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| Tuesday, 21 September 2004 |
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Call to reduce trade gap in next budget by Irangika Range Sri Lanka has to allocate a large amount from its budget for oil and the government imports Rs. 30 million worth of barrels of oil annually. This situation continuously widens the government's expenditure due to escalation of oil prices in the world market. The government paid US$ 43 per barrel in August this year while it was US$ 31 per barrel in January due to the rise in international prices. The annual demand for oil locally is around Rs. 2.6 billion litres and Sri Lanka paid US$ 8,383 million for oil in 2003. This was made known at a pre budget seminar organised by the Ceylon National Chamber of Industries (CNCI) at the BMICH on Wednesday. Speaking on "Economic Overview", Director of Economic Research Department, Central Bank Dr. H. N. Thenuwara said the negative impact of high oil prices have begun to widen the local trade deficit which stood at US$ 429 million for the first six months of this year. He said this is the salient feature of the economy, a faster import growth than export growth. The import growth rate was 21.3 percent in the first six months of this year while the export growth rate was only 9.6 percent. " This is a big challenge to the government and this situation would have to addressed in the next budget. The country should have a long-term plan because the oil reserves are adequate only for a few more decades although new fields are also being discovered. Coal deposits may last at least another 200 years, but prices may increase. Coal usage will also have an environmental impact although new research may pave the way for cleaner coal usage," Dr. Thenuwara said. Dr. Thenuwara said the government should reduce the trade gap also in the next budget. "The Trade gap widens with a higher demand for imports. The exchange rate should be adjusted if other inflows are not forthcoming. Incentives should be provided for importers to do value addition rather than importing the finished products, even though controlling imports through regulations might not be advisable. Exports are also not yet diverse enough and several initiatives should be developed in the export sector. The government will also have to avoid unnecessary economic expansion such as low purchasing of power in high consumption needs and purchasing poor quality goods. The government should also consider other essential needs such as developing state owned enterprises and establishing political stability in the country. Developing infrastructure, human capital, technology and encouraging research and development are the main areas that should be promoted. The government should allocate funds to promote these sectors," he said. The Deputy Director of the Economic Research Department of the Central Bank, C. J. P. Siriwardena said the current revenue level of the government is not sufficient. "The government's objective should be to increase revenue from the current level of around 15 percent to about 20 percent in the medium term. The government revenue is composed of 37 percent of VAT, 22 percent of excise duties, 14 percent of import duties, 13 percent of income tax, 10 percent of non tax and 4 percent of other taxes. The revenue development strategies such as proper tax administration, broadening the tax base and reforming the tax structure to increase revenue should be implemented," he said. Siriwardena said that the total government debt is estimated at around 106 percent of GDP this year and the government has to tackle this problem by presenting good proposals for the next budget. "The current expenditure structure comprises 34 percent of interest payments, 28 percent of salary payments, 14 percent for other goods and services, 12 percent for other subsidies, 10 percent of pension payments and 2 percent of Samurdhi. The challenge of the government is that it has to pay Rs. 122 billion as interests Rs. 111 billion for salaries and Rs. 35 billion for pensions. Public investments is 4.8 percent of the GDP and this should be increased at least by 8 percent. The government can reduce this expenditure by developing strategies such as further rationalisation of wage policy, improving the civil service, streamlining welfare expenditure, improving the financial performance of public enterprises, reducing debt service payments by improving debt management and prioritising public investment," he said. He said this time the budget should target to reduce the deficit by 5 percent of the GDP. The debt stock should also be reduced to 60 percent of GDP by 2013," he said. |
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