Budget deficit below 5%:

Top priority for infrastructure

President Mahinda Rajapaksa, as the Minister of Finance, will present his second budget in Parliament on November 16. Deputy Finance Minister Ranjith Siyambalapitiya, in an exclusive interview with the Sunday Observer explains some of the salient features of the budget.

by Surekha Galagoda and Gamini Warushamana

Deputy Finance Minister Ranjith Siyambalapitiya said that the 2007 budget has given top priority to infrastructure development. Accordingly, Rs. 733 billion or 55.6% out of the total government expenditure of Rs. 1,319 billion will be allocated for capital expenditure.

This includes debt repayment too but we have allocated a large sum of money, may be the largest in history for infrastructure development, he said.

The Weerawila international airport, Norochcholai coal power plant and Upper Kotmale hydro power projects, Colombo South Port development project, Hambantota harbour first phase and the South-East highway are major infrastructure projects that will be implemented next year.

In addition work on roads and electrification schemes in rural areas will also commence next year. The government has allocated Rs. 5 billion for rural electricity generation projects in the Hambantota district and this will cover all households in the district.

Defence expenditure, Budget deficit

Despite the inevitable high defence expenditure, the government expects to maintain the budget deficit at 5%, the lowest in the recent past. The Deputy Minister explained how the government will set about the task.

He said "there is no extraordinary increase in defence expenditure in terms of a percentage of GDP. The government is not getting ready for a mass scale war but is spending sufficient money on national security and therefore the defence budget will not widen the budget deficit.

On the expenditure side, crude oil prices are easing and the price has dropped sharply. The other adverse economic conditions too are also easing. The adverse effect of the tsunami disaster will further reduce next year and the sectors affected will recover fully.

In the apparel industry, 2007 will be the second year in a fully competitive market environment and the industry will be more stable than 2006.

On the revenue side, the government received the highest revenue in 2006 and this trend will continue next year and we expect a higher revenue.

Government will not cut subsidies and concessions will be provided to marginalised people. We reduced the fuel price on three occasions during the year and this proved that the government was ready to ease the burden of the people further, the Deputy Minister said.

High growth rate, regional disparity

Sri Lanka's economy will face less challenges in 2007 compared to 2006. The economy is very dynamic today and all indicators reflect this. This year's growth rate will be over 7%. Unemployment is at 6.3%, the lowest in the recent past, but inflation is fairly high. We will be able to achieve an 8% growth rate next year and under these conditions it is not a challenge. The challenge is to distribute this growth equally across the country.

The structural problem we face is that nearly 50% of the GDP comes from the Western province or Colombo and the Gampaha districts. We have to change this situation. We allocate a large sum of money to the Northern and Eastern provinces too, he said.

Formulation of budget proposals

The budget is now becoming a public document as society participates in the formulation of budget proposals. Since last year the business community, professionals and various other organisations were invited to submit their proposals.

Last year 100 persons participated in these discussions and this year it increased to 750. President Rajapaksa held discussions with the business chambers, taxpayers and all leading business organisations.

In addition, treasury officials and I held several rounds of discussions. The final budget proposals were formulated in that manner. There is consistency in the policies we presented during the last two years, he said.

Government and market

The government has trust in the market mechanism and will intervene if there are issues. The government's policies in the past three years achieved its targets. The agriculture sector is one example and today our rice production exceeds local demand. But we still can't export rice due to costs and quality issues.

In purchasing paddy, last Maha season the government had to intervene and during this Yala season there was less government intervention.

The market is functioning fairly well. We encouraged local consumption by removing the wheat flour subsidy and as a result from January to October wheat flour imports have dropped by 60%. That means rice consumption has gone up. We charge Rs. 30 per Kg tax on big onion imports.

Today the market price of big onions is Rs. 30-35 per Kg and people consume local products. We can't solve agro marketing issues overnight. There are no simple solutions but we are on the correct path, the Deputy FM said.

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