Government pledges progressive Budget

Friday, 24 October 2014 00:01 -     - {{hitsCtrl.values.hits}}

  • Biz community focuses on big picture, wants investment and tax reform
  • Govt. insists not “goodies” Budget despite possible presidential poll
  • Opposition slams opaque policies, says expenditures taken off
  • Deficit 4.4%, public debt reduced to 71%, growth for 2015 at 8.2%, public investment 6.5%
By Uditha Jayasinghe As the hours dwindle down to President Mahinda Rajapaksa’s 10th Budget presentation in Parliament today ahead of widely-expected presidential elections early next year, the focus was more on macroeconomic development rather than specifics by the private sector. The apex industry body in Sri Lanka, the Ceylon Chamber of Commerce (CCC) kept its expectations succinct in a short statement released yesterday. “The Chamber anticipates the latest Budget to contain measures to infuse adequate investments into the most-needed areas of the economy, encourage exports, grant concessions only to the most deserving sections of the society, and keep the fiscal targets in line with the medium term fiscal framework by enhancing revenue through measures such as establishing an effective and efficient tax collection system and also by broadening the tax base,” it said. Eying the bigger picture, the association highlighted the need to improve the Ease of Doing Business rankings, which Sri Lanka has failed to climb during the last two years. The International Monetary Fund (IMF) has also repeatedly called on the Sri Lankan Government to get its tax regime in order and the Ease of Doing Business index by the World Bank puts Sri Lanka at 171 out of 189 nations in paying taxes. In 2013, tax revenues were 11.6% of GDP slightly improving from 11.5% in 2012, yet the lowest in the region. Despite the political twist of a presidential election on the horizon, President Mahinda Rajapaksa and Treasury Secretary Dr. P.B. Jayasundera have both insisted it will not be a “goodies”-oriented Budget, but one that will focus on keeping the country on the development trajectory envisioned by the Government. The Budget “will consist of many proposals that will upgrade the standard of both the people and country,” Rajapaksa was quoted in State media as saying on Sunday. “The Budget is not prepared targeting elections.” Rajapaksa has forecast Sri Lanka will grow 8.2% in 2015, up from this year’s expected 7.8%. He wants to trim the Budget deficit to 4.4% of Gross Domestic Product (GDP) from this year’s planned 5.2%. He aims to reduce total public debt by four percentage points to 71% of GDP, while increasing public investment to 6.5% of GDP in 2015 from 6%. The Government has estimated Rs. 1.812 trillion (approximately $ 14 billion) as expenditure for the financial year of 2015. The Appropriation Bill set a borrowing limit of Rs. 1.34 billion for 2015. Government expenditure for next year will be increased by 17% from this year’s estimated expenses. Appropriation Bill for 2014 estimated Rs. 1.54 trillion as expenditure. Continuing the trend in past Budgets the Appropriation Bill has allocated Rs. 225 billion recurrent expenditure and Rs. 6 billion in capital expenditure for the Ministry of Defence and Urban Development. The Economic Development Ministry had been allocated a recurrent expenditure of Rs. 38 billion and a capital expenditure of Rs. 75 billion, while the Ministry of Finance and Planning had been allotted a recurrent expenditure of Rs. 72.9 billion and a capital expenditure of Rs. 108 billion. Reuters quoted Sasha Riser-Kositsky, an analyst at the Eurasia Group, saying he expects Rajapaksa to commit to high-profile infrastructure projects, hike civil service wages, lower loan-costs for farmers and raise defence spending to ensure loyalty among the military. “To aid the campaign, the Government is likely to use the budget to launch populist initiatives,” Riser-Kositsky said in a research note. “Despite the anticipated new spending, the Government remains committed to its ... fiscal deficit target of 4.4% of GDP, suggesting that populist announcements will not be immediately implemented.” Eighteen leaders drawn from different economic sectors and businesses were largely on the same page as the CCC when they spoke at the Daily FT pre-Budget seminar earlier this month. Their suggestions ranged from macro as well as industry specific as they were requested to present the three most important expectations from Budget 2015.  Most of the ideas were to further the Government’s aspirations to develop Sri Lanka as a hub for commercial/tourism, maritime, aviation, energy and knowledge as well as reach the per capita goals set by 2016 and 2020. With an election all but certain, the Opposition is not buying into the Government’s claim that this will not be a handout Budget. They have also continued to criticise the Government for “cooking the books” and not revealing loans clearly. Dr. Harsha De Silva, Economic Affairs Spokesman for the main opposition United National Party, told Reuters the Budget would rely on sleight-of-hand to deliver upbeat economic numbers and pay rises for Government workers. Rajapaksa “is going to take a lot of the expenditures off the Budget,” De Silva charged. He said the Government had used foreign loans of more than $ 1.7 billion, borrowed by State banks from international capital markets, since early last year. “These loans don’t come into the budgets. They will be on the banks’ balance sheets... there is absolutely no fiscal responsibility,” he emphasised. Both the UNP and the Janatha Vimukthi Peramuna (JVP) organised protests ahead of the Budget, with the former demanding a Rs. 10,000 increase in public sector salaries.   Rupee forwards end weaker on importer dollar demand; Budget awaited Reuters: The rupee forwards ended slightly weaker on Thursday due to dollar demand from importers despite the Central Bank’s intervention via moral suasion to prevent a sharp fall in the currency, dealers said. Exporters were reluctant to sell dollars ahead of the Budget announcement for 2015 on Friday, dealers said. President Mahinda Rajapaksa is expected to present on Friday a populist election Budget for 2015 that manages to contain borrowing mainly to an expected pickup in the pace of economic growth. The spot currency was quoted at 130.75/131.05 per dollar but not traded, dealers said. It closed at 130.60/80 on Friday. The three-day forwards, or spot-next, actively traded in the absence of spot, ended at 131.00/131.05 per dollar, compared with Tuesday’s close of 130.90/131.00. Both the currency and stock markets were closed on Wednesday for a holiday. “There is pressure from importers, but exporters are reluctant to sell ahead of the budget,” a currency dealer said on condition of anonymity. Dealers said the Central Bank persuaded banks not to trade the spot below 130.75. Central Bank officials were not immediately available for comment. Nandalal Weerasinghe, a Central Bank Deputy Governor, said on Monday the monetary authority would intervene to prevent short-term volatility in the rupee and said the moral suasion was to prevent sharp changes. Weerasinghe said the Central Bank has been preventing a sharp appreciation in the currency by intervening to maintain some stability over the last 12 months.     Stocks up; block deals push turnover Reuters: Stocks gained on Thursday, recovering from a six-week low in the previous session as investors bought into blue-chips and banks a day ahead of the 2015 Budget announcement, while block deals helped boost the day’s turnover, dealers said. Analysts said investors were waiting for cues from the budget scheduled for Friday and a raft of quarterly earnings expected next week. Sri Lanka’s main stock index rose 0.4%, or 28.35 points, to 7,189.51, edging up from its lowest since 9 September hit on Tuesday. Markets were closed on Wednesday for a holiday. “It was a dull day, but block deals pushed the turnover. Many investors who have cash and shares are awaiting to see the outcome of the budget,” said Dimantha Mathew, Manager, Research at First Capital Equities Ltd. “We don’t expect much to happen tomorrow also.” President Mahinda Rajapaksa is expected to present on Friday a populist election Budget for 2015 that manages to contain borrowing thanks to an expected pick-up in the pace of economic growth. The day’s turnover was Rs. 2.29 billion ($17.5 million), the highest since 10 October and well above this year’s daily average of Rs. 1.36 billion. Stockbrokers said block deals in National Development Bank, which rose 1.04% to Rs. 242.50, accounted for 54.2% of the day’s turnover. Foreign investors bought a net Rs. 260.7 million worth of shares on Thursday, extending the year-to-date net foreign inflows to Rs. 10.56 billion, exchange data showed. The country’s top conglomerate John Keells Holdings Plc, which led the overall gain of the index, rose 1.34% to Rs. 249.80. Hatton National Bank Plc rose 1.6% to Rs. 190. Stockbrokers said trading in local shares may be volatile due to the revised poll schedule and a possible bottoming out of interest rates.

COMMENTS