Indices close moderately high
The week started off with an optimistic note on Monday before dipping
substantially during mid week. However, on Friday indices managed to
regain lost ground resulting in indices to end in green for the week.
This week the ASPI (All Share Price Index) gained 16.2 points or 0.43
percent to close at 3824.1 points while the more sensitive Milanka Price
Index (MPI) gained 33.6 points or 0.77 percent to close at 4387.6
points.
National Development Bank (NDB) contributed Rs 901.6 million to the
total market activity this week after trading 4.0 million shares in
volume, becoming the largest contributor for the week. NDB edged higher
to close the week at Rs 221.50 per share compared to last week's closing
price of Rs 222.75 per share, whilst trading between a price band of Rs
219.50 and Rs 225.00 per share over the week's trading.
Apart from the above, Seylan Bank Non Voting and Asian Alliance
contributed considerably to the week's turnover.
Seylan Bank Non Voting contribution was approximately Rs 279.6
million and Asian Alliance was Rs 247.9 million to the total turnover,
with approximately 12.3 million Seylan Bank Non Voting and 4.9 million
Asian Alliance shares trading during the week. Seylan Bank Non Voting
saw its price appreciating moderately by 14.3% to close at Rs 24.00 per
share this week, while Asian Alliance ended the week at Rs 59.00 per
share a dip of 7.0 percent Week-On-Week.
Overall activity levels improved by 34.7 percent to Rs 6.4 billion
this week, with turnover surpassing Rs 1 billion on each trading day.
NDB represented 14.1 percent of the total activity for the week.
The average daily turnover stood at Rs 1.3 billion compared Rs 1.0
billion posted last week.
The week saw a substantial increase of 120.7 percent in foreign
purchases, to stand at Rs 0.9 billion and foreign sales to stand at Rs
1.4 billion witnessing a 103.7 percent increase.
The resultant net outflow was Rs 0.5 billion. Foreign participation
stood at 17.5 percent of total activity for the week.
The heavily traded stocks during the week were Nawaloka, Seylan Bank
(Non Voting), Renuka Holding and Janashakthi Insurance.
Provisional budget deficit beyond
target levels
The week ended March 5, saw the Government Treasury Department
releasing the "Pre Election Budgetary Position Report 2010".
The report goes to explain the provisional fiscal account figures for
the year 2009. Further, it explains the reasons for the movement of the
fiscal account.
Revenue
The reduction in the revenue contribution is due to mainly the
reduction in the Tax based revenue.
The total revenue recorded an overall growth of 7 percent for the
full year compared to 2008, despite the decrease in revenue as a percent
GDP.
A significant drop in the volume and value of vehicle imports liable
for excise duty, reduction in import duties and excise taxes levied at
the point of import (due to the erosion in the value and volume of
imports), the impact of the implementation of free trade agreements,
continuous decline in cigarette sales and the slowdown in liquor
production were the main contributory factors for the decline in revenue
as a percent of GDP.
Expenditure
The lion share of the expenditure growth was due to the recurrent
potion of it. The recurrent expenditure increased by 19 percent.
Major contributory factors were enhanced relief assistance provided
to internally displaced persons after liberating the North from
terrorist activities, enhanced public investment, increase cost of
living allowances for public servants and the pensioners and the more
than expected cost of interest payment on public debt.
Amidst such economic turmoil, the Government being able to increase
the investments in the capital projects (as a percent of GDP) is
commendable. Hence, the increase in the capital expenditure should have
better spill- off effects on the economy (GDP growth) going forward.
Economic growth
The bloodline for economic growth in any country is the amount of
investment made in pivotal sectors. This, investment is propelled by
high savings. Savings by way of pure domestic savings, FDI's, bilateral
investment, multilateral investment, remittances etc.
Sri Lanka's investment per GDP is around 24 percent. However, for the
island nation to achieve the expected double digit economic growth we
should achieve investment to GDP in the range of 35 percent - 40
percent.
The achievement of the savings levels to support the investment is of
paramount importance. Lately the foreign remittances levels have
improved and also Sri Lanka has been able to capture major bilateral
investment from China and India, by way of ports, roads and railway and
power plants.
Hence, Sri Lanka will have to continue achieving high savings levels
by alternative sources such as multilateral; FDI's and even via Public
Private Partnerships (PPP) if we are to succeed in achieving double
digit economic growth.
However, the GDP growth prospects for the year 2010 would be 6
percent-7 percent.
Thus, the GDP growth would be expected from investments predominantly
in agriculture, banking, manufacturing, construction and tourism.
It is of paramount importance to improve the revenue generation
(which has actually decelerated as a percent of GDP). The broadening of
the Tax base is of vital importance.
The current tax system is over whelmed with indirect taxation, hence,
the tax authorities should look into uncomplicated and broaden tax base.
As much as it is important to broaden the tax base, it is as equal
importance to implement fiscal consolidation and discipline. Reckless
new public spending on recurrent expenditure will be disastrous to the
economy and would tamper the macro position.
Hence, improvement in the business operations of the many state
entities, such as, Ceylon Petroleum Corporation and Ceylon Electricity
Board is pivotal.
The expanding budget deficit would invariably increase the
requirement of funding. Hence, more debt funding would increase the
countries government debt to GDP ratio, this was at a very high level of
105 percent in 2002 and had gradually declined to 84 percent by end
2009.
An alternative method of funding the Capital Investments in the
country would be by way of PPP. Not only would this ensure FDI's coming
in to the Country, also encourage the Private Sector participation in
infrastructure investment projects. India is a classic example of a
country thriving on the PPP concept through proper framework and
conducive reforms. |