Says State Minister of Finance Eran Wickramaratne while talking about macro-economic stability
- Implementation unit will be established at the Ministry
- Budgetary proposals were included after much study and deliberations
- Budget’s focus is to create are future
- Implementation is always a challenge
- We included what we intend to implement
- Liability Management Act, Public Finance Act, National Audit Act are in draft stage
- Debt to GDP isn’t the only way of measuring debt
- Debt as a percentage of state revenue is also important
State Minister of Finance Eran Wickramaratne, in an interview with , spoke about the future economic vision of the Government. Following are excerpts of the interview done with Minister Wikramaratne.
QThe Government presented a Budget thinking long-term. Some proposals are to be implemented over a period running up to 2025. How challenging is it for the Government to sustain the implementation for such a long period?
I think this is the first time that a Budget has focused on the economic and social future of the country. It (Budget) is thinking not about today, but tomorrow. Normally, the Budgets have meant the concessions the citizens or the businesses can receive in the present context. As Finance Minister Mangala Samaraweera mentioned when presenting it, do I give the fish or the rod? This is clearly a Budget designed to give the rod. It is a Budget that has recognized that the Government‘s role should enable the citizens to create their own future.
When dealing with the issues such as cost of living, it’s a phenomenon that arose due to matters that go beyond the control of the Government like floods and droughts. The Minister announced cuts in taxes on essential food items before the Budget. That is because the Minister didn’t want to compromise on the focus of the Budget, which is about creating a future.
QIn the previous Budgets, proposals were announced, but some were not implemented at all. How do you make sure that the proposals announced this time will be implemented?
Implementation is always a challenge. We were very conscious when designing this Budget. Therefore, the proposals were included after much study and deliberations. One is to give a signal to the market about the direction we are taking. As you saw, the budget speech was much shorter. The number of proposals spelt out is also very much less. We have included things we only intend implementing. We have proposed to set up an implementation unit at the Finance Ministry. Every week we will be monitoring the implementation process.
QWho is going to spearhead this particular unit?
The Minister will be reviewing the regular implementations. I will be working directly on it with Finance Ministry officials and advisors. A structure is being put in place. We will also appoint several task forces to carry out the implementation.
QFor the implementation of some proposals you need legal reforms in areas such as land. How challenging is it?
As you saw at the beginning of the Budget speech itself, the Minister, in creating that enabling environment, has actually listed the Acts to be amended next year. We are in the draft stage of the Liability Management Act and the Public Finance Act. The National Audit Act is already in the draft stage.
We have listed only the Acts to be amended. It has been brought to our notice by various stakeholders what their inhibitions are. What we will do is to create discussions about them. We will take into account all concerns and proposals forwarded by the stakeholders. We will work with the relevant ministers.
After that, we will bring them to Parliament where a certain procedure has to be followed. That process will be followed. The significant point is that some of these acts are so old and somewhat outdated. The Government shows willingness and political determination to recognize it and carry it through.
QHow urgent is it for the Government to amend these laws?
We are talking about taking Sri Lanka’s economy to the next level. That is basically to speed up development. Our Government has been focusing on strengthening democracy and reconciliation. These are the two pillars on which the Government was built. Development is going to stand on these two pillars. We have no hidden agendas regarding these things. We will discuss them during the 2018 period and follow the process.
QWhen taking the economy to the next level, there is a proposal by the Government to increase the Per Capita Income from the present US $ 4000 to US $ 5000 by 2020. How realistic is it to achieve this target within a couple of years?
What we have undertaken isn’t easy. What we have undertaken is necessary. We are determined about what we think is right and necessary. We think it will stand the country in good stead in the long run. We have embarked on that. We are creating the legal environment. Then, we need to attract investments. We have identified the areas which need protection, but decided to liberalize. To get the growth rate up, we are sending a message regarding the areas open for investment. One is the logistics area. Transshipment, trade and freight are areas that have been identified. The former Government also had this vision. We never faulted the vision. The contention is how we would go about it. We have the ports in Colombo, Trincomalee and Hambantota. We have two airports- Colombo and Mattala. The former Government had the same vision. We believe in the Mattala Airport. We should have made that investment to have the second runaway at the Katunayake Airport. We have no difference in vision. But, when it comes to implementation, we have differences. We invest in the areas where the return is higher.
Tourism, as announced in the Budget, is a growing area. We are investing on the infrastructure related to domestic airports. We will again invite investment for domestic aviation. We will go for an export-manufacturing industry in Hambantota because there is a port. That is the reason for us to pursue Freed Trade Agreements. Sri Lanka is well located to increase transshipment and value addition. If you have FTAs with China and India, we will have access to the largest market in the globe.
Mining is another area. We have graphite. We all know that this graphite has great value. We have silica. We ship some of these without any value addition. We are looking at attracting investment to this area as well.
QYou said there was no economic viability in the Mattala Airport. Yet, the previous UNP Government proposed a second international airport in Wellawaya. Recently, the Prime Minister mentioned a third international airport in the east. What is your response?
It’s a question of priority, I think. Certainly, expanding the existing airport should have been the priority. The expansion of Colombo should have been the priority. Once you have exhausted the capacity, there are other things you can do. That is why I said it isn’t so much of difference in vision. The difference is in the approach and investment.
The Rajapaksas built highways extending to a distance of 170 kilometres. They made a lot of investment on Hambantota. If we go by that logic, it would be a disaster. We should invest where the return is higher. Our Government, by the time it completes its first term, would have built highways extending to a distance of 194 kilometres. That is more than what they did. I am still asking the questions. Is it the best investment in terms of returns?
QAren’t you also posing that question?
I am also asking that question. We are building more highways compared to what the Rajapaksas built. Yet, the higher returns would come from investment in public transport. Low income people will use public transport to travel. People with high income would travel on the highways.
QYou are critical of the previous Government regarding the high amount of debt as a percent of the Gross Domestic Production (GDP). Yet, the percentage has further increased under your Government. How are you going to manage debt?
Debt increased dramatically under the last Government. The risk profile of debt increased dramatically. Your foreign currency debt increased compared to your local currency debt. You moved more and more into market interest rates. How they managed this is through artificially means. That is by fixing the dollar rate artificially. Our policy isn’t that. Our export suffered due to that policy. We took a decision to float the exchange rate. When you do that, the exchange rate increases. Then, your debt automatically rises. In addition to that, we also had to burrow debt to pay-off debts. That is what we have actually done. We have burrowed debt to pay debt.
I must admit that in 2015, soon after the elections, we burrowed. We burrowed, in keeping with election promises, to increase salaries of public servants and for other relief measures. If you view it in 2017, we will move down gradually. The debt to GDP ratio is reducing.
The debt to the GDP ratio isn’t the only way of measuring debt. For example, in Japan, the debt to GDP ratio is 150 percent. Is the Japanese economy about to collapse? It isn’t about to collapse. That isn’t the only measure. The other measure is debt payment as a percentage of the Government’s revenue. In Japan, that’s a very low figure. That is why Japan’s economy is considered strong despite the high debt to GDP ratio. Since 2015, Sri Lanka’s revenue, which was down to 11.5 percent of the GDP, has systematically been climbing. It is presently at 14.5 percent of GDP. It means our debt payment as a percentage of our revenue is gradually becoming stronger. When you look at debt, you have to look at it from all these angles.
QIf you want to reduce the debt burden, it will constrain your capacity to make borrowings even for development project implementations. How will it affect development?
You are asking a very important question. The Government has two options. One is to finance its growth through more borrowings. During the Rajapaksa era, when they took debt, they invested it on the non-tradable sector of economy unfortunately. When it is non-tradable, it is like a buried investment. You don’t have the income to repay the debt. If you try to finnace growth through debt, it should be in the tradable sector at least. Then, you are getting exports and foreign currency income to repay debt. We are creating the environment in which we will have investment. That is really the responsible way to move forward. If we were purely focused on elections and had a political agenda, we would have got more borrowings to create an artificial growth. We haven’t given into that temptation. We will take the hard road. We will go for macro-economic stability.