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Monday Nov 25, 2024
Wednesday, 27 November 2013 00:00 - - {{hitsCtrl.values.hits}}
Central Bank Governor Ajith Nivard Cabraal on Friday speaking at the Budget Proposals 2014 forum organised by BDO Partners noted that the proposals made embrace the framework and highlights the importance of diversification of economic activities while nurturing the existing cash cows of the country.
“This is a building block sort of jigsaw puzzle,” Cabraal said. “Every item is important. If you do not have one or two, the big picture cannot be seen and we cannot form a cohesive unit.”
Drawing reference from a study by global management consulting firm, Boston Consulting Group, the Governor noted that the country looks at developing both the ‘stars’ and the ‘cash cows.’ There are certain areas on which business has been conducted on an ongoing basis, while looking at new projects based on the prevailing conditions and the business network strengths.
“Stars are industries or areas that are coming up. Cash cows don’t remain the same forever; over a period of time it can reduce in intensity. While existing cash cows are nurtured, we must also bring in new areas in order to give new dimension and diversification to the economy.”
For Sri Lanka’s next level of development, the country needs new sources of revenues and economic activity. The stars, as articulated in the Mahinda Chinthana are the five new hubs – maritime, aviation, knowledge, commercial and energy with tourism.
“To make them cash-generating stars, they must be nurtured over a period of time. That is what is done in the budget today.”
Shipping industry 
Cabraal commented that the country have already developed five new ports from having just one mega port eight years ago. Work in the second phase and beyond of these ports are now in progress.
“Once infrastructure is in place you need it to generate revenues and job opportunities. The President has given a thrust to the structure in order to ensure that more will diversify in to the maritime sector.”
Aviation
A mega international port has already been built, and 12 other existing airports in various parts of the country are now being developed.
Noting the need for qualified and experienced people to take the development forward, the Governor remarked that the proposed capital infusion to SriLankan Airlines and Mihin Lanka, proposed network strategy to connect Sri Lanka as a transit hub and the setting up of a new corporate body to provide aviation related activities in a coordinated manner are part and parcel of the overall strategy in developing the industry. VAT and NBT in relation to aviation have also been exempted.
Financial sector
A sound financial sector is key in building a sound economy which goes hand in hand with real sector economy.
“There have been specific provisions brought in by President to expand and strengthen the sector,” he said. Over the next five years banking sector is expected to double in assets while the stock exchange is likely to reach $ 60 billion market capitalisation.
“When countries reach $ 100 billion economy, which Sri Lanka would reach in the next three-four years, you will have a market capitalisation of about 60% of the GDP. This is the basis of our expectations.”
For this, new companies must come and list, good provisions must be in place in the stock exchange and good regulatory systems must be created. Corporate bond market has also been given flesh today to support the markets.
Developing professionals
In order to facilitate commercial and knowledge hubs, the country needs to build a base of professionals. Sri Lankan professionals abroad must be brought back and all professionals must be given benefits and incentives for their service.
He asserted: “It is important to understand the provisions given in the budget. Professionals must get together and build a housing network. They will have low taxes and other incentives. We will retain the good people in the country.”
Lessons from Sanga: Get the basics right
“I used to listen to Kumar Sangakkara giving interviews after matches when he was captain and enjoy his comments. One thing he always said was to get the basics right. You can have all the strategies under the sun but if you don’t bat, bowl and field well you can’t win the match. That is the crux of the cricket match,” Cabraal reflected.
In the same way a country must get the basics right.
“Chinthana enunciates it clearly.” He noted that proposals have been made in line to assure food security in the country and to nurture, support and protect cash cows among others. Provisions made to protect stakeholders of the economy, particularly, provisions looking after SME, women i.e. widows created as a result of war, through enterprise development programs, creating new opportunity and fast tracking poverty reduction in the community are also part of getting the base of the economy right, he said.
The Budget will also reflect on areas where there could be effective import substitution for the likes of fisheries, dairy, livestock, in further developing Divi Neguma, Gama Neguma and small business development. Health and education are also given priority, particularly in the latter with a lot of changes and innovation being brought in to both higher education and vocational training. Development of professional townships, facilities for advanced study and research, allocation of hostel facilities for university, etc were also referred to as important.
Strengthening balance sheets of state institutions
“In the past we used to be of the view that some state institutions will never ever be resurrected,” Governor acknowledged. “Today those are of the past. 46 of the key 52 state institutions have now been brought to the right side of the equation. They are doing well and are in the right track.”
The Government hopes to make their balance sheet stronger by recognising government loans as capital. New dimension brought in will make these institutions bankable and accountable. “We would be able to see a new wave of development in those.”
Youth empowerment
The country needs to empower its youth. They must be looked after and opportunities must be created for them. He commented the importance of having a pipeline of projects to absorb the young people and school leavers. He added that policy makers must ensure that projects are conducted on a continuous basis.
Legal and judicial reforms
The way business is done in the country is also important not only to develop it domestically but also to attract investors. The budget will look at not only balance sheets and profit and loss accounts but legal and accountancy aspects as well; with the legal and judiciary reforms brought in to provide faster litigation.
Debt sustainability
Every company that is successful will have debt. What must be notes is that the debt is sustainable by looking at how the balance sheet is structured. Countries must do the same.
In Sri Lanka 2002 the debt to GDP level was as high as 106%. In 2005 it was brought down to 92%, and for the first time in history for 30 years it came down to below 80% a year ago, and stands at 79% today.
“The Government has committed itself to a debt to GDP level of 65% in the next four years by expanding economy and ensuring fiscal deficit is contracted every year.”
He noted that this budget focuses on next year’s inflation, medium term inflation, medium term debt to GDP ratios, medium term fiscal deficits – conditions that will help the country go in the direction it aspires for.
“Last year budget was contemplating deficit of 6.4% which was delivered. This year it is 5.8% and we are confident of achieving it,” Cabraal said. “We we will have mid single digit inflation. Commitments have been made and with this sustainability we expect the county to enter in to new macro fundamentals which is important in going forward.”
Envisaging future growth
Budget 2014 envisages certain objectives for the future. 2014-2016 a growth of nearly 7.5% to 8% is anticipated, maintaining inflation at mid single digit levels. During the past 57 months inflation has been brought down to single level and measures will now be taken to further tighten it and achieve mid single digit of 4-6% from next year onwards.
“For a country growing at 8% with inflation at single digits, the macro fundamentals will sit well for growth to take place.”
Cabraal asserted that the country has proper fiscal consolidation and is now creating new capacity in tourism and the five hubs which will add value and new opportunities for the country.
Export target of $ 20 billion by 2020 is projected taking in to account the enhancement of enhancing the service sector. “These are articulated so that entrepreneurs can put their thinking caps on to expand their businesses into lines the Government has given various incentives to.”
Pix by Lasantha Kumara
