July 30, 2010: The government is looking for a stable exchange rate. We are trying to divert as much as possible credit to the private sector through the banks. If you look at the credit ratios moving through the banks now, its unprecedented. But apparently the banks are not moving fast enough. We must put some pressure on the banks to use that liquidity to help the business community, said Dr. Sarath Amunugama, Senior Presidential Advisor on Economic & Monetary Affairs and Deputy Minister of Finance and Planning yesterday.
Addressing the annual general meeting of the Exporters' Association of Sri Lanka held at the Galadari Hotel, Dr. Amunugama said that the country was now in the interim stage where banks, which had been used for a long period of playing their cards close to the chest, was now being brought into a new world where they should interact with the private sector when funds had been freed.
“We have freed a lot of funds to service the private sector,” said Dr. Amunugama. He also thanked the members of the Exporters' Association for helping to keep the economy buoyant and on an upward trajectory.
The following is the full text of Dr. Sarath Amunugama's address to the Exporters' Association:
“We have just emerged from a very difficult global situation. Most of our markets are in the western world except for the changes in the Free Trade Agreement (FTA) with India. Now that part of the world, particularly the US and the European countries, have had a very difficult time facing near recession but certainly a global downturn.
This naturally affects our markets, and I see from the EASL and Central Bank reports that 2008 and 2009, at least the first part of it, were difficult years. But we have survived pretty well.
If you look at the economies of the US and the European countries, many of them have been in negative territory – minus growth. But we have managed to keep our growth levels even at those times to 3 or 4 per cent of GDP and now the latest quarter figures show that we have reached the 7 per cent mark and hopefully by the end of the year, we can end up with a 7 per cent GDP growth.
As mentioned in the budget, our target is to eventually to reach double-digit figures. Components of that very ambitious project, are three.
The first is the agricultural sector. As I have mentioned, we have tremendous opportunities of expansion in the agricultural sector. The North and East, which were very productive areas for agriculture and which areas the successive governments had invested large amounts of money, can now be converted into very fruitful areas. And I think it is right to say that as far as paddy production is concerned, we will be more than self sufficient in a few more years to come.
Our tea production, as was mentioned earlier, has gone beyond the one billion mark. There was a time when it was stagnating around 800 million and on many occasions, we said that we must somehow get into the one million slab and I am glad to say that for three consecutive years, our tea industry has been achieving those targets, and on one occasion, I think we went even up to 1.5 billion by way of exports.
The garment industry is also a very important aspect in our export growth, also has to face these challenges. The government is very alive to the problems of the garment sector. But on the other hand, we must also realise that we are trying hard to keep the exchange rate at a very attractive rate.
In the past we had to intervene to prevent depreciation and now we have to intervene to prevent appreciation. But in either way, we have been very conscious of the fact that the fluctuations of the exchange market has a very decisive impact on the export sector.
So we very conscious of the fact that while the agricultural sector and the services sector have been expanding very fast, comparatively, we need to pay much more attention to the manufacturing sector, to the export sector and as you would have noticed, from what the government said in the budget, the forthcoming years, we will be spending much more time and by giving much more by way of concessions, to the manufacturing sector.
If you look at the rapid growth, in the giants of Asia, who are now the movers of global growth, India and China, they have made much more attention to the manufacturing sector and there's a ballooning of the manufacturing sector which gives them the edge when it comes to being competitive.
What are the ingredients of that? What are the elements that we have to look into to give you that boost apart from the various other internal management and other requirements? The first of course is the need for infrastructure. We have targeted a very very rapid growth in Sri Lanka's infrastructure and it would be right to say that at no period in the past has there had been such interest to invest in infrastructure, which is a basic requirement for the rapid growth in our export sector.
Five ports are being developed. Many roads are being developed. And equally more important, we have been heavily involved in the power sector, so that we would be able to say, as we have done in the past, for the last five years there had been no power cuts in this country and now we are in position to say to every investor in this country that there will never, ever be a power cut in the future.
A few years ago it would have sounded like an absurd statement and no one would have taken me seriously on that a few years ago. But now I think, due to the investments made by our government, particularly during the last five years, we are in a position to be one of the few countries in the world where there are no power cuts.
You have to remember that in Asia even in countries like India, Philippines, Thailand, and in Pakistan there are many periods of power shedding
Sometimes, we don't count our blessings, but I think we will be in a very favorable position for investment when your consider the power situation. That is a pledge the government is going to make that there will be no power cuts and we will constantly try to reduce the cost of energy.
There are many things that sometimes the business community forgets. Even during difficult times, we made large outlays on the Ceylon Petroleum Corporation and the Electricity Board to prevent an increase in tariffs. There were increases in tariffs, but had the government not taken the decision to transfer large sums of money, instead of giving subsidies to the individual consumer, but give that whole thing en block to the Electricity Board, then your bill would have been much higher. But we took the responsibility to in effect subsidising each and every businessman in this country by investing large sums of government money in the Electricity Board to prevent them from raising their tariffs.
So while the tariffs may be high, please remember it would have been much higher, but for that decision of the government.
On taxes, we have set up a tax commission, which I think will be much more investor friendly. Much more exporter friendly, so that in the next budget you can expect quite a lot of relief both in terms of corporate taxes and also in income taxes. Because we have found, that if you lower the taxes, your collection will be better.
For example, the lowering of taxes for motor vehicles, especially luxury vehicles. Earlier you had an legitimate excuse, I think many chambers used to tell us, you give discounted, duty free vehicles to politicians, you give them to judges, public servants, you give them to everybody under the sun except to those who actually produce money for this country.
All those who eat up that money are given duty free duty free vehicles but the people who are earning the money are not given any relief. That was a constant complaint.
Now we have brought that down. So that the idea is that everybody will be able purchase them at the same rates. Hopefully nobody will complain. I am happy to tell you that after we reduced the duties, our revenues have increased.
So that is the approach we are going to take. We must of course safeguard our revenue but, for example the recent tax changes in India has clearly shown that if you lower the taxes, there's much more compliance and finally the government ends up with more revenue. So that is the approach we are going to take.
We are looking for a stable exchange rate, as you would have seen. We are trying to divert as much as possible, credit to the private sector through the banks. If you look at the credit ratios moving through the banks now, its unprecedented. But I was listening to your report and I found that the banks are not moving fast enough. We must put some pressure on the banks to use that liquidity to help the business community. That will come.
We are now in the interim stage where banks, which have been used for a long period of playing their cards close to the chest, is now being brought into a new world where they must interact with the private sector when funds had been freed. We have freed a lot of funds to service the private sector.
Otherwise we can't get those growth rates by simply talking about them. We have to take those institutional and policy decisions which will provide that quantum of investment money that will lead to growth. That is our approach and I think the manufacturing sector also has to get to a higher level.
We have set this target of one billion dollars in many areas, which I think is quite doable. It was I who as the Minister of Finance who set these targets.
The tea sector, which was at that time was only US$ 800 million type of business has now easily gone over the one billion mark. Tourism will very soon go over the one billion mark. There is no reason why they can't go well over the one billion mark. Today it is around 500 million, it is only doubling that. I don't see why the gem and jewellery industry, which is doing only US$ 550 million can't double it. And it's the simplest thing in the world if they get their act right. I don't see why the IT sector, which is getting about US$ 650 million going over to one billion dollars.
There are so many areas where we can easily double the revenue and double the earnings. This needs the co-oporation between the government, other state institutions and the private sector.
But really I think we have to think afresh. We have to be much more bold to think out of the box. If you look at the manufacturing industry in China, in India they are much more receptive to foreign capital. Much more receptive to collaborative efforts, trying to get your capital and management to a higher level. That is absolutely necessary. Because, unless you capitalize these ventures, whatever the other problems may be, you have to have money flowing into this sector if we are to get greater earnings as exporters.
How do we do that? One is through our banking sector, but I think we should also go into collaborative ventures into various areas so that you can bring in capital.
We want to expand stock market operations. It is idle just talking about increasing our export earnings unless we are ready to look at those building blocks that will take us to a higher level.
That is why I am happy that you exporters have met together and have discussed and as you know in the Treasury we have constant consultations with the different sectors, particularly with the manufacturing sector.
Every year in the budget we virtually take all your ideas, that is why we always get very favourable comments on the budget because part of the budget is actually written by you, when you make your recommendations. There's hardly a case where they have not been accepted. We know that from experience.
So we need to work together. But we certainly need to take our exports to a much, much higher level.
Fortunately, the global scenario is very encouraging. The American economy and the European economy, though of course, there are so many bumps, is on the mend. There's no doubt. It's much, much better than what it was in 2008 and in the beginning of 2009.
So the potential is there and we should all get together to make a big effort. If you want the government to intervene in certain areas, we have now set up a committee under my chairmanship to make proposals to the government to increase investments to this country. There is another taxation commission and all this will dovetail into the forthcoming budget.
So I think it will be very investor friendly, manufacturer friendly, exporter friendly budget and I hope that when you have the next meeting, we will be able to have a much more positive outlook about the future.
We have come through a difficult time, I think we are emerging from that and with our collaborative efforts we should try to expand the contribution to our GDP from the manufacturing sector and I want to thank you for what you have done in the past and to assure you that the government will back all your efforts to take manufacture and export in Sri Lanka to a higher level.
