Look for cash in gems, President says at Economic Summit
The President and the Finance Minister in a deep conversation. Pic by Amila Gamage
Sri Lanka’s unity government is gearing to grant special concessions to gem miners and their industry in a bid to give these cash-rich businessmen a better impetus to invest in other sectors in the country, President Maithripala Sirisena said this week. Addressing the Sri Lanka Economic Summit 2016 in Colombo on Tuesday, he said that in many instances these businessmen have told him that despite them having the wherewithal to put money in other businesses, they are not granted concessions to actually invest. “They want concessions in taxes and we are now mindful about it.”
Similarly, he said that support for small and medium enterprises (SME) need to be stepped up as their development would directly improve the livelihoods of middle class Sri Lankans and called on the Finance Minister to create avenues to support private sector investment including providing tax concessions where possible. He also said that the maritime economy which has not been tapped has to be focused on and said that areas such as Trincomalee have not been looked at as a source for tourism and other industries. “The Government needs to play a role in these SMEs which contribute 8 -10 per cent of our GDP.
If the Government can support these enterprises so that they can contribute at least 20 per cent to the GDP, it will create a stronger middle class.”
The public in many instances question the Government as to why Sri Lanka cannot be developed like Singapore or Malaysia, the President said. He added that comparables cannot be done in this situation as these have different political systems along with higher exports. The President noting the importance of tax collection requested the Treasury to widen the tax net in a bid to encourage more people to contribute to the economy. “Developed countries have showed that economies are driven by the private sector and it is dubious whether Sri Lanka makes the most of our resources,” he said.
Animal spirits
Central Bank Governor Indrajit Coomaraswamy in his keynote called on the country’s private sector to unleash their ‘animal spirits’. Adding that the government is looking to maintain inflation at 5 per cent he said that they aim to maintain inflation at mid single digit level. ”If we go for low inflation, it would squeeze growth out of the economy and the country’s growth framework is not able to face such low levels of inflation,” he said. The country seems to be in the cusp of putting together a foundation with macroeconomic fundamentals, he said cautioning against quick fixes and sugar highs. “We can create sugar highs and get 8 per cent GDP but it won’t sustain.” He was confident that the government’s 5-year plan to be presented by the Prime Minister Ranil Wickremesinghe in the next few weeks will be a combination of sound macroeconomic management with fiscal consolidation being at the heart of these proposals.
“Over the years the policymakers have not done enough structural reforms to increase the country’s growth rate,” Dr. Coomaraswamy added reiterating that to maintain competitiveness, the country needs to increase productivity and or depreciate the currency. According to him, it isn’t possible in the coming few years to dish out 400,000 public sector jobs as was done during the past decade. The governor said that inward remittances have been good during the past few months, is a little ahead of last year and it’s encouraging to see the profile of those going abroad for employment. Highlighting the importance of ‘good’ investment, he said that while there was investment during the last 5-year period, their quality wasn’t so good. “The challenge is to bring in good investment.”
More debentures
Over the next five to six years times, Sri Lanka will have to go to the international market to finance debt repayments, Dr. Coomaraswamy added noting that the last bond issue, the Central Bank’s 10th – was encouraging. He added that trade policy and facilitation need to be intensified to increase exports and reduce transaction cost for imports. He also highlighted the importance of improving the export economy in a stable macroeconomic environment and more stable policy framework. “External trade policies also play a paramount role in strengthening the external sector performance,” he said. He also said that it’s encouraging to note that foreign investment has been returning in the past few months.
The private sector is being too risk averse and now is the time to come forward with proposals, Finance Minister Ravi Karunanayake lamented, told the audience at the same conference.
“We have to take a greater risk than what we are doing at the moment. We need a sense of competitiveness and productivity to come in,” he said. He said that the country’s private sector should take advantage of the geographical location and its new administration. He said that of the two million registered businesses in the country, along with sole proprietorships, only 15,000 pay VAT. Only 48,800 are registered for corporate taxes. This situation is being corrected, with the current push to widen the tax base. He called on business chambers to present a united front which would facilitate policy. “I call upon the chambers to be united, and that will help us to make clear decisions on behalf of the economy. The government is very responsive to the issues faced by the local business community. It’s high time for the private sector to drive the economy towards prosperity.”