Lankan Govt presents budget and pre-budget relief ahead of Jan polls

Lankan Govt presents budget and pre-budget relief ahead of Jan polls

Colombo Correspondent,
Finance Minister Mangala Samaraweera gestures as he arrives at Parliament to present the 2018 Budget proposals in Colombo-Reuters

Amidst a fuel crisis that has taken public opinion on the Lankan government to a new low and with the local government elections to be held in January 2018, the National Unity regime of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe is seeking salvage in presenting a budget aimed at expanding tourism, promoting exports and fostering entrepreneurship while attempting to maintain fiscal consolidation.

While Finance Minister Mangala Samaraweera on Thursday introduced proposals to liberalise restrictive laws with the aim of opening Sri Lanka to investment to achieve 5% growth in 2018 on the eve of Budget 2018, he rolled out a pre-budget relief package that will cost Sri Lanka’s ailing economy an estimated Rs. 1.5 billion each month to slash taxes on six essential goods.

With the ongoing drought, considered among the worst to hit the island in 40 years and amidst an acute petroleum shortage allegedly owing to the refusal to accept a purported low quality fuel shipment by Indian Oil Corporation (IOC), and with a heap of other multifarious ills plaguing the country, the government’s pre budget relief is clearly a sign of giving itself the pre-local government election boost it so badly needs.

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Finance Minister Samaraweera, however has sought to distance the relief package from the upcoming elections, refuting that it was intended to attract votes but insisting that the 2018 budget would kick-start the economy and help achieve Sri Lanka’s stagnant economic and development goals. The general allegation after the current government took over the political reins from former President Mahinda Rajapaksa was that no development projects were being carried out and whatever that was planned was being stuck owing to some protest or other (mainly instigated by the Rajapaksa camp).

Some critics see the attempts at reducing prices of goods as a overall relief measure aimed at rectifying the damage to the economy of everyday life of people owing to the severe drought the country is facing, as a belated move that is couched in winning popularity to counter the Mahinda group at the upcoming election.

“There is a Chinese saying that it is better to give a man a fishing pole and teach him to fish than to give him a slice of fish. We follow the same policy and hope to encourage the youth in this country to stand on their feet. But there are times when help is needed immediately and we believe, given the natural disasters the country has faced, this is one of those times,”  Samaraweera told the media on Monday stating that the potential reduction in prices would be a relief measure targeting farmers who were severely affected by the current drought.

A highlight that complemented Samaraweera’s Thursday’s budget speech was former President Mahinda Rajapaksa riding a bicycle to parliament to protest against the fuel shortage, but only receiving the following brief comment from the Finance Minister which was: “I am happy to see that the Opposition has already started greening their modes of transport.”

This comment was followed by the Finance Minister announcing plans to phase out all fossil fuel vehicles by 2040.   Meanwhile, align with the government’s vision 2025 policy statement, the budget proposals captured the need for capital market reform, cement land ownership, reduced protectionism and labour reform and most importantly aimed to achieve medium-term targets such as per capita income of $ 5,000, one million new jobs, FDI inflows of $ 5 billion and doubling exports to $ 20 billion, as outlined in V2025.

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“In 2018, we envisage GDP growth of 5%, inflation of around 6%, and we hope to achieve for the first time in almost six decades primary surplus of 1% of GDP and a Budget deficit of 4.5% of GDP,” Samaraweera said as he launched into proposals for an economy that sought to strengthen environmental safeguards.

On vehicle imports the Budget proposed to phase out all fossil fuel vehicles by 2040, encourage imports of electric buses and three-wheelers, slash prices on electric vehicles by at least Rs. 1 million, establish charging stations, introduce a carbon tax, excise duty of Rs. 10 per kilo of plastic and Rs. 3 billion to fast track a new waste disposal site aimed at handling Sri Lanka’s waste disposal menace.

Meanwhile an allocation of Rs. 3 billion was proposed to set up an insurance scheme for farmers which will safeguard them against floods and droughts. He also introduced the ‘Enterprise Sri Lanka’ scheme focused on making Sri Lanka a ‘Paradise of Entrepreneurs.’

“If Sri Lanka is to succeed in its journey forward, it is imperative that all Sri Lankans, not just the private sector, become stakeholders of the ‘Enterprise Sri Lanka’ initiative,” Samaraweera told the Lankan parliament Thursday explaining that this scheme will cover the smallest level of entrepreneurship and will include those even running roadside kiosks.  As support for IT and start ups in the IT field a special IT initiative was proposed to be introduced at an investment by the government of Rs. 3 billion.
Pertaining to tourism, the Finance Minister said Online Travel Agents (OTAs), both resident and non-resident, which derive their commission from the businesses carried out in Sri Lanka, will face a tax of 1% on the commission derived from local reservations and said that in keeping with the vision to make Sri Lanka a shopping hub, a VAT refund scheme for foreign passport holders will be implemented at the Airports and Sea Ports with effect from 1 May 2018.

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Also proposed was the removal of restrictions that limit the land ownership rights of listed companies with foreign ownership together with the restrictions on foreigners’ ability to purchase condominiums below the fourth floor.

The Board of Investment, the relevant line agencies and the newly-established Public-Private Partnership (PPP) Unit will collaborate in facilitating new foreign investment ventures with an allocation of Rs. 2.5 billion and the guidelines are to be issued shortly, the Minister announced.

In the background of the continuing controversy of a private medical college – the SAITM and continuous protests of Lankan medical students over it, the 2018 Sri Lankan budget has proposed to establish new State medical faculties at three national universities to expand medical education.

In a bid to woo the rural masses, the budget also earmarked billions of rupees for rural infrastructure that included housing where about 20,000 housing units were promised to be built by 2020 for the low income segment at a cost of Rs. 17.5 billion. Rs.3 billion was allocated to build houses in the war affected north and east and 25,000 houses for the plantation sector at a cost of Rs. 2 billion.

Lankan Rupees 24 billion as proposed to be allocated for a multipurpose initiative that includes an integrated flood mitigation mechanism to cover the Colombo city limits and its suburbs that includes the development of ancillary infrastructure for the Colombo Port City which is to be a key infrastructure development that is expected to boost the economy in the coming years. Also introduced through the budget was the improvement of the rural road network covering the entire country, including repairing roads affected by disasters, will be undertaken at a cost of Rs. 4 billion.

While the interpretation of the proposed budget by the public is yet to be seen, a question that will surround the proposals is whether the proposed budget will transcend public opinion that has been molded upon the lethargic and tardy image of the government with regarding to the (non) implementing of development projects. Most significantly the question is whether any change of image of the government as seen by the people, currently heavily burdened by skyrocketing food prices owing to the drought, would actually materialize into votes in the local government elections to be held in January 2018. The results of the local government elections will be a significant political game changer that will decide if former president Mahinda Rajapaksa and his camp will get a political footing in the country again and will be a prior test of what the 2020 presidential and parliamentary election results would be like.