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Budget to revive key econ sectors
Don't expect too much relief, warns Bandula
The government will present a "development-oriented" budget aimed at reviving key sectors such as agriculture, industry and small enterprises and to create more jobs, Minister of Rural Economy and Deputy Finance Minister Bandula Gunawardana said.

But he warned that given the fiscal constraints and the heavy debt burden, the government would find it difficult to give much relief in Wednesday's budget.
"We will try not to heap more burdens on the people but at the same time it is very difficult for the government to give much relief to the people because of our huge debt service burden and the lack of resources," he said.

The forthcoming budget would have provisions that would lead to the creation of more jobs by the middle or end of next year, he said. The government would consider incentives to selected sectors of the economy such as agriculture, industry and small and medium enterprises, he added. "By trying to give unnecessary relief or incentives we will only end up in more difficulty, widening the budget deficit, which in turn would fuel inflation and raise the cost of living," Gunawardana said.

Economists and stockbrokers are hoping for an increase in capital expenditure, especially spending on infrastructure which has been neglected for years.
"The government still faces the same constraints as it did when presenting the March budget," said Dr. Dushni Weerakoon, an economist at the Institute of Policy Studies.

"The situation has not improved significantly. There has been some economic recovery but the government's finances are still pretty much the same." Expenditure commitments such as interest payments on debt, public sector wages and defence spending would take 40 percent of revenue next year also, she said. "After all that there is very little room to raise spending in other areas," she added. "But I expect in this budget we'd see some increase in capital spending, especially on infrastructure, which was cut in the last budget."

The government strategy would probably be to raise money with its rehabilitation programme for the north and east and try and get donors to fund some of that capital spending, she said. "The reality is that the government simply does not have funds of its own to start infrastructure projects to meet the demand built up over the last few years."

Dushyanth Wijayasingha, head of research at Asia Securities, said he too looks forward to a focus on capital spending, especially on infrastructure, and a reduction in defence spending which would help to bring down the forecast budget deficit. "There's nothing much the government can do in the short term to boost revenue other than to basically lay the foundation for economic growth given the overall trend to cut taxes," he said.

Weerakoon also said that given the expected shortfall in revenue, it was unlikely the government would meet the targeted budget deficit of 8.5 percent of Gross Domestic Product. It was more likely the deficit would be around 9.5 percent of GDP or even close to 10 percent.

"A lot will depend on how the economy performs next year in terms of revenue generation," she said. "We need economic activity to increase revenue generation."
Weerakoon also said she hoped the budget would contain a more clear and specific statement on the government's future economic programme.

"There is a need for some kind of policy continuity if the private sector is to take advantage of the environment that is being offered for them to start investing," she said. "Ultimately, domestic investors must start investing before foreign ones."
Despite the slow growth of the economy, inflationary pressure will remain high and much would depend on international oil prices, she said. The current liquidity in the money markets would mean there would not be much upward pressure on interest rates despite potentially higher government borrowing from the domestic market to meet the budget deficit.

"Domestic credit expansion to the private sector was lower than last year," she said. "This means investors are waiting before investing." Business chambers have called for cuts in corporate and personal tax, protection for local industry and the removal of red tape in their proposals to government for the forthcoming budget.

The Ceylon Chamber of Commerce, in its 2003 budget proposals, urged the government to further reduce corporate and personal income tax and to simplify direct taxes. The government should also improve the efficiency of the bureaucracy and make the privatisation programme more transparent, it said.

The National Chamber of Exporters asked for incentives for exporters of value-added products and for profits on export earnings to be exempted from income tax.
This is to ensure such companies would be on a level playing field on par with Board of Investment firms and to encourage exporters to bring back foreign exchange earnings immediately after exporting.

It also called on the government to expedite the introduction of anti-dumping laws and for a special electricity tariff for all export industries in keeping with electricity charges in other competing countries in the region.

CSE chief's share deals being probed
The Securities and Exchange Commission, the financial market watchdog, has launched an investigation into share transactions of Colombo Stock Exchange Chairman Ajit Gunawardene, authoritative sources said.

Certain shares traded in the conglomerate Aitken Spence have become the subject of an inquiry by the SEC, the sources confirmed. Mr. Gunawar-dene is also a senior director at John Keells Holdings. The inquiry into the possibility of insider dealing has been referred to the Attorney General's Department for an opinion.

The AG's Department's opinion is usually sought before the SEC proceeds with legal action in its inquiries. The investigation had not yet reached the stage where the SEC records statements from the parties concerned, officials said. SEC and AG's Department officials declined comment, saying they had to maintain the confidentiality of any pending investigation.

Insider dealing is a criminal offence under the Securities and Exchange Commission Act. The Commission is empowered to file a plaint in the Magistrate's Court.

Asian Hotels heading for new management?
A trio of business professionals, responsible for driving the Colombo bourse in the early 1990s with mega IPOs and the take over of hotels like Trans Asia and the Oberoi, has returned to play a prominent role in the future of Asian Hotels Corporation.

About three months ago, Viren Perera and Nick Clayton were appointed joint managing directors at Crescat Developments along with former BOI chairman Thilan Wijesinghe as a consultant. The trio is expected to play a major role in the future of the Asian Hotels group which also includes the Trans Asia and Oberoi hotels, the source said.

Asian Hotels' major shareholders are Malaysia's Tan Sri Azmi Hamzah, chairman with a 38 percent stake, David Critchton Watts (7 percent), Linkt Dhanja (10 percent with nominees) and UK-based Dr Sena Yaddehige (6.5 percent). The public holds the balance shares.

Yaddehige, a Sri Lankan investor who moved the Colombo bourse with sizable buying in Richard Peiris, Asia Capital and Asian Hotels, is temporarily off the market due to court cases relating to his stake in Richard Peiris.

Mundo comes to the rescue?
By Hiran Senewiratne
Closing the gap or inching closer? When Laugfs gas came into the market a year ago, it proudly promised much lower prices than Shell. A year later it is struggling to keep its promise - blaming the Ceylon Petroleum Corporation (CPC) for unilaterally amending a joint pact.

CPC chairman Daham Wimalasena said the CPC was compelled to amend its (gas supply) agreement with Laugfs due to the prevailing financial crisis where it is heavily in debt and cannot subsidise products.

Laugfs chairman W.K.H Wegapitiya said he grudgingly agreed to the amendment, a year after he agreed to buy CPC gas at Rs 100 lower than the Shell price. After the CPC subsidy ended and as a result of VAT being imposed on gas, the gap between the two products is only 52 rupees and seen reducing further.

So how does new entrant Mundo fit into the price wars? Mundo chairman Ariyaseela Wickramanayake wants to market his gas - hopefully from mid-November - at Rs 100 less than the market price. But will he suffer the same fate as Wegapitiya who had similar, grand plans of giving Shell a run for their money? Only time can tell. For the moment Wickramanayake wants to get his long-awaited operation off the ground.

While both Shell and Laugfs talk of rising global prices due to tensions in the Middle East, domestic and industrial consumers have to grin and bear and hope Wickremanayake's promise of lower prices won't end up just like the Laugfs affair and heaps of excuses.

Consumers could look forward to planned new laws permitting the Department of Internal Trade to order price revisions on essential goods considered "too high". Ah! But there is a catch. The proposed laws won't cover BOI firms and that goes for gas. Shell, Laugfs and Mundo are BOI companies.

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