PM outlines economic reforms in parliament

Nov 05, 2015 (LBO) – Sri Lanka’s Prime Minister in parliament outlined several measures to be taken by the government.

Key points:

– Generating of one million job opportunities under third generation of reforms
– budget deficit to be reduced to 3.5 percent by 2020
– world economic environment will be tough next year
– steps to increase international trade with trade agreements with India, China, GSP access to Europe
– review impact of TPP where Vietnam can supply the American, Chinese and Japanese markets at low rates in garments.
– State Holding Corporation Limited to be created for public enterprises in line with Singapore’s Tamasek
– Public Enterprise Act to be enacted
– Special Purpose Vehicle for infrastructure development activities with listing on CSE
– Non Strategic Enterprises to be divested to market such as 2-3 hotels, Lanka Hospitals
– International Trade Agency to be set up
– Merger of EPF and ETF with management outside of Central Bank
– National Pension Gratuity Fund to be set up
– Tea Industry Committee to provide solutions to issues, modernization to suit changing times.
– Sri Lanka to give freehold lands, houses to public
– Ideally become a low tax regime, question whether concessions have achieved objectives
– Measures to be taken to plug exports to global value chains
– Exchange control responsibility to be removed from Central Bank
– We need not maintain the Super Gain Tax
– Special Business Area in Colombo
– A central procurement secretariat under the cabinet
– New Acts on Investment, Trade Regulation
– Competition Tribunal for dealing with monopolies
– New council for small and medium scale enterprises
– Committee to look into the effects of TPP to Sri Lanka with benefits that might accrue to Vietnam
– Free Wi-Fi for universities, concessions (interest free loans) for laptops to university students
– Introducing gender budgeting in 2017
– Taxes on Books and sport equipment to be removed
– Go into territorial taxation
– economy to be “digitalized”
– create better environment for foreign investment
– BOI, Export development board and Tourism Authority to be restructured fully
– New agency for development
– Economic summit with participation of investor George Soros. Euromoney magazine will sponsor an economic summit in January 2016.

Prime Minister Ranil Wickremesinghe in Parliament outlined third-generation reforms of the new government to increase jobs, improve economic growth and international competitiveness of the island.

“After second world war the mentality was for greater state intervention. We know the impact this has had on the economy. This was changed after 1977,” he said.

Second generation reforms, led by President Ranasinghe Premadasa, were characterized by development of the garments industry and growth of the stock market.

“The investment climate and the stock market were dynamic and free to grow in leaps and bounds. State enterprises that were considered not relevant to be managed by the Government were given to the public,” he said.

Sri Lanka which was the most open economy in South Asia is now called the most corrupt, he said. This is the challenge this government intends to overcome.

Under third-generation reforms, the island must enter a market bigger than the local one, Wickremesinghe said.

“We have to find space for ourselves in the world market. These reconstruction mechanisms will empower Sri Lankans to deliver globally competitive products and services to the international markets.”

Reforms will create the environment to enter the global value system, encourage small and large scale farmers and entrepreneurs to participate in the global economy, encourage competitive international organizations to invest in Sri Lanka and bring about the digitization of the economy, he said.

“Under the new measures we will introduce, investments will be encouraged. We will focus more on foreign direct investment. We will strive to collectively to reach the highest possible benchmark in the grading of business organizations,” he added.

Sri Lanka’s government will present its budget on November 20 but faces a tough task of raising weak government revenue which has pushed up the budget deficit to 6.8 percent this year, up from previous estimates.

The government has kept open the possibility of seeking International Monetary Fund support for the balance of payments to boost foreign reserves, the Finance Minister said recently.

Among the prime minister’s proposals were the creation of a State Holding Corporation for public enterprises in line with the model of Singapore’s Tamasek. The Public Enterprise Act will be passed for this purpose.

Non strategic enterprises, some of which the government owns without any necessity to, such as shares in hotels and Lanka Hospitals will be divested on the capital market, he said.