Ranjith-Ravi: A double 'R' view on Budget 2007

Deputy Finance Minister Ranjith Siyambalapitiya and UNP MP Ravi Karunanayake answer questions which are in the minds of people on the forthcoming Budget.

Q: What kind of Budget can the people expect from the Government with the present political and economic situation in the country?
 

S: People expect a development Budget. This proves from the 750 Budget proposals the Finance Ministry received from the public. Even the JVP proposals handed over to us on Thursday mostly contain development work. Majority of people in their proposals have asked to improve the infrastructure facilities to assist rapid economic development. Therefore, of the Rs.1,319 billion, we have allocated Rs.733 billion for infrastructure development.

K: People are certainly expecting some relief which can salvage them out of difficult the financial strain they are going through now. There are lots of expectations by the public and I hope the Government will not disappoint them.

Q: The Government has identified several infrastructural development projects to implement under the forthcoming Budget which were put on hold by previous Governments for various reasons. How will the Government implement such huge projects at once?

S: Certainly, we will implement these projects which were not implemented due to various reasons by previous Governments. Construction of Norochcholai, Kerawalapitiya and Upper Kotmale power plants, Weerawila Airport, Colombo South Port development, Hambantota harbour and South East highway will create an infrastructure boom to accelerate economic growth. As a result we can expect a huge upsurge in the income and employment generation in the country.

K: Well, I think the country will benefit if the Government can get medium and small scale projects in place instead of thinking to build huge projects. Every one wants to build the biggest Airport in Asia, biggest Train in Asia, etc. Some of these projects have already started. I don't understand as to why the Budget has anything to do now. The Budget does not need to reemphasise on these projects once again.

Q: It is the habit of Sri Lankans to expects subsidies and relief from every Budget. As the next Budget allocates half of the Government expenditure for development projects, will the Government scrap subsidies and other relief measures enjoyed by the people?

S: Not at all. We will continue to provide all the subsidies. Still there are people in the country who really need Government assistance. They will not be disappointed under the Mahinda Chinthana.

K: The JVP promised to give everything from the womb to the tomb. The Chinthanaya promised so much of subsidies. Now it is the duty of the Government to keep the promises. The JVP promised to unplug World Bank plugs to reduce cost of living. People defeated us on these promises of the JVP and JHU. Now they must give the people what they have promised.

Q: Absence of development oriented Budgets in the past severely affected long term economic growth of the country. Though the second Budget of the UPFA Government is development oriented, how will the Government mobilise funds for such projects?

S: That is the challenge we are faced with. We will manage the Budget accordingly. This is of course a difficult year. The Government had to spend Rs.40 billion extra funds for public sector employees, and pensioners increments and other allowances. In addition, the Government has to face huge expenditure on fuel imports and national security. However, we will collect the expected Rs.496 billion income.

K: The UPFA promised the sun and the moon to the people from sunshine stories. How you borrow is not the question. Now deliver to the people who were promised at elections.

Q: How will the Government manage the internal and external borrowing to bridge the Budget deficit because drawing more funds locally will push up interest rates which could finally increase the lending rates resulting in discouragement in new investments?

S: We will take appropriate action after a careful study. We understand the limit we can borrow internally. Drawing excessive internal borrowing would have repercussions. K: The Government has limited revenue but promised more than what they can deliver. That is why we are sad today because we told the truth and people decided to keep us in the opposition. Inter bank rates, dollar, Treasury Bills rates are going up. If you lose the economic war, you have lost all the wars. That is why the UNP is emphasising that the Government maintain peace because war will not bring any prosperity other than destruction.

K: The Government has limited revenue but promised more than what they can deliver. That is why we are sad today because we told the truth and people decided to keep us in the opposition. Inter bank rates, dollar, Treasury Bills rates are going up. If you lose the economic war, you have lost all the wars. That is why the UNP is emphasising the Government to maintain peace because war will not bring any prosperity other than destruction. Q: Our past budgets reveal that expected external assistance were not adequately received to bridge Budget deficits. So if the Government plans to increase internal borrowing to bridge the deficit, this budget will be an inflationary budget. Can we expect any real economic development from an inflationary Budget?

S: We are mindful that we cannot fully finance the Budget from local sources. We will consider all possible avenues before we borrow funds which will not have a spiral effect on the economy. We will carefully measure all these options. If we bring UB 40 or any other musical group and put a thamasha, then of course its a waste of money. But if we borrow and invest, surely it will be an investment. Mahaweli Development project is an exampl. It is not a waste if we borrow funds for the Norochcholai power plant.

K: JVP and JHU should answer your question. They urged not to pawn our self to the external forces to get assistance. It was Ranil Wickremesinghe who brought economic prosperity to the country and made private sector moving. He got millions of financial assistance but JVP and JHU laughed at us. Now I challenge them to get such huge financial aids if they can.

Q: Can the Government contain the Budget deficit to the expected 8.5% with increasing Government expenditure?

S: Yes, even last year we did not exceed the set deficit 9.1%. Like last year, we plan to contain the deficit to 8.5 percent even during this year while bringing it to 5% in 2009.

K: The SLFP Governments were never be able to keep to the budget deficit targets. We cannot go by fictitious figures. It was we who brought financial discipline to the country during 2002 to 2004. There were low interest rates, reduced the inflation and corrected many Macro economic fundamentals for a healthy economy.

Q: Inflation and interest rates have increased and the rupee has depreciated to 108 per dollar from 101 last year. If there was economic development, how can these vital economic figures be in two digits and what measure can the Budget provide to contain this situation?

S: We will record 7% to 8% growth rate in 2006. The unemployment rate dropped to 6.3%. We gave 42,000 jobs in the public sector for unemployed graduates. We purchased a pack of paddy at Rs.17.50. We imposed a Rs.30 cess levy for big onions. Because of the cess levy on Wheat flour, 60% wheat flour imports have declined. All these measures gave market for local products. This may be the reason for inflation to increase.

K: Even I pose the same question to the Government... why inflation is around 18%-19%, one digit interest rate has moved up to 17% to 18%. We can't play with macro economic fundamentals because it exposes the truth.

Q: Some economists express doubt over the Central Bank statistics. For an example unemployment rate is 6.3%. So do you think that Government has answers for unemployment from this Budget?

S: The Central Bank is an independent institution and I have confidence in their reports. But if anyone is interested in analyzing Central Bank statistics according to his political ideology, he can interpret it in many ways favourable to his political aspirations. The Colombo Consumers Price Index points has increased by 17%. Someone can interpret it differently. In the CCPI basket, even Arrack and cigarettes are also there.

K: Well, this Government is the Government that continued from 1994 except for two years. They never handled the unemployment problem properly. Private sector controls 90% of the job market. So on that basis the Government efforts to create jobs is virtually impossible. Because, Government sector jobs can not be given. The private sector needs to have business confidence to create jobs. If there is peace in the country, then there will be business prosperity encouraging local and foreign investments. That is how jobs can be created.

Q: Promoting self employment projects is one of the main options for every Government to reduce unemployment. Millions of funds and resources have already been spent by previous Governments on this. But the majority of such projects have failed. In a few years some projects will struggle to survive under the highly competitive open economy. Will there be any measures to rectify such problems in this budget?

S: This is one of the greatest challenges every Government faced. Every Government has a great responsibility to protect local entrepreneurs from the storms stemming from the open economy. As you said it is useless to provide them loans and technology only. But we have to ensure them a good market for their products. That is why we imposed a less levy for over 1000 import items now. We imposed a Rs.30 cess levy for a kilo of a big onions recently.

K: Self employment projects do not require Government assistance. What is required is sound economic policies that would create business and self employment. The Government's duty is to maintain a sound macro economic policies to encourage business. Higher disposable income creates economic up turn. Government's assistance for self employment is a fallacy.

Q: All countries which are developed are given priority for export driven economic policies. Our exports are still around US$ 5000 million a year. We are still banking on exporting garments and tea. We have not yet developed any products for the world market. The expatriate community, specially housemaids bring more revenue to the country than any other industry. What measures can this budget introduce to rectify such drawbacks?

S: We have a good demand for skilled labour but we are still sending unskilled labourers abroad. We are now training skilled labourers with the intention of employing them abroad for good salaries. We find it difficult to establish our products in the world market since we do not maintain quality standard in our products. We are self sufficient in rice but since we do not have a quality standard we find it difficult to export. We extend cooperation to facilitate exporters. We need drastic changes and we can not correct all these economic ills overnight. It needs a systematic approach.

K: Investors worry about investing when the economic climate cloud itself on research and development. Every country can prosper if there is a sound economic policy. Our exporters have to compete with other countries. But they have a problem with cost of production which affect their competitive edge because our inputs are so costly. Our lending rates are so exorbitant and exporters can never be able to compete in the world market. We have not diversified our exports. 210 countries wants to exports their products and Sri Lanka's exports have suffered as a result high interest rates, low productivity, lack of foresight and internal squabbles.

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