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Discussion Starter · #1 ·
With exactly a week left for the crucial 2011 Budget, experts are urging the Government in preparing the short to medium term fiscal programme to maintain a boldness and confidence similar to what it characterised in winning the war.The 2011 Budget by all means is the first full-fledged exercise since the end of war in May 2009 and in that context the Government will have an excellent opportunity to come up with a comprehensive fiscal and development policy programme to best harness the post-war rebound.

“So far several macro-economic indicators have gained strength due to the end of war phenomena and some effective policy decisions made. With electioneering for political stronghold behind the nation, the Government can show its true commitment to usher rapid socio-economic growth with the Budget 2011,” analysts emphasised.
“The same confidence, boldness and leadership shown in fighting and winning terrorism so effectively is needed when formulating the Budget 2011 from the Government. If this is ensured then the Budget 2011 will be the future defining one in terms of unleashing growth by winning the economic war,” they added.
“A well thought out dynamic fiscal programme along with credible and bold policies are critical,” they added noting that Budget 2011 will be most sought after in terms of direction for major economic sectors. If past Budgets were handicapped by having to battle the vagaries of financing the war and securing political stability, then the Government certainly has no excuse now to come up with a mediocre Budget.
“What the Budget 2011 should reflect is the true resurgence of post war Sri Lanka, the unprecedented opportunities both in traditional economic sectors as well as new and globally emerging sectors,” experts pointed out.
“Sri Lanka in general and the private sector in particular need an ideal platform to catch up with what was lost in terms of opportunities and growth during the recent conflict-ridden years. Through Budget 2011 the Government has to deliver an enabling policy environment for this to become a reality sooner than later,” they emphasised. In countries sans conflicts, what has delivered strong growth is a policy framework that fuels high investments and innovation especially by locals. As an impetus to this, efficient institutions which play facilitative role are important.
In that context it was pointed out that the Government also has the opportunity to make its best push for structural reforms across the public sector and the economy in general. Towards this direction the current strong programme with the International Monetary Fund (IMF) will lend greater support. Revisiting some of the existing relationships and programmes with other multilateral donors such as the World Bank, Asian Development Bank and make them more aligned and dynamic to realise the Budget 2011’s medium term framework is also being suggested.
For the Government’s advantage there are a host of strengths as opposed to weaknesses from which it can draw inspiration. Whilst private sector’s optimism has gained strength and new investments have begun to take root along with a pick-up in demand for credit, most analysts point to Budget 2011 as the launching pad from which the true post-war potential and opportunity would be unleashed.
Analysts said the end of the war has certainly boosted the country’s profile globally as confirmed by the high growth in tourist arrivals. There have also been early dividends with economy rebounding to post over 7% growth, declining interest rate regime and inflation contained along with relatively stable exchange rate though of late both are under upward pressure.
“Whilst the end of war is certainly an unprecedented opportunity for Sri Lanka, the global and regional environment remains fragile. Some of our core sectors are highly dependent on external fortunes and developments; hence the Government needs to take cognisance of these factors,” experts noted.
Given the fact that China and India are major attractions for the rest of the world, these two Asian and friendly countries whilst being strong development partners are also competitors. Sri Lanka needs to carve its own unique strategy to remain competitive and attractive,” they added.

Daily FT to celebrate 1st anniversary with ground breaking 2011 Budget seminar

IN a ground breaking initiative of value addition the Daily Financial Times (DailyFT), the country’s only daily business newspaper in partnership with the Colombo University MBA Alumni Association will hold a top-level post-2011 Budget seminar on 23 November from 2.30 p.m. to 6.30 p.m. at the Ceylon Continental Hotel.
The date of the event also marks the first anniversary of DFT, which is the first newspaper to co-organise a Budget seminar.
It will feature Treasury Secretary Dr. P.B. Jayasundera as the keynote speaker. It will be his first interaction with the larger private sector following the presentation of the Budget 2011 in Parliament on 22 November by President Mahinda Rajapaksa who is also the Minister of Finance. Additionally a host of experts will share their respective observations and insights as well.
The impressive line of speakers includes Brandix Lanka CEO Ashroff Omar providing a private sector perspective, Colombo University Senior Lecturer Prof. Sirimal Abeyratne sharing the economist’s perspective and Gajma and Company Partner N.R. Gajendran, Ernst & Young Partner along with Head of the Tax Department Lakmali Nanayakkara and a senior official from the Department of Inland Revenue providing the tax perspectives.
The country’s premier blue chip John Keells Holdings (JKH) is the strategic partner whilst SLT Rainbow Pages is the platinum sponsor. Other supporting organisations include Ceylon Continental Hotel, Phoenix O&M, ITN, Prime TV, Gold, Hiru and Shakthi FM, and Sonic Advertising.
To reserve your seat at this key forum, see page 5 for registration details.


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Discussion Starter · #2 ·
Optimism over budget

Never in the recent economic history of the country has there been such optimism as on the eve of the budget for 2011.
There is considerable optimism and expectation of rapid economic growth in the post war years.
That optimism is considerably more in the government than in business community.
The recent impressive increases in the All Share Price Index and other indices were signs of that optimism in the investor community.

Even though there is a market correction in the share market currently, there is an expectation that the budget would be an investment friendly one and that if it were so that the indices would rise again.
The boom in tourism, the increase in foreign reserves, the development in infrastructure and overall growth in the economy is no doubt responsible for this economic optimism.

Economic growth
The economy is expected to grow by 7.5 per cent at least and in fact many expect it to grow at 8 per cent.
Official expectation of economic growth in 2011 is higher.
Some expect it to be as much as 8.5 per cent in 2011.
However, a higher rate of growth will be more difficult to achieve next year on top of an 8 per cent growth achieved this year.
International factors too would be an important determinant of next year’s growth achievement. Nevertheless, the momentum of growth is expected to accelerate next year.

External finances
The foreign reserves are abundant at US$ 7 billion.
This amount of reserves is adequate to finance about six months of imports.
However, a large trade deficit is expected for the year.
In the first eight months, the trade deficit had reached US 3630 million that is likely to grow to around US$ 6000 m by the end of the year.

On the other hand, worker remittances are growing at around 13 per cent and in the first eight months the inflow was in the region of US$ 2,500 m.
There is a boom in tourism that is likely to increase in the next few months as tourists from the Western hemisphere come on their winter holiday.
Worker remittances and tourist earnings are likely to wipe out the merchandise trade deficit.
However, the country’s foreign debt is very high and is reaching proportions when its servicing could prove a burden on the economy and a constraint to future development.
Much of the reserves that have been built up have been through commercial borrowings and the funds from the IMF stand-by facility.

If not for the remittances of workers the international reserves could be rather different.
The increasing trade deficit is a concern as our exports have not been able to match import expenditure. This is particularly so with respect to industrial exports.

Industrial exports
The industrial export sector has been of some concern as industrial exports have not grown adequately.
This is especially so with respect to garments exports that has declined by 4 per cent.
There have been increases in exports in other products that augur well for the future.
There have been significant increases in exports of machinery and equipment such as boats and bicycles, electrical equipment such as electrical transformers, static converters, inductors and insulated cables. Earnings from exports of rubber products have also increased.
However, earnings from exports of textiles and garments have declined.
The incentives for the development of these new export industries that are less labour intensive and less affected by the recession in the west is a means for improving the trade balance. The future appears to lie in such a structural transformation in industrial exports.

Employment
There have been significant changes in employment in the post war years.
Employment in industries has shrunk, but overall employment has grown owing to increased employment in agriculture, construction and services.
According to the Department of Census and Statistics unemployment fell to 5.4 per cent in the second quarter of 2010 from 6.2 per cent a year earlier.

Employment in agriculture increased sharply by 32 per cent.
In the first quarter, employment in farming was 2,600,463 people.
This growth was due to resurgence in agriculture in war affected areas.
Industrial employment fell by 118,689 to 1,795,204 in the second quarter of 2010 and the share of industrial employment in the workforce decreased from 25.6 per cent of the workforce to 23.6 per cent.
Workers in services rose 210,440 to 3,378,672 people in the second quarter, from a year earlier and the share of services workers increased to 44.4 per cent of the workforce from 42.4 per cent.

This is indicative of a significant shift in the country’s economy towards services.
The employment survey includes the Eastern province, but excludes the Northern Province.
There is no doubt that there has been an improvement in economic activity, employment and incomes in the North.
There would be a shift in employment focus in the coming years when services would continue to grow.

Structural changes
A new wave of structural changes in the economy is likely.
These would be a further growth in services and changes in the character of the industrial sector.
There would undoubtedly be a growth in tourist services.
Apart from services related to tourism, there is a need to move to other higher level of services such as information technology for the international market, port services and financial services.

In a recent IMF statement on the Sri Lankan economy, the IMF said that growth in the medium term will depend on “progress in rebalancing the economy from traditional drivers of growth toward export of services, building on Sri Lanka’s strategic geographical location and comparative advantage in services”.
Such growth in the next few years would require a growth inducing environment.
A key issue would be whether the Budget that is to be presented this month would address the fundamental problem of containing the fiscal deficit.

The current upsurge in the economy is only an initial indicator of the economic potential that lies ahead.
Good economic management is vital to ensure that the full potential of post-war development is harnessed.
Fiscal management is a fundamental and vital component of it.
Budget 2011 will be a critical milestone in the country’s development.
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