Production-based lending vital- Treasury Secretary
By Gamini WARUSHAMANA
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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