Defence Budget to be limited to three percent of GDP

Hiran H.Senewiratne

The Government is in the process of maintaining Sri Lanka’s defence budget at three percent of the country’s GDP, said Finance and State Revenue Minister Ranjith Siyambalapitiya.

He said that most times the defence budget exceeded more than 3.5 percent of the GDP, which amounts to Rs 200 billion “However, with the end of the war we will be able to maintain the defence budget at three percent, which is called recurrent expenditure,” he said.

Siyambalapitiya said that with more than 250,000 IDPs in camps, the Government has to spend enormous sums of money to maintain and feed them in their camps.

Q: During this year, Sri Lanka’s revenue dropped by 10 percent especially the export revenue. What is the reason for that?

A: Due to the global recession, export and import tax revenue that came from the Sri Lanka Customs, dropped significantly. However, in 2008 Sri Lanka’s budget deficit was 10 percent but when compared to other countries in the region, it is a good indication. In certain countries it is in the range of 20 to 30 percent. USA budget deficit was 13.7 percent, Japan 6.8 percent and UK 13.9 percent. Towards the end of this year this trend will reverse to a conducive position.

Q: Opposition political parties are alleging the IMF loan has been subject to various conditions. Is it true these conditions have not being divulged to the public?

A: Sri Lanka is no more a failed state and we defeated the world’s most dangerous terrorists organization. Therefore, the whole world knows that Sri Lanka has the potential to become one of the most developed nations in the region.

The IMF asked the Government to maintain a seven percent budget deficit and to improve the efficiency and effectiveness of State-run bodies including Ceylon Petroleum Corporation and Ceylon Electricity Board. We requested US$ 1.9 billion and they committed US $ 2.6 billion to improve and stabilize the country’s foreign reserves. So far Sri Lanka has obtained loans nearly 26 times from the IMF. In 2003 UNP obtained a loan from the IMF without consulting the Cabinet. We have already tabled IMF loan conditions to Parliament and informed the Cabinet on each and every matter, which is now a public document. We got the loan on a very small interest and these funds cannot be utilized for development purposes. This loan will attract and build the confidence of foreign investors.

Q: In 2008, the Central Bank of Sri Lanka issued a Sovereign Bond in the overseas market to raise US$ 500 million. What have you done with those funds?

A: With the raising of funds by issuing Sovereign Bonds we were able to increase our revenue many folds. Our total loan portfolio was 105 percent against the GDP, which we were able to reduce to 81 percent. With this money we did a lot of development work.

Q: Our inflation has been controlled to a manageable level and has dropped to nine percent from 28 percent. What was the reason for that?

A: The main reason was that prices of essential food items came down in the international market , which created a major positive impact. Other factors are reduction of bank interest and inter banking interest rates and increase of production due to fertilizer subsidy and other incentives for the local agriculture sector. We allocated Rs 35 billion for the fertilizer subsidy. Fertilizer worth Rs 9,000 per five Kg bag is sold to our farmers at Rs 350.

Q: Do you have any proper mechanism to increase Government revenue without putting any burden on the public?

A: We have been strengthening our three revenue- generating authorities namely Department of Inland Revenue, Sri Lanka Customs and the Department of Excise to make them more efficient and effective. These three entities bringing/generating 90 percent of the country’s total revenue. We set up a Tax Commission, which comprises public and private personnel (Tax payers) as its members.

This entity prepares reports on how to increase Government revenue and provides interim reports for budgets. We have more than 400,000 income tax payers in the country. Annually we are identifying 50,000 new income tax files to generate revenue to the country. We also have set up Tax Consultation Center at the Inland Revenue Department to advice our tax payers. We are also going to simplify the tax structure to reduce burden on the people.

Q: How would the Government build the confidence among the public due to recent scandals in the banking and financial institutions?

A: We are directly involved in banks and financial institution, which are being approved by the Central Bank. Therefore, we will always safeguard and take the responsibility to protect them and the financial sector in the country. To keep abreast with times, we will be amending the Monetary Act and the Banking Act, which would cover new areas including credit card and date protection issues.