FinMin says Sri Lanka back in business!

Fi n a n c e Min i s t e r Rav i Karunanayke, delivering the keynote address at the Sri Lanka Investment Summit in Singapore yesterday, told a full house of prospective foreign investors that Sri Lanka is “back in business”. Karunanayake assured that Sri Lanka is moving fast towards the right direction and stressed the coalition Sirisena-Wickremesinghe government is doing everything it could to put the country’s economy back on track.

“Sri Lanka is on the cusp of a major economic growth and is now integrating with the world economy. We are taking some bold political decisions towards this,” Karunanayake said. He said the government has currently embarked on a fiscal consolidation drive to provide stability so that the country’s private sector and the investment community could proceed with their activities without any hindrances. Karunanayke said that the government would be listing the non-strategic state-owned bodies on the Colombo Stock Exchange in the next three months. He also said to reduce the public debt, the government is looking at cutting wasteful expenditure and privatising some of the nonstrategic investments.

He pointed out that three-state owned entities—SriLankan Airlines, Ceylon Petroleum Corporation and Sri Lanka Ports Authority— account for 75 to 80 percent of the public debt. Karunanayke said Sri Lanka is aiming at 6 to 9 percent economic growth in the next five years and cutting the country’s growing budget deficit to 3.5 percent of the GDP. Sri Lanka’s budget deficit is estimated to have hit7.2 percent in 2015 and plans to keep it under 6 percent this year.

The Central Bank Governor who also spoke at the event expressed confidence Sri Lanka growing at a rate of 6.5 percent in 2016 with Chinese investments continuing. The country is estimated to have grown at 5.7 percent in the last year. Karunanayake acknowledged that the biggest challenge the country facing at the moment is its low revenue base. Sri Lanka’s revenue to GDP currently stands at 11 percent, one of the lowest in the world. Karunanayke said the government is working towards increasing it to 15 percent in the next couple of years.

He said the country’s Inland Revenue Department would be completely computerised in the next two months. The government recently carried out significant upward revisions to the tax proposals presented in the November budget to overcome what the Prime Minister Ranil Wickremesinghe termed “a debt trap”, triggered by the unaccounted liabilities of the previous government amounting to over Rs.1 trillion. Karunanayke assured that the tax increases, particularly the 2.5 percent VAT increase to 17.5 percent, would not burden the general public.

The government also introduced capital gains taxes after a lapse of 29 years. However, the government is yet to come up with details of how and what percentage they plan to charge as capital gains tax. Meanwhile Karunanayake said the decision to opt for an International Monetary Fund (IMF) facility was taken “not out of necessity” but with “abundance of fiscal prudence.” He said an IMF facility would give Sri Lanka the required buffer to stand against the current global economic headwinds triggered by the devaluation of the Chinese currency and the slow recovery of the European economies. Governor Arjuna Mahendran expressed confidence of drawing the IMF facility by April.