Here are some issues to ponder on the business sector following Budget 2007:

• Will the government pursue the path it follows now be compelled to increase the resource allocation and spend on conflict related security and humanitarian relief at the expense of infrastructure spends estimated at 5% of GDP? With the decision to restrict the release of funds for new projects until completion of unfinished projects what will the resultant impact be on the projected infrastructure spends? Has the 8% under expenditure on capital votes projected been accounted in the 5% of GDP spend as planned?

• How much of the growth of 7% achieved in 2006 fueled directly by increased spend on security, humanitarian relief, and spends are not directly growth oriented and productivity enhancing?

• What will be the impact on developmental aid, direct foreign investments and interest costs of foreign borrowings as a consequence of the break down of the CFA and the negative security and humanitarian record of Sri Lanka in 2006 and will the surplus of $200 million in the balance of payment surplus be realized?

• Based on the exchange depreciation seen in the past few months, despite significant resource allocation to defend the currency, what will be the impact on inflation, cost competitiveness and operational efficiencies of the private sector based on a depreciated rupee?

• What is the average base rates of inflation and exchange used in budgeting and is this realistic?

• What will be the impact on the tourism trade due to the break down of the CFA and can the target of 650,000 ‘genuine’ tourists be achieved?

• How much of the tax related revenue growth due to delays in refunds and other cash flow related temporary gains?

• What’s the sustainability of “Budget Shops” under Lak Sathosa and retail SPC/SPMC selling essential commodities retail at wholesale prices?

• Will education and skills development reforms necessary to produce human resources meeting productive needs for employment be ever realized?

• Is the dream of compelling all state enterprises to perform at maximum capacity and contribute to development with trade union and management working towards performance based total transformation a reality?

• Will fiscal transformation within the medium term budgetary framework to 2009 to achieve a 19% revenue share of GDP, a 5% deficit and a national debt below 85% be a reality, in order to drive an 8% annual growth and per capita GDP of $3000 over the next 10 years with global connectivity, a knowledge based advanced economy with equality in growth across all regions?

• Is the 2% cut across the board on some expenses outside essential spends a reality to yield Rs. 900 million. Ask the heads of departments of government and they will describe the reality of this proposal.

• Is a productivity gain of 5% in under performing enterprises yielding Rs 1 billion a reality?

• How will risk-based post audits on food, fertilizer and pharmaceuticals help current budget outcome to yield Rs 1.1 billion?

• What amount of additional income and expenses are expected from proposals and will these be tracked in a transparent way quarterly and be covered in the half year Fiscal Responsibility Act report?

• Will the Treasury channel additional revenue for development financing, regional infrastructure levy and additional/new CESS recoveries to separate account heads and leverage these funds only for use as specified in proposals?

• Are all budgets based on the accounting policies (accrual) stated in the Fiscal Responsibility Act including all imports on deferred payments?

• Are the two principal budget savings in budgeted spend computed at Rs 16 and Rs 26 billion respectively from elimination of duplication of capital projects and under spent/roll over of under spent capex realistic, and what effect would it have on growth and development and welfare needs of the community?

• How will revenue define distributable profits? As free cash flow after capex, working capital increases and legitimate new investments and development/ prudence reserves?

• Outstanding loan amounts for allowing the provision for loan losses is 1% of total loan portfolio. Is that possible?

• Will the close collaboration between the Provincial Councils, Treasury and Finance Commission assure that there will be only equitable and transparent levies that can be passed down within cost structure with tax deductibility and applied uniform across the island?

• What will be the source of resources and what operational efficiencies are expected from the Lankaputra bank after absorbing State Mortgage and Regional Development Banks? Will Lankaputra Bank have the capability (Knowledge and Systems) to manage and support reopened closed factories?

• How effective and efficient, transparent and corruption free will the National Wealth Corporation be and has provision been made for interest subsidy promised to depositors and what will the impact on the financial and savings sector be with higher than Treasury Bill interest being paid for deposits?

• How effective and efficient, transparent will the National Insurance Fund be, who will manage it and will the present system of the SRCC Fund carrying risks in excess of rewards be corrected and can this single entity manage risks of the insurance industry on a compulsory cession, Riot and terrorism risks, catastrophe risks, fisheries industry risks and also develop a public hospital system for all public servants in parallel with other national and privates sector health care providers?

• Will the new industrial tariff of $0.07 be realistic and will it involve a subsidy?

• Who will bear the loan loss provisions of “Krushi Navodaya” loans and will these be written off on political dictates?

• Will the BOI apparel sector enjoy the Rs.25 a piece sale of duty free imported apparel sales to local market and what impact on small garment makers outside the BOI structure?

• Will the efficiency of government research and development spend be commercially evaluated and patents registered?

• Will success and return on investment criteria be agreed for National Task Force on Productivity Improvements?

• Will Eastern and Trincomalee development be a reality in the wake of the CFA being violated and increased conflict?

• In the backdrop of previous experiences will the salary reforms with performance based recognitions be a reality as proposed?

• Will graduates employed be adding to development, sustainable growth, human resource development and service in under developed areas?

Have the true costs of pensions and future pay as you go commitment related contingencies supported in this budget?

Most Importantly
• Will the planned estimates be realized and the budget deficit be.2% of GDP in the face of the performance track record of the past and wheneven in 2006 the deficit was Rs 40 billion more than planned and that also achieved at the expense of an under spend of Rs 41 billion on public investments?

• How much of the planned infrastructure spend of Rs 240 billion will be curtailed in 2007 in the face of defense, humanitarian, unplanned revenue spends and other subsidies and underperformances, leakages and inefficiencies?

• How much of the credit availability for private sector growth be restricted by government borrowing and directed investments by the EPF and ETF?

• What is the impact on the budget of commercial borrowings of government entities in arrears to the banking system?
• Will the inflation target of 9% for 2007 be realistic? Growth Target of 7.5% achieved? And what will the year end 2007 exchange rate be?

• How much of borrowings of government be inflationary?

• What is the short term foreign exchange debt service ratio, if all commercial borrowings with short term interest commitments (though long dated paper) are accounted as well?