Finance Minister Mangala Samaraweera yesterday said that the upcoming 2019 Budget, the first by the United National Front (UNF) Government following the breakaway of the coalition with SLFP, will be “important and interesting.”
Speaking at the American Chamber of Commerce Sri Lanka’s new monthly event “Breakfast Buzz”, Samaraweera didn’t give specifics, but quipped the 2019 Budget to be presented on 5 March will be “important and interesting.” He said that having stabilized the economy following the 52-day constitutional coup, the UNF Government’s twin programs, Gamperaliya and Enterprise Sri Lanka, will support economic growth and consumption. “This in turn drives consumption growth and helps all business activity as well,” said the Finance Minister, in what was his first talk at a business forum since the UNF Government was reinstated after the 26 October crisis.
In parallel, the Minister said the Government’s third priority is to continue reforms to enhance productivity and competitiveness.
He added that in the latter part of 2018, the country began to see results of recent efforts, as Sri Lanka moved up 11 places in the Doing Business index. “There is a lot more to be done, but it is clear that we are on the right path. We will continue to build competitiveness by liberalizing the economy where we see excessive controls and costs. We are also investing heavily in training and skills development. We will work closely with the private sector in building the relevant skills. More on this will be revealed in the budget,” said Samaraweera.
On the eve of the Budget, the Finance Minister also used the AMCHAM Forum titled “ Changing the Paradigm: crafting and implementing evidence based policies” to update the private sector on the economic situation, and shared some thoughts on the Government’s broad plans and strategies.
He said that the Government will be implementing a rules-based economic framework that will create confidence in the sustainability of the policy outlook.
“The Inland Revenue Act for instance is an important piece of legislation that reduces individual discretion and builds in predictability. The same applies to a market-based fuel pricing mechanism. We will explore similar practices in other areas that help in still certainty and predictability,” the Finance Minister said.
“We will continue to consult with industry in policy implementation and provide the necessary time frames for industry to adjust to such measures,” he added.
Samaraweera also used the AMCHAM forum to explain the hard work put in to bring the country back to stability, after the cataclysmic disruptions to the economy during the 26 October political crisis.
He said in the lead up to 26 October, the Government had brought stability to an economy that had been adversely affected by successive years of drought, which debilitated rural incomes and hurt consumption across the economy. Global oil prices had doubled, and the US Federal reserve was ramping up interest rates, driving capital out of emerging/frontier markets.
However, from end October, global oil prices began to decline sharply, the Federal Reserve signaled an easing of their stance, and the consumption began to recover in the fourth quarter.
“Without any disruptions, Sri Lanka would have been able to enjoy a robust boost to the economy, and we would have seen a strong uplift in economic performance in 2019. Unfortunately, Sri Lanka was deprived of the opportunity to benefit from these emerging tailwinds, as we got engulfed in a political crisis,” the Finance Minister said.
The resulting loss in confidence triggered a surge in capital flight from debt and equity markets – bleeding over a billion dollars from hard earned foreign reserves and causing the currency to depreciate at a time when other emerging and frontier market currencies were recovering. Sri Lanka’s credit ratings were downgraded resulting in external borrowing cost surging into double digit levels just when the country had to re-finance US$ 5.9 dollars of external debt repayments in 2019. Tourist arrivals stalled soon after Sri Lanka was adjudged the best travel destination by Lonely Planet and a new campaign had just been launched.
Furthermore, Government cash flows were disrupted, as the plans to raise capital in the last quarter of 2018 could not materialize and without a Budget in November, spending plans were also disturbed. “As a result we are still behind target on cash disbursements, which would have typically been settled in January,” Finance Minister said.