Oct 19, 2018 (LBO) – Opportunities for the retail sector will continue to expand with Sri Lanka recently crossing the US 4,000 dollar GDP per capita threshold, the Minister of Finance said.
Mangala Samaraweera told a retail forum in Colombo, Thursday.
“Tourist arrivals this year have crossed the 2 million mark with growth of 11.6 percent, creating new opportunities for you,” Minister of Finance Mangala Samaraweera told a retail forum in Colombo, Thursday.
“The government fully supports this opportunity, and delivering our pledges the VAT refund scheme was recently launched at the Bandaranaike International Airport to upsurge retail tourism.”
He added that whilst opportunities are growing rapidly, the last couple of years have been challenging for retail as the economy was subject to exogenous shocks.
“Whilst we face a couple of challenging years ahead in the short term, we have built the necessary stability and safeguards to face up to these challenges,”
The future holds tremendous potential as Sri Lanka is at the heart of the fast-growing South East Asian region, and this government is putting in place the policies to leverage a greater external orientation of the economy.
The full speech follows
Remarks made by Hon. Mangala Samaraweera, Minister of Finance and Media at the Sri Lanka Retail Forum 2018 at the Cinnamon Grand Hotel on 18th October 2018
- Let me at the outset thank the Retailer’s Association for inviting to be the Chief Guest at Retail Forum 2018 under the theme “Towards a Dynamic and Evolving Retail Sector”.
- The retail sector is an important component of the Sri Lankan economy. It is a major contributor to GDP and is a significant employer of the Sri Lankan workforce.
- In fact, one of the proposals from the 2018 budget under reconciliation was for the retail sector to create jobs in post-war regions, and I am pleased to note that there has been commendable progress in this regard. Let me thank your Association and all Members for working in tandem with us to make this initiative a reality.
- As Sri Lanka has recently crossed the US$ 4,000 GDP per capita threshold, the opportunities for the sector will continue to expand.
- Tourist arrivals this year have crossed the 2 million mark with growth of 11.6%, creating new opportunities for you.The government fully supports this opportunity, and delivering our pledges the VAT refund scheme was recently launched at the Bandaranaike International Airport to upsurge retail tourism.
- Whilst opportunities are growing rapidly, the last couple of years have been challenging for retail as the economy was subject to exogenous shocks.
- Successive years of drought that persisted through 2016 and 2017 had debilitating effects on the agricultural sector – directly affecting the incomes of 30% of our labour force. A rise in global fuel prices has further exacerbated disposable expenditure locally and across the globe.
- In spite of these challenges, the government has made significant progress in stabilising the economy. The fiscal sector has long been the source for instability in the Sri Lankan economy.
- In 2017 the government achieved a primary surplus for the first time in over 60 years and this trend has continued in the first half of 2018.
- The monetary sector has also been stabilised with credit growth brought within target range and reserves improved significantly in spite of some debt repayments this year. The results of stabilisation are being seen as inflation has fallen to 2.5% in September 2018, compared to 8.6% September 2017.
- The government’s economic policy has been to re-orient Sri Lanka towards a greater external focus, taking on international competition to drive competitiveness in our own economy.
- Again, the results are now materialising. In 2017, Sri Lanka achieved a record US$ 1.9 billion in FDI. In the first 7 months alone of 2018 FDI reached US$ 1.35 billion, a 138% increase year on year. Exports reached a record US$ 11.3 billion in 2017 and have grown a further 6.1% in the first 7 months of 2017.There is a positive outlook for exports and FDI in the economy, as there are several new projects in the pipeline to the tune of billions of dollars. Investors are increasingly drawing confidence from Sri Lanka’s new trade agreements and greater external focus. These will create jobs and have multiplier effects through the economy.
- Whilst the external sector is showing excellent progress, we are equally focused on driving economic activity on the domestic front. Admittedly, economic growth in 2017 was below potential, affected by some of the exogenous shocks referred to earlier.
- The government has a clear strategy to provide a stimulus to growth in a sustainable manner.Whilst a short-term consumption based stimulus would have been a positive for the retail sector, such measures are typically counter-productive and end up in a larger crisis down the road. We are providing an impetus to growth through the investment channel.
- Earlier this year the government launched the Enterprise Sri Lanka and Gamperaliya programmes. Enterprise Sri Lanka provides subsidised loans to entrepreneurs and small business to fund new ventures and business expansion. This will create jobs and provide long term increase in productive capital.
- Enterprise Sri Lanka has already breathed new life into Sri Lanka’s small and medium businesses as significant capital is being deployed in value added agriculture, fisheries, export manufacturing, and services such as renewable energy, IT, and tourism.
- Just during the last five months, over Rs. 53 billion has been disbursed as Enterprise Sri Lanka loans.This year alone, we have injected Rs. 5.2 billion public money as loan subsidies to this scheme.
- Gampereliya was launched as an accelerated rural development scheme. This programme provides major investments into rural infrastructure – rural roads, village irrigation tanks, and ruralmarkets.
- This will also provide an immediate stimulus to the economy and generate economic activity in a rural economy badly hit by the droughts. Furthermore, investments in rural irrigation tanks will provide long term resistance to future droughts and will improve sustainability of the agricultural economy.
- The government is confident that these twin programmes will provide the necessary stimulus to put growth in the rural and urban economies back on track.
- With the rains improving as well this year, we believe the recovery in growth that began in the second quarter will gather momentum in the coming months. These developments will no doubt have a positive impact on consumption in the economy and on the retail sector in particular.
- The other challenge has of course been the exchange rate. The recent depreciation of the rupee was largely due to external factors as the US interest rate hike, trade wars, and rising oil prices, have resulted in global investors taking capital out of emerging and frontier markets.
- Nonetheless, from a policy perspective the government has taken all necessary measures to address the factors that are within our control.
- The minimum duty imposed on small size vehicles and the introduction of market determined fuel prices are key policies to address the two sectors that caused 70% of the increase in imports in 2018.
- We have also taken temporary measures to impose cash margins on vehicles and imports of selected high volume non-essential import items. I must stress that these are temporary measures that are being reviewed regularly.
- The external sector has begun to stabilise in response to the measures that have been taken – but we remain cognizant of global developments.
- In conclusion, it is clear that Sri Lanka’s potential remains as bright as ever. Whilst we face a couple of challenging years ahead in the short term, we have built the necessary stability and safeguards to face up to these challenges.
- The future holds tremendous potential as Sri Lanka is at the heart of the fast-growing South East Asian region, and this government is putting in place the policies to leverage a greater external orientation of the economy.
- The results are already showing with regard to exports and FDI. As these sectors expand they will generate employment and put income in the hands of people, driving consumption in a sustainable manner, for the long-term benefit of the retail industry as well.
- The government will continue to support the retail sector and will work with all stakeholders to make Sri Lanka a major destination for retail in the Indian Ocean region.