By : A.A.M.NIZAM – MATARA

It was hilarious to find that the alleged ex-Gono-Billa and now the leader of UNP/SHB dhobi clan JVP, Anura Kuimara Dissanayake, who and his cohorts remained as that they are deaf, dumb and blind when the Sirisena/Ranil government increased VAT and taxes between the period 2015 to 2019, deprived people when their rights and dues and were always in the forefront to justify and protect adverse economic, social and other measures taken by that government have requested the government to present an amended budget saying that new Ministries have been established after the 2021 budget was presented. 

It is very strange to note that they never made such demands every time Sirisena periodically and on a plethora of times changed Ministers on the request of Ranil Wickremasinghe and number of times.

JVP leader Anura Kumara Dissanayake called on the government to submit an amended budget to Parliament because three new ministrieshave been set up after the presentation of Budget 2021.

 Participating in the committee stage debate of the budget, this alleged ex-Gonibilla said a budget was presented to this House and it is being debated at the committee stage. After the tabling of the budget proposals some new ministries have been set up and now debates are going on without allocations for those ministries. Allocations have been made for statutory bodies that would come under those ministries but how could those ministries function without funds he has asked? He has asked the government to submit an amended budget before the end of the current budget debate.

Leader of the House, and Foreign Minister Dinesh Gunawardena countering the JVP leader said that Dissanayake raised similar questions with regard to the representation of the President’s vote in Parliament and the Prime Minister would represent the President in the House and give answers on behalf of the President. He said that most of those expenditure heads belonging to the institutions which would be placed under the new ministries, have been already discussed and if` a need arises the government would introduce changes on the last day and affirmed that he does not see there is issue in this matter.

Meanwhile, the Dhobi clan JVP’s Nationalist nominee Kumar David who is one of the coterie gang that betrayed the LSSP for personal gains despite the fact that party was a formidable party in the past which got members elected from Balapitiya to Colombo South throughout coastal belt and majority of seats in the Kegalle district writing to the anti Sri Lankan website Colombo Telegraph published from London in an article titled Budget and the Virus” said that the first wave of the pandemic from mid-March to end-May was handled successfully and it seemed we had put it behind us. This pseudo Marxist Tamil chauvinist blamed the government for placing the Army Commander in charge of the Task Force; (he has a personal enmity with security forces big wigs for their crushing of Tamil terrorism) and said that it is not possible to give a virus marching orders and expect it to disappear into the twilight.

In a mean attempt to create friction within the smooth running government this Tamil chauvinist blamed President Gotabhaya Rajapaksa for not appointing Dr. Tissa Vitharana to lead the Task Force, and attributed it may be because his proclivity to use a military approach to all things.

Delving on economics David said that except for NM’s short stint as Finance Minister when the economy was salvaged to a degree every post-independence govt. has screwed the economy and pushed Lanka ever deeper into debt. He admittedly said the 2005-2015 government was corrupt to the core and sank Sri Lanka into a huge hole of indebtedness so as to execute prestige projects since they were avenues for daylight robbery. But let’s be generous and say GR is not to blame for that.

So, a fair critique of the 2021-Budget should be premised on accepting the debts the country faces. The GR regime should be faulted not for this but for grossly bad decisions in the budget itself. Two are glaring; the huge amount set aside for Highways and the continuing massive allocation for the military. Highways is the mulch cow that corrupt politicos and the clan used from 2005 to 2015 to siphon off millions and billions, respectively. He claims the swollen military budget is to keep the yakos in line.

David states that he is of the view that fiscal deficits and economic stimulus is unavoidable and Sri Lanka is headed for an unavoidable and deepening debt crisis; these are unusual times. However, if those making policy are incompetent – no more experienced in planning, policy and theory than Caabral – then one cannot expect anything better than the budget on the table. Contrast the top-notch team of liberal economists that Biden has put together. On Sundays 22 and 29 November he says liberalism as inadequate to America’s problems, and but that’s a different matter. 

People Centric economic revival

Speaking at the Sri Lanka Economic Summit ‘Roadmap for Takeoff: Driving a People-Centric Economic Revival’ organised by the Ceylon Chamber of Commerce (CCC) the Prime Minister Mr. Mahinda Rajapaksa recapped the efforts made by the Government to support the private sector during a difficult year. He emphasized Sri Lanka needs to return to work as soon as possible and said the Government stands ready to provide the requisite support. 

The PM said that economic and growth challenges need to be jointly managed by the private and public sectors to move Sri Lanka beyond COVID-19 impact and towards people-centric development.. 

He said We stand ready to utilize new and innovative measures to revitalize growth in Sri Lanka and the next few years will be decisive ones for Sri Lanka and to strengthen the economy the public and private secretory will have to jointly manage growth challenges,” he told the virtual gathering. PM Rajapaksa said it was an accepted fact that Sri Lanka had managed its COVID-19 challenges far better than many other countries around the world and provided support to keep the economy ticking over. 

However, the time has now arrived to move to the next phase of turning around growth and preparing for an economic take-off and in order to achieve that the business community and other stakeholders will have to intensify efforts and make use of the policy framework provided by Budget 2021. 

He said We are satisfied with the initial response to COVID-19 but now greater things have to be achieved on this foundation. This entire country has to be converted into one hive of activity and we appreciate that is also the intention of this Chamber. For this task, corporate and private sector leaders have to come together to plan, exchange information and implement policies.” 

Speaking further the Prime Minister pointed out even though remittances and exports have proved resilient, the Government could not be satisfied with the level of foreign direct investment and advocated that the private sector should also work towards attracting more investment. 

He told the Private Sector We will support you unreservedly in this effort and invite you to lift up our economy once again.” He added that the Government expected the private sector to support completion of 289 stalled projects worth Rs. 5 trillion as well as improve Sri Lanka’s food security. 

PM Rajapaksa opined that despite the multitude of challenges faced by his Government, they had stepped up and delivered. He called on the private sector to do the same and take Sri Lanka towards an economic rejuvenation, 

COMMENTS

Addressing  Key insights at Bartleet Religare Securities webinar titled ‘Navigating the Paradigm Shift’ State Minister Ajith Nivard Cabraal explained the Government is keen to hold interest rates steady at current levels for at least two years, and this would be given priority alongside strengthening our rate of exchange. He said that with Budget 2021 well into the second half of its journey through Parliament – a mere formality for this house – the Government had opportunity to provide further clarity to some of the proposals it listed last week, whilst the private sector too had a chance to delve deeper. 

If interest rates show any tendency of rising, we are ready curtail some public sector investment at that time to maintain rates at the levels we want to see and the Government does not want to get them to any condition to jeopardize the macro fundamentals, he said. 

The State Minister responded to a number of questions posed on Budget 2021, and one of them dealt with the downgrade afforded to Sri Lanka by Moody’s Rating Agency, who stated it does not expect the budget to provide a meaningful boost to outputs and instead enhance fiscal pressure.

In response, the Minister said: Moody’s jumped the gun and they brought in that downgrade of two notches well before the Budget could come in, now they are stuck with it. Whatever we put in the budget as credit positive they need to find a loophole to say that’s not a good thing. So, I think that is what is happening now. The nice thing about it is that investors have not followed Moody’s. The first day that Moody’s downgraded investors got a little upset. Then our bonds started having very high yields. But very soon, once they dived into the Sri Lankan credit and examined it carefully, they found that Moody’s statement was not with position. Now they have all begun to tighten much further and today’s Moody’s reaction.

State Minister Cabraal also stated he held discussions with several large international investors, and that Government is looking to persuade them to come to Sri Lanka. We may see some movement next year,” he added.

I think the current rates are very comfortable for all. The only thing I would like to see tighten is the exchange rate, it has gone beyond the comfortable range. If I was the Governor of the Central Bank, I would say it wouldn’t have gone to that extent. I would have been a lot more sensitive to it because I know the impact it has on debt and the impact on the Budget of having to allocate that much more rupees to buy the same dollars. It is a big burden I would like to avoid. It’s a big ingredient of our debt sustainability. We will take the necessary policy measures to encourage movement in that direction,” Cabraal assured.

Responding to further questions, the State Minister said the Government has no intention to list State-owned enterprises on the Stock Exchange as privatization is not part of the Government’s agenda. However, it could consider listing some of the instruments of SOEs as long as they do not disturb this policy, he said. 

Once again, he invited more companies to list debt on the stock exchange as seen in developed markets, noting this would bring stability to some organizations. We have thought outside the box and provided certain incentives, which are quite different to what was offered earlier,” and this should boost further listings on the stock exchange he said. 

Speaking further Mr. Cabral said that the Government has mooted a Budget monitoring process under his ministry to keep a close tab consistently on implementation of proposals,. He said that the Government will bear the cost of the additional Rs. 2 provided for remittances of workers overseas, and provisions have already been made for this in the Budget. The new Special Goods and Services Tax on excise items will be announced before the finalization of the Budget and noted that the question for motor vehicles will not arise in the near future.

Tax administration will be improved and the 0.25 of taxation on turnover of companies will be helpful towards revenue enhancement, Cabraal said, alongside new features like the 1% tax on undisclosed income coming into the tax net. With excise, the Government will introduce new methodology that have been proven all over the world and derive greater amount of revenue – almost an additional Rs. 40 billion the Government estimates. Leakages that have been there will be plugged very well and we can have those revenue targets achieved” he asserted.

We have not said we are not going to ask questions. We have said you can bring the money. We have said you can bring the money you have not declared, and that does not mean it’s tainted. There can be instances where people have sold land and not mentioned the full value. Some countries have no taxes at all, but that does not mean it encourages money laundering. There is no danger of this going into a FATF question mark,” Cabraal noted. 

He also stressed the need to reduce construction costs in Sri Lanka as it is amongst the highest in the world. The government is looking at a composite evaluation, which for instance will bring down the cost of cement, as raw material costs need to be managed. The Cess on imports of cement and clinker will be examined carefully to see how overall costs can be brought down. The Government is engaging cement manufacturers; and is interested to note if they could guarantee entire local supply from Sri Lankan resources.

Cabral also stated that port activity has sufficient space for growth, and the country needs more port related industries to come in. The new tyre factory coming in the Hambantota industrial zone with Chinese investment is going to be a very important investment, and the State would like to see many more investments like that coming in, he said, reiterating the Government is expecting some new ventures to come in over the next few months. 

Joining the discussion was Krishan Balendra, Chairman of John Keells Holdings PLC, who also pointed to tremendous growth in port activity and underscored Colombo’s position as a major transhipment hub making 80% of volumes.

Balendra said that if you have the adequate capacity in Colombo you can have growth in volumes. We have the capacity for eight million TEUs. Colombo can handle more capacity; it won’t be over capacity. The need is to add capacity and then the demand will be there,” Balendra said. The proposed East Container Terminal is right next to John Keells’ SAGT, and there is a lot of potential therein for both, he added. 

Compared to the rest of the region, Sri Lanka has a lot of space to grow in almost every sphere the group is already invested in, and our potential in every sector is immense, the Chairman opined. In the short-term there may be over capacity, but as businesses and traffic numbers grow there will be demand for more services. It is in this content, JKH is looking at large integrated development like Cinnamon Life, he explained, pointing to tremendous potential for retail and entertainment sectors.

Balendra said there would be no real change in terms of sector focus for JKH, adding the Cinnamon Life development will be completed well before the Port City is finished, with over 65% of apartments already sold. The Port City will help increase development for property, he added. It is important to manage new supply of hotel rooms to ensure people who have already invested to get returns, he noted. 

HNB Managing Director Jonathan Alles said Budget 2021 provides several interesting areas for the banking sector with a lot of impetus to supporting SMEs, entrepreneurship and local production. The Minister alluded to renewable energy and this is a vital area we are looking to support,” he added. The banking sector must not ignore the fact it must continuously be available to support the requirements of the grass root sectors and make funds available,” he stressed.

Execution of the Budget becomes very important and that is where the value addition comes in. The cost of procrastination is billions to Government and the private sector, Alles explained. He enthused at the Minster pointing to significant new foreign investments materializing over the course of next year, and Sri Lanka must keep telling its story and get these transactions off the ground without just letting them be stories. 

Alles however opined that normal economics suggest it would be difficult to hold interest rates down with domestic funds being used to bridge the deficit. Interest rates can also marginally move upwards if credit growth picks up. Having said that rates are at unprecedented lows, so even if they inch up marginally it would still be very affordable, he explained. 

Credit growth could be moderate in the first half of 2021, and asset quality will continue to be under pressure, and banks need to watch what entities are able to start repayments after the moratorium is over. The country needs consistent taxation and it is hoped this would prevail over the coming years, Alles said. 

We expect the banking sector tax to come down from 28% to 24%. The 0.25 insurance fund is not going to go down too well because it will have a significant impact on the bottom line. The risk weighted provisioning suspension; it has an impact on your capital adequacy, but then some of us banks are more than adequately capitalised. So, we would want a rating upgrade really, because currently we are impaired on account of LGD and likely to see some further impairments on account of the downgrade of Moody’s.

Moratoriums are taken as modifications as far as accounting is concerned and not as rescheduling which means you don’t have to impair. Prudency would require banks to asses every customer and transaction, and whilst you have provided that cover is it fair and right for you to take cover under this and keep them under the current bucket? In this light you will see the industry taking a position and then taking an estimate and identifying accounts that even post moratorium will have certain challenges. You might see us staging them from 1 to 2, which will then automatically entail a higher level of impairment which we have actually projected and forecasted. Those that we feel don’t have a chance and don’t have ancillary, we might be compelled to move straight into non-performing and start looking at full impairment and other courses of action. It will be based on individual clients,” Alles stated. 

He praised the Government’s initiative to encourage overseas workers to bring in money through official channels, as these then get recorded and the government can calculate and know these amounts coming in. This would be worth the Rs. 2 paid in the short term, he opined, and it will help banks to leverage those individuals and do business with those beneficiaries for those funds coming in, he said. 

To be continued……………………..