2010 Budget to expedite development

Targets 8% GDP growth:

Budget deficit to be bridged:

by Uditha KUMARASINGHE

Acting Finance Minister Dr. Sarath Amunugama on Tuesday presented a development oriented Budget which contained a series of people-friendly initiatives aimed at achieving long-term economic benefits and accelerating the growth rate to around 8 percent in the medium term by placing the country’s growth path around a double digit level thereafter.

Dr. Amunugama said the economy has rebound with a 6.2 percent growth registered in the last quarter of 2009 and 7.1 percent growth in the first quarter of 2010. Almost all sectors have contributed to this recovery. The production of paddy and maize has shown a marked increase while fish production in the first four months of this year has increased by 6.2 percent. Tea production during the first four months of the year has shown 25 percent increase whilst rubber production has increased by 12 percent. In the service sector, cargo and container handling activities have shown a marked increase of 41 percent and 27 percent respectively. Banking and financial institutions too have shown an expansion in their turnover.

He said export earnings increased by 7.1 percent to US$ 1,764 million in the first quarter of 2010, largely due to the expansion in agriculture sector exports. Tourist arrivals increased by 28.5 percent reflecting a significant increase in arrivals from Western Europe and South Asian markets. Worker remittances in the first three months of 2010 increased by 14.1 percent. The domestic money market continued to experience high liquidity.

The Central Bank continued to absorb such excess liquidity through the issuance of Central Bank securities. Interest rates continued to adjust downward reflecting market liquidity and low inflationary expectation.The Government managed to withstand the global economic and financial crisis without experiencing a collapse in our banking and financial institutions. Despite serious financial constraints and fiscal stress, we have successfully carried froward infrastructure development activities. The country is witnessing a steady progress in the construction of power plants, water supply projects, schools, universities, hospitals, stadiums, convention centres and several other infrastructure investments initiated under the leadership of the President to transform Sri Lanka as a modern and well performing economy in the region on the economic reform front, we also kept our commitment to refrain from privatisation and pursued a viable alternative to neo-liberal economic reforms, he said.

Dr. Amunugama said the IMF which extended support to stabilise our economy with US$ 2.6 billion Stand-by Agreement (SBA) has endorsed the Mahinda Chinthana vision for the future as a way forward to transform our economy.

Sri Lanka has attained middle income economy status with per capita income rising from US$ 1,062 in 2004 to US$ 2,053 in 2009 - an achievement that the whole nation can proudly speak of. This means that our government has been successful in placing our economy at an annual average growth of 6 percent during the past five years in comparison to a growth rate of 4 percent in the preceding five years. Unemployment has been brought down to around 5 percent from 8.3 percent in 2004. Inflation which was a perennial problem for almost two decades in the area of macroeconomic management, has been stabilised at around 5 percent.

The Government embarked on an islandwide integrated development strategy in the rural economy which had been marginalised for several years under successive governments. The Mahinda Chinthana development framework which has harnessed the economic growth to consolidate progress in making development more inclusive is an eye opener to the failures of post liberal policy regimes commenced since 1977.

The Acting Finance Minister said a decisive improvement has been made to the road network by completing about 6,000 kilometres of national and provincial roads and 40 large bridges connecting previously unreachable destinations. Several major irrigation schemes including ‘Uma Oya’ and ‘Moragahakanda’ projects have been commenced to provide the much needed irrigated water to both Southern and Northern districts in the country.

“Our Government is determined that both Budget deficit and public debt will be brought down from 9.9 percent of GDP and 87 percent of GDP respectively in 2009 to 8 percent and 80 percent respectively in 2010. We have framed this Budge with the prime objective of consolidating our finance to reduce the revenue deficit from 3.7 percent in 2009 to 2.1 percent in 2010 and maintain public investment at 6.5 percent of GDP. Such an adjustment will enable us to keep the deficit at 8 percent of GDP which is a 2 percentage point reduction over the last year.”

More detailed policy initiatives which are now being gradually implemented and expected to accelerate with the forthcoming budget, will be placed before this House by the President in November 2010, he said.

The realisation of a ‘mine-threat-free’ Sri Lanka and complete resettlement of internally displaced people are very critical targets in our development strategy in the conflict affected areas. When the Northern province was liberated from the LTTE, over 640 villages, covering 1,474 square kilometres had been laid with land mines. It is estimated that about 1.5 million mines have been laid underground by the LTTE. The Government had to invest nearly Rs. 7,000 million to purchase de-mining equipment and to set up a de-mining unit as the capacity of the international NGOs was inadequate to undertake a task of this proportion.

Within one year since the end of the conflict, the Government was able to resettle nearly 250,000 IDPs liberated from the terror of the LTTE. At present, only 25,000 displaced persons remain in welfare centres and they will also be re-settled before the end of this year. Arrangements are being made to bring about 40,000 hectares of cultivable areas in the northern and eastern districts to full scale of cultivation in the forthcoming ‘Maha season’ to improve the livelihoods of the people as well as transform economic activities in those areas.

A comprehensive medium to long-term reconstruction strategy has been planned to transform conflict affected areas to create decent living conditions. Now the conflict has ended, the Government will concentrate fully on rapid development of those areas, he said.

Dr. Amunugama further said the President has set up a target of 2.5 million tourists with estimated foreign exchange earnings around US$ 2.8 billion by the year 2016. This is almost a five-fold increase in tourist arrivals and a nine fold increase in foreign exchange earnings. Such an expansion in tourism will undoubtedly generate direct and indirect employment opportunities for around 500,000 people. Investment opportunities in tourism over the next six years are estimated to be around US$ 3 billion and this requires the involvement in both private sector as well as foreign direct investment. “The Government’s vision for future development envisages accelerating the growth rate to around 8 percent in the medium term and placing the country’s growth path around a double digit level thereafter. This means our country needs to raise total investments to around 40 percent over the next ten years.”

As in the past, all Trade Unions will be invited for consultations in finalising the new salary structure that will be the basis for the salary increase from 2011 budget. The President also promised to set up an Employees’ Pension Fund for the benefit of all Government and private sector employees who are not presently covered by any form of pension, he said.

The country’s textile industry which has established an excellent market network, kept to best practices, environmental compliances and quality assurances, has the potential to double its current export earnings of 2.5 billion dollars to nearly 5 billion dollars.In the forthcoming ‘Maha season’ the Government has planned to cultivate 750,500 hectares of land in comparison to 641,600 hectares cultivated in the previous ‘Maha season’. Of this new space of almost 100,000 hectares of land, 40,000 hectares is expected to be cultivated in the North and the East and the balance in the rest of the country as farmers have gradually returned to agriculture due to a wide range of incentives, particulary the fertilise subsidy and high producer prices that this Government was able to continuously ensure since 2005.

During the last five-year period, around 25 percent of national roads have been rehabilitated. A further 15 percent of the roads are under rehabilitation. Our ultimate objective of this road development program is to transform well over 50 percent of the country’s national, provincial and rural road network into solid conditions. Our ongoing investment in the port sector is expected to be completed by 2012 by which time we expect a new capacity at the Colombo Port as well as at the Hambantota Port. A coherent national transport policy will be implemented to transform all transport services including train, bus and three-wheeler taxis, into an efficient system.The Ministry of Higher Education will bring about a regulatory framework to standardise and provide quality assurances in higher education in privately run universities and learning institutions. The Government proposes to build partnerships with the private sector to facilitate students who qualify to enter universities but do not get a placement due to limited openings, he said.

Mahinda Chinthana - Vision for the Future has recognised that when Sri Lanka is placed on US$ 4,000 per capita income level, every family will have access to a quality house. A ten-year conservation program will be implemented to protect Sri Lanka’s cultural heritage, revolving landmark temples, kovils, churches, mosques and ancient cities. Performing arts, music, sports will also be integrated into the economic and social development framework that will be implemented from 2011.