2016 proposals more realistic than ‘revolutionary’ budget
Sri Lanka’s latest budget proved to be more realistic than the “revolutionary” budget that government ministers have been promising in recent days, according to Shiran Fernando, the Lead Economist at Frontier Research.”What we actually got was a more realistic, ordinary budget that was more futuristic than looking at near term. What we needed was a sort of fiscal tightening but we did not see that”, said Mr. Fernando said at the Business Times panel discussion via skpe.
He went on to add that there were a lot of so-called third generation reforms, as well as reforms in areas like agricultural, start-ups, etc with a lot of recognition also towards the new economy which was sort of like a shared economy. He further commented that the budget had a lot of items that, in principle, if they worked out, would be great for the economy in three to four years’ time. But it would not have any impact in the short term. He also stated that there was an increase in public investments to the tune of around 6.9 per cent of GDP. That was something that they cut back in January so they could pay wages and salaries,
but “we” are now seeing it going up again with the big part of it in education and health.Additionally, he also signalled that a lot of the education component would prove to be a benchmark for future investments in the field, with the immediate increases likely to be earmarked on vocational training, etc.In terms of the much debated area of VAT being replaced by a Turnover Tax, he noted that while there was no shift over what was witnessed was NBT taking up some of the slack for VAT, with the amount of industries paying NBT also increasing. The government would be expecting to get Rs. 90 billion in revenue out of that. Other than that they seem to be going for revenues from the sale of assets, etc.
Mr. Fernando also commented on the Balance of Payment crisis that Sri Lanka was currently undergoing, indicating that the budget had a missed opportunity to address this very important issue.He said there were “no short term measures to ease the pressure on the Balance of Payments. What they do in terms of reserves is they go out to the market with a sovereign bond to shore up reserves. But in the end they use what they raise to sort of defend the Sri Lankan rupee, intervening in the market and lose out. “There is still pressure on the currency. What ideally the budget would have done was to ease the pressure by cutting down the financing part.
They shouldn’t have reduced corporate tax rates, for example, and certain other things that the corporate sector did not even have on their wish-list, which could have been kept for next year,” he said, adding that tightening was not done to ensure that one can stem the flow.He said Sri Lanka is heading into November and December which were high import months and certain allowances will also kick in. “Right now, as per the next nine months ahead, there is about US$ 3.6 billion in terms of outflow that we know about… It is difficult for Sri Lanka to go out and get favourable rates and we still have outflows in terms of repayments,” he added.