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Economic Policy Statement made by Prime Minister, Ranil Wickremesinghe in Parliament on 5th November 2015

On the 08th of January, the people of Sri Lanka elected Maithripala Sirisena as the President in pursuit of much needed change. This was confirmed at the Parliamentary Election held in August.

Our final goal is to improve and enhance the living standards of the people; it is the goal for which we have obtained the approval of the people at the election.

When we came to power on the 08th of January, Sri Lanka was caught in a tremendous and dangerous international quagmire. This was as a result of a lack of foresight by the previous Government. At Sri Lanka’s request, the recommendations made in the UN Human Rights Council had not been implemented and the danger of sanctions was looming over us.

But that has changed – as a result of our efforts and a sincere exercise, we have been able to come out of that. The entire market of the world is now open to us.

And so, now we have the opportunity to present to this august chamber our vision and our economic strategy for development. Our standing in the world is now secured, sustainable and strong. Based on that, we believe we can build a strong economy for Sri Lanka.

To take us on that journey, to enable us to climb to those heights, I believe the right political climate has now been created in the country. The two main political parties in the country have come together to form a National Government of Consensus. The main objective in forming a National Government is to provide a common platform to deliver long term social economic solutions that can solve the key problems of the country. This would be towards achieving stability and embark on a speedy journey of progress. We may not get another opportunity such as this.

Hon. Speaker,

We plan to put in place mechanisms that will seek not only to strengthen the economic sphere but also many other sectors such as the political, social, education and health. Within the next two years, we plan to consolidate our plans and take the journey forward.

People are concerned about their level of living. Can they enhance their income? Can they give a better education for their children? Can the children find suitable employment following education? Up to now, as a nation, we have failed to provide answers to those questions. We have been unsuccessful.

Hiding behind slogans and making excuses for the shortcomings will only conceal the actual facts further.

But it cannot be sustained in that manner. People are tired of what they have gone through – they seek genuine, real time change. That’s why they elected us to power – to make that anticipated change a reality. They believe that we can make changes for the better and through social economic modifications, we can make their lives better. They believe we can make Sri Lanka the most open and competitive economy in South Asia.

When looking back at our history, we can be proud of the open market economy practiced during the time of Manawamma to the period of prosperity under Maha Parakramabahu. We traded in spices, precious stones, elephants and rice with the world. We were considered a key import and export hub. We believe that with the planned economic remedies, we will be able to bring back such an era of prosperity for the nation once again.

In order to be able to do so, we must be able to get the economic foundation right. Multi disciplined economic strength; local competitiveness, international trade and investments must be in our sights. A knowledge based Social Market Economy built on social justice principles must be fostered. The key areas to build this economy are the availability of global opportunities for education, strengthening of the health system to face health concerns of the 21st century and the ability to ensure mobility successfully.

Accordingly, I believe that is our collective responsibility to make the best use of the opportunity we have been given.

In such a setting, we plan to pay attention in the medium term to a few important areas of concern.

Generating of one million job opportunities

Enhancing income levels.

Development of rural economies

Ensuring land ownership to rural and estate sectors, the middle class and government employees

Creating a wide and a strong middle class

In enabling us to achieve these targets, we need to be conscious of the current state of the global economy. When we became a nation in the lower middle-income bracket, we lose the right to claim financial aid and benefits. Accordingly, we cannot spend more than we earn, anymore.

In the backdrop where interest rates have gone up in the U.S Federal Reserve and economic uncertainties have emerged in China, we are not likely to witness a favourable global economic climate. We will have to rely on strengthening the local economic growth and stability within the near future, given the global economic realities of slow growth.

The current, unusual disparity between an unexpected low augmentation and a deficiency in the balance of payments must be taken into consideration.

The current framework of policies is not export focused. Due to the taxes imposed, we have been on a road to a closed economy reminiscent of the 1970s.

The exports have been going down. In 2000, the exports stood at 30% of the Gross Domestic Product. By 2014, it has gone down to 15%, indicating a reduction of 50% percent, which is considered very low. We occupy a lower rung in meeting specialized exports needs of the world and technology based exports. Our contribution to the global market of exports is very low.

We must address these issues and adapt a competitive foreign exchange policy that will encourage and empower exports.

We need to make fundamental changes to our journey forward. We must make changes that are unique to us yet in keeping with the global economic direction. We cannot get there with antiquated thinking – nor can we get there by providing plasters over issues, burdening the country with more loans. This is the last opportunity we will get to make this journey.

Seventy years ago, we provided aid to the United Kingdom during the Second World War. The former President of Singapore,Lee Kuan Yew who visited us during the Fifties is on record to say that he envisioned Singapore to become like us at the time.

Back then, Singaporeans came to us in search of employment. Today, we go in pursuit of employment to Singapore and Malaysia. Today, we are in debt to the whole world.

Singapore celebrates 50 years of independence this year. They were able to celebrate their golden jubilee of independence as a regional economic power. Singapore has no natural resources, not even water yet was able to achieve the highest echelons of success while we, blessed with many natural resources and human capital, went down. Where did we go wrong?

Let us learn the lessons from the past. We will celebrate 75 years of independence in the year 2023. If we walk the right path, we have the potential to become one of the strongest economies of Asia. So let us seize the opportunity – let us rise higher towards our goal.

Hon. Speaker,

We will need to address several mid term challenges in achieving this vision. I would like to point out a few key issues in this regard, to this august chamber.

In 2003, 19% of the GDP was raised from income but in 2014, this has gone down to 10%. This shows that government revenue was completely neglected while family friends, relatives and other cronies have been given generous tax concessions, resulting in greater damage to the financial status of the country. Heavy taxes were placed on food and other necessities, which placed an immense burden on people in low-income categories. The friends and relations of the previous Government avoided paying all taxes.

The boast of the previous Government about the increase in individual income levels was simply not true – the statistics are alarming. The income of 43% of all Sri Lankans is around 2 US$ per day. These reveal a serious imbalance in income levels.

Accordingly, it assures us that income disparities exist in Sri Lanka at many levels – social, geographical, population based, gender based etc.

Although the conflict with the LTTE in the north has been over for five years, the produce from the northern province makes up only around 4% of the GDP. This shows that despite a lot of noise the previous Government made on reawakening the areas affected by war, nothing has been accomplished in reality. Despite assurance given otherwise by the former President and government officers at the time, there exists a considerable disparity between the economic development of Colombo and areas close to it and the rest of the country. I would like to draw your attention specifically to areas such as Uva, North Central Province, North and the East.

Hon. Speaker,

Under this foundation, from January 08th onwards, we have been able to lift people of this country up from the economic woes they had been placed in, under our 100 days programme. We were able to give the people many incentives.

We increased the salaries of government servants. We gave incentives to pensioners. We brought down the prices of petrol, diesel and gas. Increased the Mahapola scholarship amounts while Samurdhi allowances were increased by over 200%. We were able to cancel farmer debts and ensure the nutritional packs were given. We reduced the marriage registration charges and assured farmers a specified price for paddy. We provided 15% interest for senior citizens in fixed deposits. We provided special allowances for Montessori teachers and daham pasal teachers.

As a result of these changes, people have more money in their hands – their buying power has increased. There is an increase in financial activity. Now what we need to do is to move forward and set the stage for a sustainable development journey.

We plan to take several measures towards achieving our development goals.

Through mid term merging of all state financial sources, we plan to reduce the budget deficiency from 3.5% of the GDP. We hope to achieve this by 2020.

The Finance Ministry will focus on increasing state income and planning and management of all recurrent and capital expenditure. We will strive to make a genuine effort in reducing the burden of loans while sustaining financial stability.

We will give priority to enabling an increase in earnings. Through a policy of minimizing regressive taxes, increase the ratio of direct and indirect income tax generation in the medium term from 80%: 20% to 60%: 40%, strengthening the tax management processes while removing tax holidays and benefits.

The removal and reduction of all tax concessions against a backdrop of now non-existent threat of war, low interest rates, a policy of ensuring realistic foreign exchange rates and against a setting of reduced petrol, diesel and energy charges, minimize tax concessions and tax free benefits.

Removal of the once –and- for -all taxation process, which paved way for greater debate. Removal of taxation that is based on past earnings, considered an impediment for business growth.

To provide tax free concessions for all earning outside Sri Lanka for Sri Lankans and only ensure taxes are for income earned within the country.

Enhance the allocations made for education and health, while taking into consideration the priorities for the state and placing all common expenditure under closer scrutiny.

Initiation of a medium term, common investment forum that will be strictly based on addressing the Government’s priorities and not the whims and fancies of contractors and funding agencies. Establishing of a methodology that can successfully evaluate projects while paying adequate attention to state-private partnerships.

Ensuring that a regional balance is maintained while addressing development mechanisms.

Hon. Speaker

Prior to the economic transformation, the population consensus has been achieved in Sri Lanka. Future economic potential does not rely on labour alone. What is relevant for the development process is innovation and productive growth. In addition to such challenges, we are forced to face welfare and health measures of an aging population in Sri Lanka.

We cannot sustain the belief that the Government must provide all services and solutions. Accordingly, we must be able to pay attention to the spirit of competitiveness and enhancing productivity, while providing a systematic network that affords a strong sense of social protection.

Taking all of this into consideration, it must be stated that for the sake of future generations and in pursuit of reality, we must have the strength to take the right decisions. Now these may not be popular and may offer a bitter pill to swallow. But we need to take bitter medicine to cure our sick systems and ourselves.

Hon. Speaker,

We complete 40 years since President JR Jayewardene introduced first generation economic and social reforms. Since the days of the Second World War, we have lived with a false notion that the Government must somehow intervene in the economic process. This has resulted in many drawbacks, as we all know. The Government took over many private enterprises at the time. Heavy taxes were imposed on the private sector that negatively affected imports and exports.

President JR Jayewardene changed this process in 1977. All political parties today have accepted the changes that have taken place as a result of the economic changes that were made in 1977. The historic challenge in empowering the nation’s economic process and guiding it towards a forward thinking and a successful direction has been placed on the UNP leaders