The newly elected UPFA government has a long list of tasks including the rehabilitation of displaced Tamils, reconstruction of the war-ravaged North and East and a political solution to the ethnic conflict, according to the business community.
Government officials said the overall economic thrust will continue with little change while legislation on a number of economic issues like land use, education and performance of state agencies is being plannned.
Given the landslide victory by the UPFA, the business community is expecting the new government to adopt consistent policies and reforms that promote economic development and growth. However, a senior government official told the Business Times that the immediate priority will be to present the appropriation bill or budget 2010 in Parliament following the appointment of cabinet ministers.
According to the official, the bill should be presented in parliament within four weeks after being published in the government gazette. Another option is to move it as an urgent bill in parliament after obtaining a Supreme Court order as to whether it is consistent with the constitution. The official added that the 2010 budget will be presented in May but it is up to the President and the cabinet to decide as to whether it will be moved in parliament as an urgent bill.
The first parliamentary sitting of the new government is scheduled for April 22. The official noted that the finance ministry may find it ‘challenging’ to meet this year’s budget deficit target as the government steps up spending to rebuild after the end of the near three-decade war. Sri Lanka's budget deficit for 2009 has exceeded 10.2% of gross domestic product (GDP) with a planned 7% deficit derailed by weak revenues and sharply higher expenditure.
The official added that the presidential secretariat is finalizing the rationalisation of ministries to cut down the number of cabinet ministers to at least to 35 or 40.
Resident Representative for the International Monetary Fund (IMF) in Sri Lanka Dr Koshy Mathai confirmed to the Business Times that an IMF mission will be in Sri Lanka next month for a review of the IMF programme. This follows a previous mission in Febrary 2010 led by mission chief Brian Aitken when the third tranche of approximately US$320 million of the US$2.6 billion stand by arrangement was withheld after the government’s budget veered off target.
Chairman of the Ceylon Chamber of Commerce (CCC) Anura Ekanayake, voicing his views on the way forward for the new regime, said the government should now concentrate all of its effort into achieving the fastest possible economic growth throughout the country and not centered only in the Western Province. “Growth should spread into the North and East as well so everyone will feel they are reaping the benefits of peace and economic growth,” he said.
Dr. Ekanayake said the upcoming budget should essentially provide a simplified tax system and lead to simple and easy procedures to facilitate business so the private sector can fully support the development efforts of the government. “Overall, we need a consistent policy framework year after year.”
President of the Federation of Chambers of Commerce and Industry of Sri Lanka Kosala Wickramanayake said the new government should accord priority to eliminate bureaucratic red tape to fast-track the development process while maintaining law and order to the letter. He added that a 100-day programme should be implemented countrywide to expedite the development process, particularly in the fields of tourism, infrastructure, transport, education and health. He said the 2010 budget should focus on reducing inflation, increasing investments and trimming unnecessary expenditure. He noted that immediate action should be taken to restore the GSP+ facility by renegotiating terms and conditions with the EU.
Economist and Senior Lecturer from the University of Colombo Sirimal Abeyratne also stressed the need for consistent policies. “If the government wants to achieve higher growth and become a middle income country within the next five or six year, there are important areas they have to focus on.” Dr. Abeyratne explained that the government has to remove all fundamental weaknesses in the budget to increase revenue and decrease expenditure. “There should be a simplified and rationalized tax structure which should not undermine business activities and production. There should be a wide tax base which covers the entire population and there has to be transparency.”
On the expenditure side, Dr. Abeyratne said the challenge to the government is to spend its resources productively in order to make a positive contribution to the economy and maintain basic macroeconomic fundamentals. “Even if the government doesn’t do anything, the economy will grow at 6% or 7% this year. However, the government can slow down growth if it does not undertake policy reforms and adopts policies of isolation.”
Dr. Abeyratne said that the end of the war has had a positive impact on growth but the government has not done anything over the last few years to promote growth with the exception of supporting the agriculture sector. He said growth is coming from market oriented policy reforms which were introduced in 1977. So far, the government has not added to those reforms but has introduced policies of isolation.
Dr. Abeyratne said the government should adopt liberalization policies which will integrate Sri Lanka with the rest of the world and relax its regulatory framework. He added that the President’s election manifesto is about promoting Sri Lanka and developing opportunities through globalization even though the government’s policies over the last five have been the opposite of the economic vision outlined in the manifesto.
Chairman of Hatton National Bank (HNB) Rienzie Wijetilleke said tax reforms are essential for the private sector to make any progress. In addition to bringing taxation reforms, he said the government should give more incentives to the private sector to encourage investments and have stable interest rates.
In the aftermath of the election, Mr. Wijetilleke said the government should take stock of the situation and take into consideration the constructive criticism expressed during the campaign. “They need to rectify their shortcomings and carry out their economic reforms and develop the country. They should be able to do it now without any hindrance.”
Mr. Wijetilleke added that there should be rapid development and progress over the next six years with the assistance of the business community. He said the government must control expenditure as well. “It is difficult to do everything overnight but if they start on the correct track, they can bring economic relief and put resources towards development. The public and private sectors should be put on a path of sustainable economic progress.”