lanka proposes investment friendly budget
Deputy Finance Minister Mr. Sarath Amunugama who was sworn in as the Acting Minister of Finance hours before presenting the budget proposals said that the country seeks faster growth after the end of three decade old war mainly in the tourism sector.
This year’s budget has been delayed by about seven months as presidential and parliamentary elections were called after the government defeated the separatist Liberation Tigers of Tamil Eelam Main features of the budget proposals are:
• Budget deficit will be reduced to 8% of GDB by next year with a final target of bringing down the deficit gap to 5% of the GDP while reducing debt limit to 70 % of the GDP from the current 80% by 2012.
• Completing the resettlement of remaining 25000 IDP by the end of the year and to provide livelihood facilities with other required infrastructure
• 40,000 hectares of Fallow paddy lands will be cultivated in the North.
• Northern infrastructure including the A-9 and A-32 highways will be developed at a cost of Rs2 billion US dollars
• Revenue from Tourism will be increased to US D 2.8 billion by 2016 with 2.5 million tourist arrivals. Five fold and 9 fold increases targeted in the tourist arrival and the revenue respectively.
• US D 3 billion investment is expected in the tourism development with FDI/private sector and the govt investments
• Seven tourism Zones have been identified for the development of tourism sector.
• Vision of the govt. is to increase the GDP growth to two digits from expected 8 percent growth next year.
• Tax reforms will be introduced as per the recommendation of the Tax Commission.
• Regulatory Framework will be introduced to regularize the Private universities as the Government recognizes the role played by them.
• Public sector salaries will be increased from 2011
• A pension Fund will be created
• Social Security process will be strengthened
© News.lk
Tuesday, June 29, 2010
Sri Lanka seeks to end its cold war
By Joe Leahy | Financial Times
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The IMF had delayed disbursement of the tranche after Sri Lanka recorded a fiscal deficit of 9.9 per cent of gross domestic product in 2009, missing an earlier agreed target of 7 per cent. Sri Lanka, it appears, has come in from the cold. But it may take the country some time to fully thaw as allegations of rights abuse remain unaddressed.Announcing the budget for 2010 yesterday, the government said it expected a fiscal deficit this year of 8 per cent - still higher than the IMF target.
But the IMF seemed unfazed by this. “Despite the weaker-than-programmed 2009 fiscal performance, the government’s 2010 budget proposal, if carried out, would significantly address past fiscal slippages, mainly through comprehensive tax reforms and sizeable cuts in recurrent spending,” the IMF said in a statement.
The government said economic growth this year may be much as 7 per cent and predicted it could reach 8 per cent a year in the medium term.
The resumption of the IMF funding is good news for a government that is hoping to rebuild bridges with the international community after its conflict with the Liberation Tigers of Tamil Eelam separatist rebel group.
Commentators in the country are fond of accusing international bodies, such as the United Nations, as being somehow sympathetic to the LTTE, which fought for an independent ethnic Tamil homeland in the north and east of Sri Lanka until its defeat last May. Even countries, such as the UK and the US, which banned the LTTE as a terrorist organization and helped crack down on its international financial network, are often accused in Sri Lanka of supporting the rebels.
The country’s increasing alienation was underlined by moves by the UN to try to initiate an inquiry into alleged human rights abuses by both sides during the war. The investigation was thwarted after Sri Lanka martialed support from allies, such as China.
The European Union has also suspended trading privileges under its “GSP-plus” programme, citing human rights and civil liberties concerns.
Sri Lanka has hitherto thumbed its nose at such criticisms. But in recent days, President Mahinda Rajapaksa has begun reaching out, particularly to his giant neighbour, India. He has given reassurances that his country’s growing closeness with China - which is building major infrastructure projects on the island such as a new harbour - is not a threat to India.
The resumption of the IMF package will aid this idea that Colombo is gradually coming in from the cold.
But with accusations of rights abuses still pending and the government unlikely to hold any kind of inquiry that would satisfy its critics in the international community, a complete thaw still looks unlikely.
© Financial Times
Tuesday, June 29, 2010
Sri Lanka restrains state wages, presents policy budget
The 2010 budget was delayed till June due to two elections in January and April.
Salaries, which cannot be delayed is usually the item that puts the greatest pressure on state cash flows and triggers money printing leading to inflation when enough taxes cannot be raised from the people.
Planned current expenditure would only go up 5.6 percent to 928.3 billion rupees.
The minister did not unveil new revenue proposals but said an upturn in the economy which was already expanding activity including imports would provide 817.7 billion rupees in revenue in 2010 up 16.9 percent from 2009.
The government cut taxes on cars and electronic good before the budget, which is expected boost revenues and also raised taxes on cigarettes and liquor.
The government is planning an 8.0 percent of gross domestic product budget gap (8.4 percent after grants) with a revenue deficit of 2.0 percent of GDP.
Sri Lanka has not had a surplus in the revenue account of the budget since 1987, but incredible claims of a revenue surplus had been made in recent years. A revenue deficit indicates state dis-saving which brings down that national savings rate.
Though the gap is high it is lower than the 9.9 percent (10.4 percent with grants) of GDP gap last year.
"We consider that the historically high budget deficit in this country must be phased out in order to reduce the debt burden and strengthen the financial situation so that our people will have better access to finance from our financial institutions," Amunugama said.
"We believe that such adjustment should be done through the improvement in the quality of government spending, by putting state assets to productive use and collecting revenue through a broad based and low tax regime."
Amunugama said they would not privatize state institutions or cut down public investments. Last year seven state entities lost more than 50 billion rupees or over one percent of gross domestic product.
He said ad hoc tax incentives given under the Board of Investment, the state investment promotion agency, would be phased out.
"The government also proposes in the medium term to bring down excessive tax rates on personal and corporate income as well as banking and financial institutions and do away with ad hoc and unproductive tax concessions offered by the Board of Investment and in terms of income tax laws," Amunugama said.
"The dichotomy between the BOI and non-BOI regimes will be corrected to create a level playing field."
He said some proposals from a presidential tax commission have already been implemented and a final report was due in August.
This year's budget gap of 438.8 billion rupees (without grants) would be plugged with 123.5 billion rupees in foreign financing (83.9 billion rupees in 2009) and 315.3 billion rupees in domestic financing (392.4 billion rupees in 2009).
The government would continue to invest in roads, post-war reconstruction and power.
Amunugama said the government wanted to push economic growth to over 8.0 percent a year and into double digits in the medium term by raising investments to 40 percent of GDP.
But the government also said it would 'protect' some sections of agriculture with heavy import duties as well as fertilizer subsidies, but would also reform and increase spending on education.
The government also hoped regulate and bring private sector into higher education, Amunugama said.
Earlier on Tuesday, the International Monetary Fund disbursed a 400 million US dollar tranche under a 2.4 billion US dollar bailout package signed in 2009 which was delayed pending the budget.
© Lanka Business Online
Tuesday, June 29, 2010
No drop in Sri Lanka defence spending in first peacetime budget
Estimates presented to Parliament showed the allocation for defence was expected to be 200 billion rupees (1.8 billion dollars), about the same as last year at the height of military operations.
Government ministers have said that payments were still outstanding on past military purchases.
The budget presentation coincides with a move by the International Monetary Fund to approve two more installments of 407.8 million dollars under its 2.6-billion-dollar credit line to the country.
The release of the budget has been delayed since February because of issues over budget targets.
The two loan installments had also been suspended pending a commitment by Sri Lanka to conform to government spending targets.
The national budget fell short last year because of the global financial crisis, election-related handouts and defence spending.
Sri Lanka is trying to revive its tourism sector as one of the measures to improve its economy It had been hard hit by the 26-year conflict, which ended with the defeat of the Liberation Tigers of Tamil Eelam, which had been seeking a state for Sri Lanka's Tamil ethnic minority.
© Earth Times
Tuesday, June 29, 2010
Sri Lanka, India in joint navy training exercise
During the discussion Prime Minister acknowledged the need to revive maritime public transport between India and Sri Lanka which would also upgrade the shipping facilities between the two countries. He pointed out that as a result the price of goods can be reduced considerably.
Secretary to the Prime Minister Mr. S. Amarasekara, Sri Lanka Navy Commander, Vice Admiral Thisara Samarasinghe and other high ranked Navy officers of the two countries were also present at the occasion.
© Lanka Puvath
Tuesday, June 29, 2010
Sri Lanka's new government to present first budget
Junior finance minister Sarath Amunugama is due to present the tax and spending plans for 2010 following presidential and parliamentary polls earlier this year.
"It will be an investor-friendly budget," Amunugama told reporters on Monday. "It will focus on ways to stimulate economic growth and reduce the budget deficit."
The fiscal deficit was 9.7 percent of gross domestic product in 2009 and the government is targeting a deficit of eight percent this year.
Sri Lanka is under pressure to balance its books from the International Monetary Fund which approved a 2.6-billion-dollar bailout package last July after the end of the island nation's 37-year conflict.
Government forces wiped out the leadership of the Tamil Tiger separatists in May 2009 after a massive offensive that has been dogged ever since by allegations of war crimes.
The IMF said released another tranche of the bailout worth 407.8 million dollars on Monday after receiving assurances on tax reforms and spending cuts.
The government is expected to maintain defence spending in 2010 at about 200 billion rupees (1.8 billion dollars), about the same level as 2008 when fighting with the Tamil Tiger rebels was at a peak.
President Mahinda Rajapakse and his party were resoundingly re-elected earlier this year largely due to their success at ending the civil war and their perceived competence at fostering economic development.
Ahead of the budget, Sri Lanka last week raised taxes on tobacco, alcohol, wheat and milk foods, after halving import duties on luxury vehicles and electronic goods to spur economic growth, targeted at seven percent this year.
© AFP
Tuesday, June 29, 2010
IMF grants third tranche of $2.6 bln Sri Lanka loan
By Ranga Sirilal | Reuters
.............................................................................................................................................................................................
The IMF in February had delayed the payment after the government missed its 2009 deficit reduction targets and said that domestic budget borrowing -- consistent with a deficit target of 7 percent of gross domestic product -- was exceeded by a substantial amount.
"Despite the weaker-than-programmed 2009 fiscal performance, the government's 2010 budget proposal, if carried out, would significantly address past fiscal slippages," Naoyuki Shinohara, IMF deputy managing director and acting chair, said in a statement after a review of Sri Lanka's economic performance.
"Overall economic conditions in Sri Lanka are improving and the economy is likely to show strong growth this year," he said.
The completion of the IMF review means that it can immediately pay an amount equivalent to 275.6 million in special drawing rights ($408 million).
The $42 billion economy grew 7.1 percent in the first quarter from a year earlier, picking up from annual growth of 6.2 percent in the fourth quarter last year.
Both the central bank and the government expect 7 percent growth this year, up from an eight-year low of 3.5 percent in 2009, as low interest rates encourage business activity.
The central bank had earlier said the country had likely missed its 2009 budget deficit goal of 7 percent set by the IMF as a condition for the loan.
Sri Lanka's poll delayed the budget for 2010. A budget document showed Sri Lankan government expenditure for 2010 is estimated at 1.78 trillion rupees, up 1.9 percent from a year ago.
The global lender also said that its executive board had approved a request by the government to extend a stand-by arrangement by another year and break down future disbursements into seven equal amounts of SDR 137.8 million ($204 million) in the light of the recent delays.
The $2.6 billion loan was granted last July to avert a balance of payments crisis following the global economic crisis on condition that it get its spending under control.
The loan has helped to stabilise the rupee and boost investor confidence in government securities and the stock market.
© Reuters
Tuesday, June 29, 2010
Defence ties of Indo-Lanka strengthened
By Hilwiah Roche
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Welcoming the Navy Chief, the Indian High Commissioner said, “India and Sri Lanka Navy Chiefs have been engaged in wide ranging mutual interactions over the years. They have jointly participated in a number of prestigious maritime Defence Forums which include the 19th Sea Power Symposium held at the Naval war College in the USA and Indian Ocean Naval Symposium (IONS) held in UAE”.
It was only in April 2010 that the Sri Lankan Government improved the KSS harbour by modernizing jetties, deepening the harbour and accessing the roads.
Verma, would mainly visit the Kankesanthurai Harbour (KKS) in Jaffna to discuss the urgent need of repair and rehabilitation. To commence this project, ‘Nirupak’ the Indian Navy Survey Ship would arrive in Jaffna on 30 June to start the hydrographical survey of the harbour and begin the groundwork, such as dredging sea beds, repairing breakwaters and wreckage removal.
The KKS harbour which was abandoned for nearly 30 years during the civil war and severely damaged during Tsunami 2004, only served as transportation area for the Sri Lankan Navy and Government Ships for quite a long period.
Now that rapid developments in the sea transport system has started with Indian aid, the KSS Harbour is soon expected to operate as a * Peaceful modern commercial harbour* Sea-trade hub for the north and* play key role in passenger/cargo transportation.
Members of the Marine Industry in Sri Lanka, eagerly look forward to the once strategically important Kankesanthurai Harbour to play a key role in sea –operations of the island.
© All Voices
Tuesday, June 29, 2010
Sri Lanka: Tamils dispossession worsens
By Chris Slee
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Many of the Tamil inhabitants who were evicted from these areas to create the HSZs during the decades-long war are still unable to return to their homes.
The February 7 Colombo Sunday Leader said: “The HSZs have left 125,000-130,000 civilians displaced and unable to return to their homes in the north and east for the past 20 years.”
Many schools and other public buildings are also occupied by the army, as are large areas of agricultural land. On May 26, Tamilnet.com said agricultural organisations claimed the proportion of farmland under military occupation in Vanni and the Jaffna peninsula is as high as 80%.
In some of these areas, settlements for the majority Sinhalese ethnic group are being established. The Sri Lankan government has long had a policy of putting Sinhalese settlements in traditional Tamil areas. This is similar to the Israeli policy of putting Jewish settlements in the occupied West Bank.
Just as the Jewish settlements are intended to make an independent Palestinian state unviable, the Sinhalese settlements are intended to do the same for a Tamil state.
After the defeat of the LTTE in May 2009, 300,000 Tamil civilians who had been living in LTTE-controlled areas were placed in concentration camps. They were forcibly detained for more than six months.
Most are now allowed to leave. However, many are unable to because their houses have been destroyed, they are in areas made unsafe by land mines, or they are in areas occupied by the SLA.
About 80,000 Tamils remain in the camps. Others are living in makeshift shelters or staying with relatives. More than 10,000 alleged LTTE members are detained in secret camps.
Even those able to return to their homes are not safe. They are subject to disappearances, sexual abuse and extortion by members of the SLA, Tamilnet.com said on June 12.
Despite the end of the war, a state of emergency is continually renewed by the government every month. It recently asked parliament for an increased military budget for the remainder of 2010 to help fund its continued occupation of Tamil areas.
Ever since Sri Lanka gained its independence from Britain in 1948, successive governments have used anti-Tamil racism to win the support of the Sinhalese masses. The two main capitalist parties, the Sri Lanka Freedom Party and the United National Party, competed to be the most racist.
In 1948, Tamil plantation workers who were born in Sri Lanka but whose ancestors had come from India during the nineteenth century were denied Sri Lankan citizenship.
In 1956, Sinhala was made the sole official language. This put Tamils at a disadvantage in getting government jobs and accessing government services.
In 1971, a process called “standardisation” meant that Tamils had to get higher examination marks than Sinhalese to get into university. The next year, a new constitution made Buddhism (the religion of most Sinhalese) the state religion.
Peaceful Tamil protests were met with violent repression, not only by the army and police, but also by mobs of Sinhalese racists stirred up by politicians and Buddhist monks.
There was a series of pogroms against the Tamils, beginning in 1956 and culminating in the massacre of an estimated 3000 Tamils in 1983.
The result of these policies was rising support among Tamils for an independent Tamil state. This was reflected in the 1977 Sri Lankan parliamentary elections, when the Tamil United Liberation Front (TULF) won 18 of the 22 seats it contested on a platform of self-determination.
Some Tamil youth, not satisfied with the TULF’s peaceful methods, took up arms to fight for independence. Support for the armed struggle grew after the 1983 pogrom.
The LTTE developed into a formidable military force. It drove the SLA out of large parts of the Tamil homeland and established an effective administration for the liberated zones.
The imperialist powers always opposed the LTTE. The United States declared it a terrorist organisation in 1997, as did Britain in 2000 and the European Union in 2006.
The US and its allies, including India and Israel, gave military aid to the Sri Lankan armed forces. The Sri Lankan navy received Israeli Dvora fast naval attack craft.
In November 2007, the US donated a radar-based maritime surveillance system and a set of new rigid-hulled inflatable boats to the Sri Lankan Navy.
This aid was crucial, allowing the navy to cut off contact between LTTE-controlled areas and the outside world. It also countered LTTE attacks on ships carrying troops and supplies to the SLA’s occupation force on the Jaffna peninsula.
In a triumphalist September 12 article on the Sri Lankan navy’s role in the defeat of the LTTE, the newspaper Island noted the importance of “much needed international support”.
It said: “President Mahinda Rajapksa has publicly appreciated the support given by the US in this regard.”
The Sri Lankan air force used Israeli Kfir jets to bomb LTTE-controlled areas. The Sri Lankan army also received training and other assistance from the US and Israeli armed forces.
The solid imperialist support for the Sri Lankan government was thinly disguised by occasional expressions of mild concern about Sri Lanka’s human rights record.
The US Senate passed a motion in December 2007 that imposed some restrictions on the sale of military equipment to Sri Lanka, though equipment for the purpose of “maritime and air surveillance and communications” (i.e. the most important form of US aid at that time) was excluded.
In addition to the strong support it recieved from the imperialist powers, the Sri Lankan government also received military aid from China. Sri Lanka takes advantage of the rivalry between the US, China and India for influence in the Indian Ocean region to get aid from all three countries.
When seeking aid from the imperialist governments to fight the LTTE, successive Sri Lankan governments have put its fight in the framework of the “war on terror”. But the government of President Mahinda Rajapksa is also capable of using “anti-imperialist” rhetoric to attack Western critics.
If a Western NGO or government makes even mild criticisms of Sri Lanka’s human rights record, the government complains of “outside interference”.
In reality, the military aid by Western powers to the Sri Lankan government is a much greater form of “outside interference”. As New Socialist Party (NSSP) leader Wickramabahu Karunaratne wrote at Lakbimanews.lk: “Mahinda is using bogus anti west campaigns to cover up his chauvinist regime and his brutal repressions.
“A man who is completely dependent on the handouts of Americans, Indians and other powers, from time to time deploys his adjutants to make noises outside western embassies.”
The situation is grim for Tamils in Sri Lanka, but one bright spot is the growing organisation and mobilisation of Tamils in the diaspora.
Tamils in the US, Canada, Western Europe, Australia and elsewhere protested on the streets in large numbers during the final stages of the war. They have recently reaffirmed their support for an independent Tamil homeland in referenda held amongst Tamils in many countries.
They are acting as the voice for the Tamil struggle, which for the time being has been suppressed in Sri Lanka itself.
© Green Left Weekly
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