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Production-based lending vital- Treasury Secretary

Sri Lanka's Banking sector should shift from the present trade-based lending to a production-based lending policy, to support the economy of the country, said Treasury Secretary, Dr.P.B.Jayasundera. He was addressing the media at the launch of the 2011 Annual Report of the Ministry of Finance.

Dr. Jayasundera outlined the Government's achievements made by the Government in economic development over the past seven years and challenges that need to be addressed. He said that the Banking sector's support to the economy was minimal. For instance only three percent of bank credit goes to the estate sector, around 0.5 percent to agriculture, less than one percent to fisheries and an insignificant amount to other sectors such as SMEs.

Most of the lending carried out by banks was for consumption loans. In the next few years, lending for domestic economic activities should be increased to 10-20 percent He said banks were promoting the import-dependent economy by facilitating trade, instead of promoting domestic investment. He pointed out huge foreign exchange spending to import products which could be manufactured locally. Sri Lanka spends over $400m annually to import milk powder, another $400m for sugar, over $400m for cement and over $2 b to import textiles as inputs of the apparel industries and over $70 million for the import of big onion and other food items.

Banks were facilitating imports as it is easy and secure for banks to grant loans to traders as they open LCs to import these items and sell them in the local market. It is easier than lending to farmers, fishers and other local producers, he said.

He said that there is a significantly large market for investors to invest and produce locally. The textile market is over $2b, sugar, cement, pharmaceuticals, milk powder worth over hundreds of millions of dollars. This is the only sustainable way of reducing the huge trade deficit amounting to $9.7b, last year.

We can use the exchange rate and interest rates as policy instruments to balance the external sector of the economy.

However, this huge trade balance should be reduced by producing essential goods that the can be produced in the country.

All dairy product import companies, including multinationals should promote the consumption of liquid milk.

Dr.Jayasundera said that heavy investments are needed to address environment issues, since statistics from the Meteorological Department show that temperatures have increased, over the past 50 years, as the average temperature was increasing.

The rainfall pattern too has changed and though we get the same amount of water ,it is for a shorter time and therefore water evaporation was higher.

Fiscal and monetory policies alone cannot reduce food price inflation and essential food items, vegetables and fruits should be available in the market.

Meanwhile, the Divineguma program has helped reduce prices of food items, he said.

Dr Jayasundera said that the Government has an economic policy framework and state officials should manage the economy according to this policy framework. There is no universally accepted economic policy which fits all political parties or every country.

Today this debate is controversial and intense and in countries such as France radical policy changes were taking place. Economic performance depends on policies that countries adopt, he said. Responding to a question on the controversial NSB-TFC share deal, Jayasundera said that the inquiry was on-going and if the procedures of the Government service were followed, this kind of issue would not have arisen.

“My advice is that the NSB should strictly be limited to its core functions.

Officials who are appointed to top positions in state institutions should act with responsibility as government servants irrespective of political affiliations,” Dr Jayasundera said.

 

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