The 2010 Budget revenue has been estimated at Rs. 817.8 billion and expenditure at Rs.1279.8 billion. The tax revenue is Rs. 729 billion while the non tax revenue is Rs.88.8 billion.
BUDGET SPEECH:
1. Honourable Speaker, it is with great honour that I present to this House the Budget for 2010 under the astute leadership of His Excellency the President Mahinda Rajapaksa.
2. At the very outset, it is my fervent duty to thank the people of this country who gave a resounding mandate to His Excellency the President at the Presidential Election concluded in January 2010 and the United People’s Freedom Alliance (UPFA) at the General Election concluded in April 2010. The landslide victory at both elections is a clear endorsement of policies pursued by the government since 2005 under the leadership of His Excellency the President. Almost two thirds of our voting population placed confidence in the bold leadership of His Excellency the President in the successful elimination of LTTE terrorism and restoring peace. The mandate from the two elections was also an expression of whole‐hearted support to the ‘Mahinda Chintana Vision for the Future’ ‐ the election Manifesto of the President which promised to transform Sri Lanka into the ‘Emerging Wonder of Asia’.
3. Hon. Speaker, the previous Parliament in November 2009 approved a Vote on Account for the first four months of 2010 due to Presidential and Parliamentary Elections held during that time. Thereafter, due to the limited time available to go through a full budget cycle, His Excellency the President in terms of Section 150(3) of the Constitution of the Republic, authorized expenditure for a further period of three months in 2010. This Budget incorporates expenditure incurred by the government under these two arrangements into the 2010 annual appropriation account and further seeks parliamentary approval for expenditure for the balance part of this year to carry out government operations. Therefore, the Draft Estimates placed before this august Assembly, provide details of the annual provisions under each of the ministries and programmes that require approval from the Parliament. In essence this is a transitional Budget reflecting expenditure under previously functioning ministries adjusted to new ministries and a stepping stone in making provision to firmly prepare the work plans towards the 2011 Budget ‐ which is scheduled to be presented to the Parliament before the end of the year.
4. Hon. Speaker, our government has managed many challenges. The 26 year conflict was brought to an end and the entire country has been unified. We owe a special gratitude to our brave soldiers who made peace and a unified Sri Lanka, a reality. The humanitarian operation conducted by our brave soldiers under the leadership of our President as the Commander in Chief that rescued nearly 300,000 hostages who were under the grips of the LTTE leadership, was not only an admirable mission but also a mission that was conducted while respecting all international Conventions and norms. There is nothing that we need to hide and cover. As such, nobody has any right to interfere with our internal affairs. Day to day life in the Tsunami affected coastal belt ‐ which was the area most affected by the worst ever natural disaster experienced by our country ‐ has been normalized. In comparison to other countries which have been confronted with similar disasters, our Government and its machinery demonstrated unique progress in implementing the post disaster recovery program. Sri Lanka’s unique standing in 66 managing both natural disasters as well as manmade disasters are admirable and certainly a model for even others to follow.
5. Our government managed to withstand the global economic and financial crisis without experiencing a collapse in our banking and financial institutions. Despite serious financial constraints and fiscal stress we have successfully carried forward infrastructure development initiatives. The country is witnessing a steady progress in the construction of power plants, sea and airports, expressways, the road network and bridges, new irrigation schemes, water supply projects, schools, universities, hospitals, stadiums, convention centres and several other infrastructure investments initiated under the leadership of His Excellency the President ‐ under the ‘Randora’ programme to transform Sri Lanka as a modern and well performing economy in the region. Our policies towards restoring food security in the wake of an unparalleled global food crisis enabled the country to move towards self sufficiency goals in rice, cash crops, animal feed, fruits and vegetables. Ending the conflict in the North and East has helped the country to move onto a large scale expansion in agriculture, livestock, fishery resources etc. On the economic reform front, we also kept our commitment to refrain from privatization and persued a viable alternative to neo‐liberal economic reforms. We placed confidence in three key segments ‐ private, public and cooperative sectors in our economy. The government made good progress in strengthening public services, including island‐wide educational and health services, the regulatory framework and the rural economy.
6. Hon. Speaker, our economy like all other economies in the world, faced grave uncertainties in 2008/9. Growth had started decelerating and external reserves as well as fiscal reserves have started declining. The cost‐of‐living and inflation were rising. The global economy was facing scarcity in food supplies and major supplying countries were resorting to protectionism. It was not clear to policy makers in many countries and to international financial institutions, how the global economic crisis would eventually unfold. The global economic outlook at that time was bleak. In the meantime we had to manage two key major internal challenges. First, the humanitarian operations launched by the government in 2006 ‐ to liberate the nation from terrorism and pave the way for peaceful living to our people in our land ‐ had reached the final phase and was demanding an uncompromising commitment of our time, resources and the strength of unity to end the conflict. Second, infrastructure initiatives which we had launched to address lagging supplies in key facilities such as electricity had reached a mature stage of construction, which could not have been suspended. Hon. Speaker, our government acted intelligently in managing these internal and external complexities. Today, I can say with confidence that we have weathered these crisis and challenges. The international Monetary Fund (IMF) which extended support to stabilize our economy with US$ 2.6 billion Stand‐By Arrangement (SBA) has endorsed the ‘Mahinda Chintana Vision for the Future’ as a way forward to transform our economy. We also plan to claim our eligibility for IBRD Credit considering our graduation to a middle income country status. Improvements witnessed by us in the area of international finance has enabled us to shift our medium term international bonds to long term debt, providing a better debt profile to be managed.
7. Hon. Speaker, reflecting the unique resilience of our entrepreneurs, the steadfast determination of our workforce and the policy environment that our government created 67 Sri Lanka has attained middle income economy status with per capita income rising from US$ 1,062 in 2004 to US$ 2,053 in 2009 ‐ an achievement that the whole nation can proudly speak of. This means that our government has been successful in placing our economy at an annual average growth of 6 percent during the past five years in comparison to a growth rate of 4 percent in the preceding five years. Unemployment has been brought down to around 5 percent from 8.3 percent in 2004. Inflation, which was a perennial problem for almost two decades in the area of macroeconomic management, has been stabilized at around 5 percent. International reserves which declined to a critical low level of US$ 1.2 billion have been raised in excess of US$ 6 billion providing stability to the exchange rate regime. These developments have helped us, to bring‐down the rate of interest, which was another critical impediment that our economy had been confronted with for many years, limiting growth potential of our entrepreneurs. Although further progress is necessary in selected regions and communities, the poverty indicators have also drastically declined to around 15 percent of the household population as compared to 23 percent few years ago.
8. Hon. Speaker our people today, have better access to electricity, drinking water, a quality road network, telecommunications, transport, primary and secondary education and health facilities, than five years ago. The connectivity between the rural and urban areas which we have established is far superior to the status of not only our neighboring countries, but also in terms of other emerging economies around us. Our government embarked on an island‐wide integrated development strategy in the rural economy which had been marginalized for several years under successive governments. The ‘Gama Neguma’ the national integrated rural development strategy of the government, provides rural roads, electricity, drinking water and irrigation, sanitation facilities and a wide range of livelihood activities targeting almost all districts in the country. As a result, there has been a unique improvement in the rural economy and once again made the rural sector attractive to our people. Hon. Speaker, ‘Mahinda Chintana’ development framework which has harnessed the economic growth to consolidate progress in making development more inclusive is an eye opener to the failures of post liberal policy regimes commenced since 1977. Financial Situation
9. Hon. Speaker, in addition to the details provided in the report prepared in terms of the Fiscal Management Responsibility Act to this Parliament, I wish to make a snapshot analysis on the current status of the financial and economic situation for the benefit of the honorable members. The economy has rebound with a 6.2 percent growth registering in the last quarter of 2009 and a 7.1 percent growth in the first quarter of 2010. Almost all sectors have contributed to this recovery. In the agriculture sector – the production of paddy and maze has shown a marked increase while the production of many varieties of up and low country vegetables have suffered production losses due to adverse weather conditions that prevailed in recent months. Fish production in the first four months has increased by 6.2 percent. The shortfall in chicken, meat and egg production witnessed during the last several months has shown a recovery and a full recovery is expected by the end of the year. Tea production during the first four months of the year ‐ has increased by 25 percent whilst rubber production has increased by 12 percent. Output expansion in the factory industry was facilitated by favorable improvements in both 68 export and domestic markets. Food, beverages and tobacco sub‐sector registered a growth of 6.9 percent, while rubber based industry recorded a growth of 8.1 percent due to increased external demand for tyres and gloves in the international market. Textile, apparel and leather products recorded only a marginal growth increase of 1 percent. In the service sector, cargo and container handling activities have shown a marked increase of 41 percent and 27 percent respectively. Banking and Financial Institutions too have shown an expansion in their turnover.
10. Export earnings increased by 7.1 percent to US$ 1,764 million in the first quarter of 2010, largely due to the expansion in agriculture sector exports. Expenditure on imports increased by 39.5 percent to US$ 3,235 million mainly due to the increase in the cost of oil imports. Tourist arrivals increased by 28.5 percent reflecting a significant increase in arrivals from Western Europe and South Asian markets. Worker remittances in the first three months of 2010 increased by 14.1 percent. A strong growth in remittance income and income from exports of services have neutralized the deficits in the trade account and hence contributed to a lower current account deficit. Reflecting the improvement in the overall Balance of Payments, total external reserves as at end April 2010 stood at US$ 6, 578 million. The year‐on‐year growth in broad money in April this year, recorded 16.5 percent. The expansion in net foreign assets of the banking system as well as growth in domestic credit has contributed to this increase. The credit extended to the private sector which was contracting for several months has recorded an increase of 1.7 percent in April reflecting a recovery in the economy. The domestic money market continued to experience high liquidity. The Central Bank continued to absorb such excess liquidity through the issuance of Central Bank Securities. Interest rates continued to adjust downward reflecting market liquidity and low inflationary expectation. On a year‐onyear basis, inflation declined to 4.6 percent by June 2010. The annual average inflation at present is around 3.8 percent. Fiscal Framework
11. Hon. Speaker, our fiscal strategy from 2005, has three fundamental objectives. First, we consider that the historically high Budget deficit in this country must be phased out in order to reduce the debt burden and strengthen the financial situation so that our people will have better access to finance from our financial institutions. However, we do not believe that such a deficit reduction should be done at the cost of economic growth. We also do not recognize privatization of state enterprises, selling state assets and cutting down public investments for fiscal adjustment. We believe such adjustment should be done through improvement in the quality of government spending, by putting state assets into productive use and collecting revenue through a broad based and low tax regime. Implementation of such policies will certainly be conducive for business development by the private sector and also be conducive to generate a high growth rate in excess of 8 percent. Second, it is important that our operational expenditure is managed well within our income. Therefore we believe that generating a revenue surplus by a gradual increase in government revenue and economizing operational expenditure of the government will be a way forward for a sustained improvement in government finance. The generation of a revenue surplus will be the most constructive way of reducing the budget deficit because it will provide fiscal space to accommodate high public investments. Third, we believe that maintaining a public investment in the range 69 of 6 to 7 percent of GDP in support of infrastructure development is essential to induce the private sector to increase their investment. Unless strategic infrastructure is provided by the government in a meaningful manner, private sector investments are unlikely to generate desired development and create an inclusive growth.
12. Hon. Speaker, although the adverse global economic climate, high debt services and global food insecurity, disrupted our policy direction towards generating a revenue surplus, particularly during 2008/9, and disturbed our deficit reduction path, our government managed to maintain public investment in excess of 6 percent of GDP every year since 2005 in comparison to around four percent prior to that. Consequently, a satisfactory progress has been realized in resolving the infrastructure bottlenecks of our country. This infrastructure development enabled the country to function free from power cuts, which was a common phenomenon prior to 2005. A decisive improvement has been made to the road network by completing about 6000 kilometers of national and provincial roads and 40 large bridges connecting previously unreachable destinations. The capacity of providing drinking water has been increased, providing greater access to quality drinking water to our people. The port facilities to cater to both transshipment and international trade which were lagging are being developed. The country would witness the completion of two international ports and a second international airport towards the middle of next year ‐ expanding the growth potential of our economy. Several major irrigation schemes including the ‘Uma Oya’ and ‘Moragahakanda’ projects have been commenced to provide the much needed irrigated water to both southern and northern districts in the country. Our vision is to increase the area under irrigation to reduce vulnerabilities of our agricultural sector to the vagaries of weather.
13. All these together with several other infrastructure facilities are being undertaken with grants and long term loans from our friendly countries, multilateral institutions, and the capital market as well as from our domestic saving institutions such as the Employees’ Provident Fund. This naturally forms part of our debt, but the creation of such debt has been done with a conscious commitment to create an asset base which will multiple in value and be capable of generating a stream of income that can service such debt comfortably. This is why Hon. Speaker, our government has been able to bring down public debt in relation to GDP from 102 percent, in 2004 to around 80 percent at present. Such a reduction is possible only when the growth in government borrowing is kept below the growth in national income of the country. Hon. Speaker, this Parliament which is solely responsible to manage our public finance must appreciate that the external debt is also managed in an environment that many global currencies are subject to unmanageable volatilities causing us to meet extra liabilities. It is in this background that the conduct of macro public finance must be examined.
14. The deficit and debt reduction process which witnessed a temporary aberration in 2008/9 due to the global financial crisis will be arrested in 2010. Our government is determined that both the Budget deficit and public debt will be brought down from 9.9 percent of GDP and 87 percent of GDP respectively in 2009 to 8 percent and 80 percent respectively in 2010. Hon. Speaker we have framed this Budget with the prime objective of consolidating our finance to reduce the revenue deficit from 3.7 percent in 2009 to 2.1 percent in 2010 and maintain public investment at 6.5 percent of GDP. Such an adjustment will enable us to keep the deficit at 8 percent of GDP which is a 2 percentage 70 point reduction over the last year. This down‐ward path will be maintained in the next three years. This also means that our debt in proportion to GDP will be placed below 70 percent of GDP in 2012. Our debt profile is well diversified, is less commercial and has a long term maturity. The long term fiscal strategy of our government is to create a wealth base far in excess in value of our total debt to make our nation free from the burden of debt. More detailed policy initiatives which are now being gradually implemented and expected to accelerate with the forthcoming Budget, will be placed before this House by His Excellency the President in November 2010. Medium Term Roadmap
15. Hon. Speaker, the realization of a ‘mine‐threat‐free’ Sri Lanka and complete re‐settlement of internally displaced people are very critical targets in our development strategy in the conflict affected areas. When the Northern Province was liberated from the LTTE, over 640 villages, covering 1,474 square kilometers had been laid with land mines. It is estimated that about 1.5 million mines have been laid underground by the LTTE. As resettlement had to be undertaken in this challenging environment, the government prioritized the de‐mining operations in targeted places such as residential areas, public places and farm lands. The government itself had to invest nearly Rs. 7,000 million rupees to purchase de‐mining equipment and to setup a de‐mining unit as the capacity of the international NGOs was inadequate to undertake a task of this proportion. While in short term this is satisfactory progress, we will continue to expand de‐mining operations with the assistance of our friendly nations and UN institutions. Within one year since the end of the conflict, the government was able to resettle nearly 250,000 internally displaced persons liberated from the terror of the LTTE. As of now, only around 25,000 displaced persons remain in the welfare centers and they too, will be re‐settled before the end of this year.
16. The immediate relief and rehabilitation include the provision of family allowances and dry rations followed by opening beneficiary bank accounts for each of the resettled families to empower themselves to develop their own housing arrangements as well as livelihood programmes. Distributions of roofing sheets and cement bags have been provided for over 45,415 families to develop their core housing units. Each of the identified households is assisted with a core housing unit and settlement assistance. We propose to empower people to build their permanent homes with their participation in construction activities. Already an assessment is being carried out to identify fully and partially damaged houses, schools, hospitals, office buildings, court houses, bus‐stands and market places to implement an accelerated rehabilitation programme. In addition to owner driven home building initiatives selected townships will be developed depending on community needs. The government greatly appreciates the generous offer extended by the Government of India to build 50,000 houses for the benefit of these families, following His Excellency the President’s recent state visit to India. Arrangements are being made to bring about 40,000 hectares of cultivable areas in the northern and eastern districts to full scale of cultivation in the forthcoming ‘Maha” season to improve the livelihoods of the people as well as to transform economic activities in those areas. The opening of the A‐9 road, removal of fishing restrictions, opening of bank branches and unrestricted transportation have expedited business development in the north. 71
17. A comprehensive medium to long‐term reconstruction strategy has been planned to transform conflict affected areas in order to create decent living conditions. The construction arrangement of railway lines in the northern sector connecting Thalaimannar to Medawachchiya and Omanthai to Kankasanthurai and such arrangement for the construction of national highways such as the A‐9 and the A‐32 ‐ have been finalized. Funding arrangements have been secured to implement water supply, roads, electricity, schools, hospitals, court houses, administrative facilities, police posts, drinking water, irrigation and livelihood programmes. Assistance to implement rehabilitation and reconstruction programmes in the conflict affected areas have been received from Australia, India, China, Japan, Switzerland, the United Nations, the World Bank and the Asian Development Bank. Total funds mobilized for integrated conflict affected area development is around US$ 2 billion, which will enable the government to address pressing needs in these areas over the next two to three years. Hon. Speaker, His Excellency the President repeatedly states that neither peace without development, nor development without peace is sustainable. Now that the conflict has ended, the government will concentrate fully on rapid development of those areas. The early completion of these development initiatives will change the landscape providing northsouth connectivity and build a strong economic base to exploit agriculture, livestock, fisheries and tourism based investment opportunities in the north and east.
18. Hon. Speaker, ending the conflict has reopened opportunities to exploit the full potential of tourism in Sri Lanka. The President has set up a target of 2.5 million tourists with estimated foreign exchange earnings of around US$ 2.8 billion by the year 2016. This is almost a five‐fold increase in tourist arrivals and a nine fold increase in foreign exchange earnings. Such an expansion in tourism will undoubtedly generate direct and indirect employment opportunities for around 500,000 people. The room capacity required to accommodate increased tourists would be around 40,000 over and above the current stock of around 12,000. This opens new avenues for our construction industry as well as for our youth. Investment opportunities in tourism over the next six years are estimated to be around US$ 3 billion and this requires the involvement in both private sector as well as foreign direct investment. Seven resorts have been already identified to attract investment to create a capacity of nearly 10,000 rooms in a resort environment. Large hotels outside the resort environment and in urban townships and small and medium investment in the hotels sector are also expected to add to the required capacity in tourism. The government’s medium term strategy will also emphasize an integrated development approach to establish linkages to the local construction industry, domestic agriculture and a wide range of services. It also involves the creation of required skills and diverting the labour force to these new economic activities.
19. Hon. Speaker, our government’s vision for future development envisages accelerating the growth rate to around 8 percent in the medium term and placing the country’s growth path around a double digit level thereafter. This means our country needs to raise total investments to around 40 percent over the next ten years. As public investment will concentrate more on the long term infrastructure and will be 6‐7 percent of GDP, private sector investments need to be increased from the current level of 19‐20 percent to 31‐33 percent. This increase cannot be mobilized from our domestic private sector alone as the country does not have domestic savings to meet such a large resource requirement. Further, to create a modern economy we need investments in a wide range of businesses 72 ranging from small and medium industrial and agricultural activities to IT and business processing operations, renewable energy, ports, shipping, aviation and related services, urban townships and various professional services including health, education, and other managerial and skilled categories. Our own economic activities will need to have more domestic value addition processes to maximize the best value within our economy. All these demand not only investments in physical assets and in factories but also in a wide range of skills development and technology transfers. Therefore, the government will encourage both private investment and public investment of every sphere of economic activity in the country.
20. Hon. Speaker, the government as the enabler, has a responsibility in this regard. One is to put the policy right. Second is to infuse institutional efficiency. Third is to provide the required infrastructure and regulatory services and the fourth, is to put national security, law and order in place. In all these four areas we propose to move very rapidly and decisively.
21. Hon. Speaker our tax system is outdated, complex, narrowly focused and unattractive to investment and business development. It does not generate the required revenue and encourage people to save. Therefore, we plan comprehensive reforms to our tax system. His Excellency the President, having recognized the need for this transformation appointed a Presidential Commissions on Taxation in 2009. The Commission which has given valuable insight into our tax system is expected to finalize its recommendations on tax policy, and tax administration before August this year. The interim recommendations and directions provided by the Commission are to do away with the operation of multiple taxes, and move onto a simple, broad based, low tax regime. The Ministry of Finance and Planning and the relevant departments and agencies are working in this direction and have undertaken preparatory work to ensure that our medium term taxation system will be revenue buoyant, broad based, business friendly and equitable. In this context the government has already initiated certain actions such as the removal of the Customs surcharge, the introduction of a four band Custom tariff structure consisting of 0,5,15 and 30 percent and a rationalized duty structure for motor vehicles. The government has also brought down total tax rates on consumer durables not manufactured in Sri Lanka such as cameras, telephones, watches etc., below ten percent by eliminating many multiple taxes on those items that had only encouraged smuggling, tax evasion and corruption. We trust that this initiative will promote international shopping facilities in our country and attract more global commercial activities. The government also proposes in the medium term to bring down excessive tax rates on personal and corporate income as well as banking and financial institutions and do away with ad hoc and unproductive tax concessions offered by the Board of Investment and in terms of income tax laws. The dichotomy between the BOI and non‐BOI regimes will be corrected to create a level playing field. We believe that such a tax structure will be affordable to the taxpaying community in our society. Economic activities that such a regime will promote in the formal economy will increase revenue far in excess of the current level. The goal of our government is to increase revenue in excess of at least 17 percent of GDP over the medium term.
22. Hon. Speaker, global financial systems have undergone fundamental changes following the financial crisis of 2008/9. The regulatory systems and supervisory controls exercised 73 by the Central Bank of Sri Lanka as well as the Securities and Exchange Commission have protected the country’s financial system from any casualties during the recent financial crisis. Nevertheless, unauthorized operation of certain financial transactions and financial scandals in selected financial institutions has caused serious threat to our people and to well functioning financial institutions. In this background our government proposes to introduce a series of legislative changes to existing banking and financial laws in the next few months with a view to strengthen regulatory arrangements and reform banking and financial institutions. Finance companies, specialized banking institutions and micro financing institutions will be brought under strict regulatory supervision to mitigate risks associated with such institutions. The Central Bank has initiated action to encourage non‐bank financial institution to be listed in the Colombo Stock Exchange to improve greater accountability in their performance. Securities and Exchange Commission will introduce necessary legislation to promote further market instruments to encourage companies using equity markets for capital formation, while broad basing public ownership in business. However, Hon. Speaker, the government wishes to urge our people to transact only with regulated financial institutions approved by the Central Bank so that they will not be victims of corporate scandals. In the financial sector, in order to strengthen the role of development banking, the nine regional development banks have now been merged as a single regional development bank with a strong capital base, to be the catalyst in uplifting the rural economy. Two state banks, once considered insolvent by the then government, have been made strong with AA rating on their performance. They no longer operate on the backing of Letters of Comfort issued by the government for capital adequacy. They have met their capital adequacy requirements satisfactorily. These two banks together with the National Savings Bank, Sri Lanka Insurance Corporation and the provident funds will be catalysts in equity market development in the future, in addition to mobilizing financial savings.
23. Hon. Speaker, it is necessary that our administrative systems and procedures be modernized and made efficient to reward individual and entrepreneurial initiatives ‐ particularly in an economy like ours where small and medium enterprises are predominant. Having recognized this, the Cabinet of Ministers has appointed a Sub‐ Committee under my Chairmanship to come up with necessary recommendations before the formulation of the next Budget, to simplify all administrative and regulatory procedures, practices and related laws. All line ministries have been requested to identify specific areas pertaining to their respective fields of operation, which can be opened for private sector investment, and private‐public cooperation. Line ministries have also been requested to work out mechanisms through which the public sector could facilitate such investments and business development by the private sector. The Board of Investment, the Sri Lanka Tourism Development Authority and the Urban Development Authority are also working very closely on new project profiles that will create urban space for private investment to facilitate emerging commercial needs of our economy.
24. Hon. Speaker, our medium term strategy will also address the changes required in our public services. Strategic public enterprises such as banks and utility services will be reoriented with modern managerial skills and best commercial practices. All state enterprises will be made commercially efficient to reduce their reliance on the government budget by orienting them towards a dividend paying enterprise culture. Line ministries and departments will be strengthened in their service delivery activities to 74 ensure that the government machinery is at work. The newly created Ministry of Management Reforms headed by the former Prime Minister will concentrate on required administrative reforms in the public service to make and efficient government machinery by reducing bureaucratic controls & interventions and simplifying outlived systems and procedures. As stated in our Elections Manifesto, we give priority to address various problems confronted by public servants, including remuneration issues. As you are aware, Hon. Speaker, it is His Excellency the President who appointed a Salaries and Cadres Commission on a permanent basis to deal with salary anomalies and raised the minimum salary level of a public servant from Rs. 7,900 to Rs. 11,730 through his very first Budget presented to the Parliament. The government introduced a Cost ‐ of ‐Living Allowance which has now increased to Rs. 5,250 per month ‐ in addition to the salary, concessionary housing loans, leave benefits, medical insurance and pension rights have also been restored. Almost 500,000 personnel have been recruited to the public service. Since government implemented a new salary structure, several Trade Unions have demanded corrections of prevailing anomalies among services. Many of such services are without proper Service Minutes. Government expects the relevant line ministries and Salaries and Cadres Commission to finalize all such Service Minutes early, paving the way to implement a new salaries structure thereafter. As in the past, all Trade Unions will be invited for consultations in finalizing the new salaries structure that will be the basis for the salary increase effective from 2011 Budget. Hon. Speaker, His Excellency the President also promised to set up an Employees’ Pension Fund for the benefit of all government and private sector employees who are not presently covered by any form of pension. The relevant legislation and regulatory arrangements are being worked out to promote a well functioning social security system for our workforce, effective 2011.
25. Hon. Speaker, our economy is heavily integrated with the global economy. As we depend heavily on external trade and services it is necessary that we set our trade policy in a manner conducive for development. In this regard we propose that raw material and intermediate inputs are available to our domestic users at duty free prices. However, commodities that Sri Lanka has a unique advantage to develop will require high taxes at the point of import to encourage domestic value addition. In this context the agriculture, livestock and fisheries sectors need special attention. It is with such intention we have maintained high duties on the importation of milk powder, wheat grain, sugar, and several agricultural produce, all of which can be produced or in relation which better substitutes could be found in adequate quantities in the country. Hon. Speaker, we are doing this because we believe this is the surest way of encouraging our farmers to produce such essential items within our country. Similarly, in order to promote exports in value added form, we propose to impose suitable taxes on any exports in raw form.
26. We must exploit full potentials of our exports. Tea ‐ which is one of our major export commodities is still being exported in bulk form, while admiring our domestic entrepreneurs who have established local brand names and traveled considerably on the value chain. Regrettably the country as a whole has not exploited its full potentials. The tea industry which currently generates about 1.2 billion dollar export earning, can become a 2.5 billion dollar export activity, and provide much diversified employment opportunities to the people if the industry can be converted to a value added export activity. The government encourages all our plantation companies and manufacturers of value added tea to move in this direction. The country’s rubber industry too has potential 75 to hit a billion dollar threshold. The prospects of this industry have improved considerably with the current trend in natural rubber prices. Sri Lanka is the world’s largest cinnamon exporter. Although our exporters have made good progress, it is necessary that the cinnamon export industry be converted into a billion dollar export activity with well established Sri Lankan brand names.
27. The country’s textile and garment industry which has established an excellent market network, kept to best practices, environmental compliances and quality assurances, has the potential to double its current export earnings of 2.5 billion dollars to nearly 5 billion dollars. Regrettably, this well performing industry has been subject to undue pressures in recent times due to the use of trade concessions to achieve political objectives of external elements. However this country needs to reduce the over reliance on traditional markets and move towards emerging new economies rapidly. The government will introduce a new incentive structure in the forthcoming Budget to encourage our exporters to improve their competitiveness and penetrate new markets. Although Sri Lanka was not known for exports of IT and business processing services, since 2005 this activity has graduated to earn around US$ 250 million of foreign exchange, in addition to giving a place of pride to our IT professionals enabling to establish their names in international markets. This sector has a comparative advantage to become a billion dollar export activity considering the skilled labour force and their exposure to international languages. We have observed huge export potentials in food processing, gem and jewelry, furniture, ceramics, sanitary ware etc. Hon. Speaker, we must not explore only our export potentials in manufactured products but also in a wide range of services such as ports, aviation and professional services, to maximize our earning capacity. Our government’s vision is to increase the skills of our labour force which is looking for overseas employment to enable much higher income. A skilled labour force could double earnings from overseas remittances which are currently in the range of US$ 3.5 billion. Oil exploration and associated industries will demand new skills and services which our universities and skills education institutions need to respond to.
28. Hon. Speaker, food security is a paramount development objective in the ‘Mahinda Chintana Vision for the Future’. In this regard the government not only proposes to increase our rice production but also to maintain adequate buffer stocks to ensure price stability during ‐ off seasons. Hon. Speaker in the forthcoming ‘Maha’ Season, we have planned to cultivate 750,500 hectares of land in comparison to 641,600 hectares cultivated in the previous ‘Maha’ season. Out of this new space of almost 100,000 hectares of land, 40,000 hectares is expected to be cultivated in the North and East and the balance in the rest of the country as farmers have gradually come back to agriculture due a wide range of incentives, particularly the fertilizer subsidy and high producer prices that this government was able to continuously ensure since 2005. Our plans aim at reaching the self sufficiency target in producing maze to replace imports and be able to release foreign exchange savings for development. We have also selected chilies, onions, green gram, cowpea, soya beans, black gram, peanuts, kurakkan and ginger to be produced in targeted areas in the country. Hon. Speaker, this country spends over US$ 300 million in importing milk powder. Our strategy envisages increasing the milk production by getting small and medium scale farmers as well as the large private sector into this industry. A comprehensive planning framework is being worked out jointly by Agriculture, Livestock, Plantation, Trade, Economic Development and Finance Ministries 76 to maximize agricultural production by ensuring the availability of quality seeds, required credit, extension services, a marketing network and storage capacities. As an urgent priority, the paddy procurement arrangement by the Paddy Marketing Board, Cooperative societies and the private sector will be further strengthened to stabilize farmgate prices.
29. A five year activity revival programme will form a part of government’s development programme to mobilize a large number of small entrepreneurs scattered all over Sri Lanka engaged in traditional and small business development projects. This development strategy will include measures to streamline the availability of credit, quality raw material and equipment, provide technical assistance and a marketing network targeting specific retail outlets to assist small businesses in Sri Lanka. The Small and Medium Enterprise (SME) sector which has suffered due to limited access to finance, high interest rates and excessive transaction costs attributable to the conflict will be supported with restructuring assistance under the enterprise revival programme to be launched from the third quarter of 2010. A project proposal to obtain World Bank assistance to provide long term financing has already been submitted.
30. Our commercial agriculture is largely concentrated in the plantation economy. In the context of current market trends pertaining to export commodities, natural rubber, and spices, the prospects of our plantation agriculture has improved considerably. This sector is also managed predominantly by the private sector and through small holder ownership arrangements. A sector strategy is being worked out by the Ministry of Plantation to increase the production as well as exports through private investments. Replanting and new planting of tea, rubber and coconut as well as moving to new crops and value added industries have been recognized in this medium term strategy particularly to expand the small‐holder production base, bring about productivity improvements and diversify large scale plantations.
31. Hon. Speaker, our government considers that the development of irrigation systems is vital not only to promote agriculture but also to maintain bio diversity and water resources of our country. The government has embarked on the development of Moragahakanda, Uma Oya, Deduru Oya, Weli Oya and several other irrigation schemes to further diversify and broad‐base the availability of irrigation facilities to agricultural areas. Such an expansion is expected to bring additional area of land under irrigation and convert many lagging districts into economically prosperous areas during the next six years. The required investment into these development initiatives which is around US$ 3 billion have been mobilized from our friendly donors. Hon. Speaker while expanding irrigation infrastructure, we must also devote adequate resources for the maintenance of both minor and major irrigation systems to ensure their safety and improve water management in downstream development. The government has already implemented a programme to improve dam safety in all major irrigation projects and increase water reservoir capacity. Investment in this project alone is over Rs. 6,000 million. In the meantime, a separate project targeting Rs. 3,000 million over the next five years will be implemented from 2011 to rehabilitate all irrigation schemes as a major step towards water resource management. 77
32. Hon. Speaker, upgrading and developing the country’s road network is vital to bring about an inclusive growth benefiting everyone in our society. During the last five year period, around 25 percent of national roads have been rehabilitated. A further 15 percent of the roads are under rehabilitation. The Ministry of Highways in its medium term development framework has identified a further 2,600 kilometers of roads for improvement and rehabilitation at a cost of US$ 2,000 million. The goal of the government is to ensure that 60 percent of national roads will be in solid condition by 2015. In addition, the government expects to complete the Colombo‐Katunayake expressway, the outer circular road and the southern expressway by 2012 adding 181 kilometers into the country’s road network. A feasibility study for the Colombo‐Kandy expressway is in progress. Ring‐road connections to bypass major townships will be developed to overcome road blocks along the national highways. The development of highway networks includes the completion of the A‐9 and the A‐32 national highways which will link north to the south. The government accords high priority for the development of the provincial road network as well. Since 2005, this government has developed 1,706 kilometers of provincial roads and a further 950 kilometers of roads are under rehabilitation. Another 4,700 kilometers of provincial roads have been identified for development over the next five years at a cost of US$ 945 million. Connecting all these roads to rural villages is an integral part of our rural development strategy – ‘Gama Neguma’. 20,000 kilometers or one fourth of the rural road network has been rehabilitated under the ‘Maga Neguma’ programme spending US$ 360 million. Almost 2,500 kilometers of rural roads have been concreted. We expect a further 20,000 kilometers of rural roads to be improved to motorable condition with an estimated cost of US$ 300 million over the medium term commencing from 2011. Our ultimate objective of this road development programme is to transform well over 50 percent of the country’s national, provincial and rural roads network into solid conditions.
33. Hon. Speaker, the investment of about US$ 2,500 million for the construction of four power generation plants at Norachcholai, Kerawalapitiya, Upper Kothmale and Sampur, has laid a solid foundation to augment our power generation capacity. Further, our government has promoted several medium scale hydro‐power projects and renewable energy initiatives to build a diversified power generation strategy over the medium term. The ongoing rural electrification programme together with improvements proposed for the transmission and distribution system will enable the country to provide ‘Electricity for All’ by 2015. Our strategy therefore is to consolidate on these gains and make an energy‐sufficient economy. In this context, electricity tariff will be designed to provide sufficient flexibility for users to consume electricity during off peak hours, at low cost. The heavy fuel supply for electricity generation will be maintained at cost price to ensure a stable cost in power generation so that consumers need not be concerned over tariff revisions during the year.
34. Hon. Speaker, our ongoing investment in the port sector is expected to be completed by 2012 by which time we expect a new capacity at both Colombo Port as well as at the Hambantota Port. The first terminal to be built on a private‐public partnership basis at the Colombo South Port will commence shortly, since breakwater construction is well on target. Two more new terminals will be developed at regular intervals over the long term. Industrial port facilities and related services will be developed at the Hambantota Port. Investment will be attracted commencing from 2012 when ongoing major 78 infrastructure developments such as the second international airport, first phase of the Hambantota Port, the international convention centre in the south, the southern expressway and Matara ‐ Kataragama railway line will reach near completion. The Galle Port will be developed as a tourist port. The ports in Oluwil, Kankasanthurai and Trincomalee will also come into operation at various stages, catering to our diverse needs in global trade.
35. In the transport sector, the government’s strategy is to concentrate on restoration of railway infrastructure and quality improvements in the public transport system. The railway track from Kankasanthurai to Kataragama will be established over the next five years. The work in this connection has already begun. A coherent national transport policy will be put into place to transform all transport services including train, bus and three‐wheeler taxis, into an efficient system. As the bus transport system is predominantly operated by the private sector, investment opportunities for them in the sector will be explored to meet required investments for the creation of a modern transport system. The construction of a network rail system in the city of Colombo and suburbs and the electrification of the railway system are medium term objectives.
36. Hon. Speaker, out of 17 universities currently in operation, five universities which are located in the provinces require considerable investments to develop infrastructure and upgrading to be placed on par with standards of other well established universities in Sri Lanka. The Ministry of Higher Education will bring about a regulatory framework to standardize and provide quality assurances in higher education in privately run universities and learning institutions. The government proposes to build partnerships with the private sector to facilitate students who qualify to enter universities but do not get a placement due to do so due to limited openings. Such arrangements will address the problems of a large number of students who are unable to find financial assistance, as well those students who are leaving for various countries for higher education at a high financial cost to their parents. This initiative will not only open more opportunities for students who are unable to enter state universities but also save foreign exchange spent on education abroad.
37. Hon. Speaker the newly created Ministry of Youth Affairs mobilizes all skills education institutions under one roof. A large number of such skills education institutions in the state together with several other privately managed skills education centers will be jointly geared to address the emerging skills needs of a high performing economy. New skills education programmes will be designed to enable youth to acquire marketable skills required for higher earning jobs, both locally and overseas. In pursuit of the rapid growth envisaged in the post‐conflict Sri Lanka, the government’s development strategy places higher priority on a knowledge based economy. Economic progress based on unskilled labour is fast diminishing as our society has attained sound educational standards. We will focus on the development and export of professional skills and expertise to enhance foreign exchange earnings as well as the reputation of Sri Lanka. As our President always emphasizes, our government would like to see our engineers, architects, technicians and project managers being engaged in construction activities abroad. Similarly, the economy can provide medical scientists to collaborate in the development of next generation drugs and medical treatment through clinical trials and research and our legal, financial, accountancy, military and other professionals to be 79 engaged in consultancies with global customers and industries. Our knowledge economy strategy will enable our teachers and nurses to become service providers to global markets. Such reform initiatives will promote Sri Lanka as a knowledge hub providing high quality services from which we target US$ 6 billion in 2015.
38. The creation of a healthy life for all will be the goal in our medium term health sector strategy. The free health system which we have safeguarded for over sixty years has earned much praise internationally. Physical and technical infrastructure of the health service and upgrading its human resource base done during the last five years, has positioned the country’s health system to be capable of meeting modern day needs. Special strategies are being worked out to eradicate, dengue, malaria, rabies etc. As a fair percentage of our population is aging, special health care centres will be set up across the country to cater to the needs of the elders and to provide them with required protection. Our scientists will be encouraged to undertake medical research in the areas such as cancer and genetics. The Maharagama Cancer Hospital will be fully equipped with accommodation facilities for visitors. A new registration requirement will be put in place to halt the importation of low quality drugs and medicine into the country, and streamline regular availability of essential drugs in all hospitals. A national policy on nursing services will be introduced to improve the quality of such services. A special programme targeting lactating mothers, infants and younger children to address nutritional deficiencies of our society will be implemented through active counseling involving our medical profession. Indigenous medicine will be popularized as a supplementary health service. The Ministry of Health and the Ministry of Indigenous Medicine will formulate a national health sector strategy to position Sri Lanka’s health sector to meet the emerging needs of a middle income country.
39. Hon. Speaker, His Excellency the President in presenting the ‘Mahinda Chintana Vision for the Future’ promised to implement fast tracked provincial development initiatives. Such initiatives are designed to interface various development activities undertaken by line ministries as well as by provincial councils. This three year strategy will be implemented through ‘Rajarata Navodaya’, ‘Wayamba Pubuduwa’, ‘Pubudamu Wellasa’,’ Kandurata Udanaya’ and ‘Sabaragamu Arunalokaya’ and ‘Ran Aruna’. The unique experiences gained in the implementation of ‘Uthuru Wasanthaya’ and ‘Negenahira Udanaya’ in the conflict affected area development will be used in implementing these initiatives. These regional development initiatives will initially target 10,000 lagging villages scattered island‐wide with primary focus being given to provide drinking water, access roads, electricity and quality housing. The 2010 Budget has provided the seed capital, but the President himself proposes to engage in a consultative process involving regional leaders, officials and other stake holders to accelerate the implementation commencing from August 2010. Therefore, it is proposed that a supplementary provision of Rs. 7,500 million will be incorporated into the draft estimates to take these development initiatives forward, soon after this Budget is approved.
40. The urban development strategy will focus on the development of several cities and townships. As a priority, the city of Colombo will be expanded to reflect, well spread urban development in the western province. The proposed development will spread beyond the outer circular road that will connect Kerawalapitiya, Kadawatha, Kaduwela and Kottawa new townships. The border of the Gampaha ‐ Colombo Districts will be 80 transformed into a commercial corridor. The city of Colombo will be expanded to a new land area of 450 acres to be reclaimed near the Colombo South Port. The Beira Lake and the connected rivers will be rehabilitated to improve sanitation, the biodiversity and commercial attractiveness of country’s capital city. The southern capital city of Galle will be developed as a heritage city and be linked to the Galle Port which will be developed as a tourism port. The City of Kandy and Anuradhapura will be preserved as Cultural Heritage cities, aimed at maintaining the historical identity of these two unique townships.
41. Hon. Speaker, “Mihinda Chintana Vision for the Future” has recognized that when Sri Lanka is placed on US$ 4,000 per capita income level, every family will have access to a quality house. It has been estimated that the country’s housing stock needs to be increased by 600,000 to clear the backlog as well as to meet the emerging demand. The need of 400,000 housing units has been identified for urban shanty dwellers, plantation workers, coastal fishermen, low income rural households and internally displaced families. A six year planning framework is being worked out to implement this initiative from 2011. This owner driven home building initiative will comprise of the provision of housing material, finance, technical know‐how and relocation facilities. Housing needs of upper and middle income families including public sector and private sector employees will be addressed through housing finance schemes and township building programmes promoted through private sector investments.
42. Supply and improvement of quality water for our people and industrial use and development of modern sewerage systems particularly in urban townships is an area which requires involvement of the public sector, private sector as well as the community as investment requirements are substantial. Public investments to address water related needs of our society will be met through large scale system developments, having done a needs assessment in each province and while ensuring proper sequencing. The concessional funding mobilized from international financial institutions will be diverted to address drinking water requirements in Pradeshiya Sabha areas to supplement the Community Water Supply Programme being implemented by the Government. Further, Government Community Partnership (GCP) will be used to promote this strategy. Investment to reduce non revenue water and improve management system in the distribution of water will receive priority with regard to public investment. A US$ 150 million investment has been undertaken to introduce a modern sewerage system in Colombo and suburbs.
43. Field level officials engaged in ‘Samurdhi’, agrarian services, planning, health and industry will be mobilized to support a large number of low income families to improve their livelihood, quality of life and to create a living environment which is not vulnerable to preventable diseases. A social safety net for the benefit of vulnerable groups in the country will be developed jointly with the assistance of religious establishments, civil society groups and charitable institutions. Government partnerships with such institutions are essential to promote a humane society.
44. Hon. Speaker, Research and Development will have to play a pivotal role in the postconflict and middle income country development scenario in Sri Lanka. The New Ministry on Research and Technology is entrusted with a wide coverage with almost all research 81 institutions being brought under this ministry. These research institutions, together with research institutions attached to the Plantation Ministry and researchers in our universities must work together to contribute towards country’s development. Public Private Cooperation (PPC) will be emphasized to enable all our research organizations to mobilize high profile public sector researchers to cater to the needs of private sector economic activities. The Government encourages the private sector to use these facilities to develop new products and maximize Sri Lanka’s GDP, based on research and technology.
45. ‘Haritha Lanka’ ‐ 2020 Environment Conservation Programme will be the cornerstone of the government’s development strategy. This ten year strategy includes programmes to protect water resources, catchment areas, forestry and wildlife, the ocean and aquatic resources, coast and soil conservation, prevention of air pollution, promotion of renewable energy, eco‐friendly industries, water management systems, healthy townships, urban forestry and green villages. All development programmes undertaken by both the private and public sector will be carried out in line with environmental considerations to ensure bio diversity and that the richness of Sri Lanka’s environment is not destroyed.
46. A ten year conservation programme will be implemented to protect Sri Lanka’s cultural heritage, revolving around landmark Temples, Kovils, Churches, Mosques and ancient cities. Performing arts, music, sports will also be integrated into the economic and social development framework that will be implemented from 2011.
47. The campaign against the use of illicit liquor, drugs and narcotics will be strengthened through strict enforcement of laws, as well as through educational programmes in schools and religious institutions. Recognizing that strict implementation of law and order is a critical prerequisite for a well functioning development regime, resources will be devoted in the medium term to strengthen public security and law enforcement as a priority in the post‐conflict security strategy, aimed at eliminating crime, unlawful activities and underworld operations. The Economic Outlook
48. Hon. Speaker, the rate of inflation at 4.6 percent in June 2010 recorded a downward trend for consecutive four months ‐ a salutary macroeconomic outcome. As I stated earlier, our economy has registered a strong rebound with first quarter registering a 7.1 percent growth in GDP. The projection for the year indicates that Sri Lanka’s economy may record a growth rate in the range of 6.5 – 7 percent in 2010. Consequent to favorable weather, extra land available for cultivation during the ‘Maha’ Season 2010/11 and the recovery in livestock and fisheries sector, the growth in plantation agriculture and industries, the economy is projected to be buoyant in 2010. With the rapid recovery in tourism, financial and capital market performance, the consolidation in the telecommunications industry, growth in energy based sectors, improvement in domestic and external demand and new openings in a knowledge based economy, investment in relation to GDP is expected to exceed 30 percent supporting a strong growth momentum over the next three years. Although the trade deficit continues to remain stressed due to volatile and high oil prices and increased import demand associated with high economic 82 growth, the current account deficit is likely to be moderate due to sustained expansion in tourism, overseas remittance and the increase in service related income. The overall Balance of Payments is expected to remain in surplus as the capital inflows are expected to be strong. Given the international price movements, year‐on‐year inflation as well as average inflation is likely to be around 7 percent in 2010. As the economy is expected to grow at a range of 6.5 ‐ 7 percent with moderate inflation, unemployment is projected to further decline to around 4 percent over the medium term. The Budget for 2010 is formulated to support this economic outlook. Budget 2010
