Budget speech - 2010

Continued from yesterday

The government proposes to build partnerships with the private sector to vacillate students who qualify to enter universities but do not get a placement 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 centres will be jointly geared to address the emerging skills needs of a high performing economy. New skills education programs 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 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 healthcare 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 counselling 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 areas 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 stakeholders 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 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, Mahinda 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 programs promoted through private sector investments.

42. Supply and improvement of quality water for our people and industrial use and development of modern sewerage systems particulary 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 confessional funding mobilized from international financial institutions will be diverted to address drinking water requirements in Pradeshiya Sabha areas to supplement the Community Water Supply Program 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 post-conflict 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 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 Program will be the cornerstone of the Government’s development strategy. This ten year strategy includes programs 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 programs undertaken by both the private and public sector will be carried out in line with environmental considerations to ensure biodiversity and that the richness of Sri Lanka’s environment is not destroyed.

46. A ten year conservation program 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 programs 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 favourable 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 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

49. Hon. Speaker, I now turn to the Budget estimate for 2010. Table 1 annexed to my Speech provides the Budget Outcome for 2010. The total revenue is estimated at Rs. 817.8 billion consisting of Rs. 729 billion tax revenue and Rs. 88.8 billion non-tax revenue.

50. The income tax is expected to generate Rs. 160.3 billion while tax on external trade is expected to generate 145.2 billion. Tax on Goods and Services is expected to generate 423.4 billion. This is nearly 60 percent of tax revenue. There is an increase of 17.8 percent in the overall tax revenue, compared to only a 5.7 percent increase in 2009. Considering the strong rebound of our economy and gradual recovery particularly in international trade and services, the government considers that the projected increase is reasonable.

51. Hon. Speaker, total expenditure is Rs. 1,279.8 billion that comprises Rs. 928.3 billion of recurrent expenditure and Rs. 352.5 billion of capital expenditure. The estimated recurrent expenditure is an increase of 5.5 percent.

Expenditure on salaries and wages to provide education, health, national security and other public services is Rs. 296.7 billion and records a 9.4 percent increase. Salary expenditure on education and health at both national and provincial level is estimated at Rs. 107.8 billion while non-salary recurrent expenditure of these two services is projected at Rs. 34.1 billion. The salary expenditure in providing public services is expected to cost Rs. 48.8 billion, while non-salary recurrent expenditure is projected to cost Rs. 11.3 billion.

52. The expenditure for defence and public security is projected to total Rs. 186.3 billion in comparison to 187.2 billion in the previous year reflecting a moderate expenditure on salary and operational expenditure of these services. However, expenditure on other goods and services estimated at Rs. 91.5 billion is a considerable reduction from the last year level of Rs. 108.5 billion mainly because of the reduction in such expenditure on national security. However, interest expenditure at Rs. 337 billion, records and increase of 8.9 percent over last year and account for 36 percent of the total recurrent expenditure.

53. The 2010 Budget also provides large sums of money by way of subsidies and transfers. The total expenditure on these items is around Rs. 202.9 billion of which expenditure on pension to public servants is estimated to cost Rs. 93 billion.

Expenditure on fertilizer subsidy is estimated at Rs. 30 billion, while ‘Samurdhi’ and welfare payments are projected at Rs. 35 billion. A further Rs. 42.3 billion is provided to meet operational expenditure of statutory agencies.

54. Hon. Speaker, public investment is projected at Rs. 361.5 billion in comparison to Rs. 330.4 billion in 2009. Rs. 83.4 billion is provided for the development of highways while Rs. 30.5 billion is provided for port and aviation sector development. Capital expenditure on water sector development is around Rs. 25 billion while Rs. 12 billion is provided for continued work in irrigation. Public investment in education and health is projected at Rs. 40.8 billion. Rural sector infrastructure development consisting of access roads, electricity and minor irrigation and community water supply is projected at Rs. 16 billion.

55. Hon. Speaker, based on the above revenue expenditure flows, the Government projects a Budget deficit of Rs. 438.8 billion in 2010 in comparison to 476.4 billion - a reduction of 2 percentage points over last year. This reduction, as you would note, will take place largely from the improvement in government revenue while stabilizing total expenditure virtually at previous year’s level. Hon. Members will agree that this is a credible improvement considering the challenges the country has undergone. You would also notice that the revenue deficit is projected to decline from Rs. 179.9 billion in 2009 to Rs. 110.6 billion. In relation to GDP, the revenue deficit is projected to decline from 3.7 percent in 2009 to 2 percent in 2010 while the Budget deficit is projected to decline from 9.9 percent to 8 percent. In the Medium Term Fiscal Policy Statement given in Fiscal Development 2010 prepared in terms of the provisions of Fiscal Management (Responsibility) Act No. 3 of 2003, which is presented to the House today, along with other budget documents, fiscal deficits are projected to peg at 6.8 percent and 5.0 percent for 2011 and 2012 respectively.

56. The fiscal deficit of 8 percent of GDP in 2010 which works out to Rs. 438.8 billion is expected to be financed largely from domestic sources. The total domestic financing is projected at Rs. 315.3 billion in comparison to Rs. 392.5 billion in 2009. The net foreign borrowings which are largely committed funds, is projected at Rs. 123.5 billion in comparison to Rs. 83.9 billion in 2009. As the proposed Budget out-turn indicates a reduction in domestic financing by Rs. 77.1 billion, the government expects pressure on interest to ease in the remaining months of the years, facilitating credit expansion for private sector development.

57. Hon. Speaker, for accounting purpose the above economic analysis needs to relate to Treasury Operations in terms of receipts and payments. The total receipts of the government other than government borrowings is estimated at Rs. 841 billion, while total payments including debt repayments in estimated at Rs. 1,821 billion. Therefore the gross borrowing requirement to be recorded in public debt transactions in government accounts is estimated at Rs. 980 billion of which Rs. 565 billion will be for debt repayment. The government will plan the borrowing programme in consultation with the Central Bank of Sri Lanka to meet the deficit financing requirements within the overall monetary policy framework that aims at achieving a monetary growth of around 14 to 15 percent.

Conclusion

Hon. Speaker, as the newly formed Cabinet Ministries have just begun to assess their scope of work within the context of ‘Mahinda Chintana - Vision for the Future’ development framework, the medium term road map which I just outlined and the Budget provisioning for 2010 which is placed before you, will provide a solid basis to complete all preparatory work and finalize action plans to be implemented commencing from July 2010. Recognizing the importance of consolidating recent gains in stabilizing the financial situation and the economic recovery, this Budget has given priority to maintain a deficit substantially below last year’s level without disturbing development activities for which a public investment of 6.6 percent of GDP is protected. Our road map spells out a vast area of new openings for investments that will be required from the private sector and donor community to accelerate post conflict socio-economic developments in this country.

The entire Government machinery is being reorganized to respond to private sector investment proposals in areas outlined in the road map. Similarly, the Government will closely work with our farming community and other stakeholders to accelerate food production and contribute towards food security and high income generation. As outlined in the road map, the Government will strengthen its commitment to provide education, health, assistance to vulnerable groups, the rural community, traditional and small enterprises, public servants and the working population to improve their living conditions in terms of a variety of programs revolving around the proposals in this budget and the medium term road map. Post-conflict security priority will be devoted to combat crime, underworld operations, drugs and illicit liquor trade.

Hon. Speaker, let me summarize some of the key benefits cascading from this Budget to our people.

l This Budget protects a total provision of Rs. 7,363 million for the provision of free text books, nutritional food, school uniforms, subsidized transport and scholarships to around 3 million schoolchildren.

l Rs. 2,500 million has been provided, in support of nutritional improvement of around 74,000 expectant mothers, lactating mothers and infants.

l For around 25,000 displaced people living in welfare centres, Rs. 7,500 million is provided for dry rations and food.

l Rs. 9,300 million has been provided to extend income support for the total of low income families benefitting under the ‘Samurdhi’ program.

l Social security availed by way of retirement benefits for around 450,000 Public Servants and allowances for around 6,000 disabled soldiers, is provided with Rs. 102,500 million.

l In support of the farming community with a total number of beneficiaries of around 2 million farmers involved in higher agricultural production, Rs. 35,000 million is provided to meet expenditure in respect of fertilizer subsidies, subsidized credit and procurement of paddy at the guaranteed price.

l In keeping with the commitment to provide free health, Rs. 13,300 million is secured to supply drugs and pharmaceuticals to around 50 million in and outdoor patients using Government healthcare facilities.

l Budgetary support of Rs. 6,650 million is earmarked in respect of subsidized transport to meet expenditure of Sri Lanka Railways and Ceylon Transport Board.

l Budgetary provisions in support of public investment in water supply will ensure 100,000 new water connections in 2010 and to be augmented to 150,000 per year thereafter.

l 250,000 new electricity connections in 2010 and 300,000 new connections per annum thereafter will be available under public investment expenditure for the power sector.

l The ongoing road rehabilitation program will add 530 km of rehabilitated national roads, 34 new bridges and 300 km of rehabilitated Provincial roads in 2010. Further, 720 km of rural roads will be upgraded with nearly 200 km thereof being concreted. 181 km of express ways, 104 bridges and 1,500 km national roads will be upgraded in the next 3 years. 1,800 km of Provincial roads are supported by the public investment program. A further 15,000 km of upgraded rural roads will be added in the medium term.

The road map provides investment opportunities to the private sector in a wide range of areas including resort hotels and tourism related facilities, construction, IT and Business Process Outsourcing, skills development, clinical trials and research, plantations, urban development, industrial township, international shopping facilities, renewable energy, higher education, medical facilities, agriculture, livestock and a wide range of value added manufacturing and services.

l The ongoing public investment in support of creating new capacity in power generation and distribution and port facilities, highways, irrigation and drinking and industrial water supply is bound to improve the investment climate and business development with enhanced competition in exports and import substitution.

l High investment is the surest way to accelerate our growth beyond the 8 percent target. Our road map positions the Government as an enabler to support every stakeholder who participates in this process to facilitate development. Our efforts to reduce the Budget deficit, broaden the tax base with a simpler and low tax regime, strong financial and capital market facilities, expanded public investment in infrastructure and facilities for a skilled and knowledge based economy will enable every person in the society to be an active partner in this development process.

Hon. Speaker, development is the central focus in the post conflict Sri Lanka since peace without development is no peace. Hence, development can no longer be postponed or compromised for politics. Hon. Speaker, you are well aware that successive Governments of our country since independence have experimented with various development models. I myself as a career public servant and later as a politician have witnessed this frustrating experience. The economy as a whole did not achieve even a 5 percent annual average growth till 2005 and lagged behind other nations who were way behind us at the time we gained independence.

Our country essentially went back and forth with war and peace experiments during the past 26 years, undermining the magnitude of the threat posed by LTTE terrorism not just to our motherland but to our neighbouring countries and even to the rest of the world. LTTE terrorism not only eliminated a large number of our democratic leaders from all communities but also assassinated one of the most respected leaders in India - a close friend of Sri Lanka.

Eventually, our country lost valuable lives, property, mutual trust and relationship among communities and peaceful living for 26 years, during which time the world continued to move rapidly ahead of us. Many poor countries and third world nations have gained emerging economy or advance nation status during this period. Several nations in Asia alone have gained significant economic influence in the global economy. India, China, Korea have emerged as powerful growth nations in Asia followed by several other high performing nations. So, Hon. Speaker we need to regain what LTTE terrorism denied this nation.

That is nothing but economic development and better living conditions to all Sri Lankans, whether they live in Sri Lanka or abroad. This is the goal encompassed in the Mahinda Chintana - Vision for the Future - the election manifesto of his Excellency the President. No other political party ever promised or offered such a vision. It is not just a series of promises or a set of handouts. It is a promise to transform Sri Lanka as the Emerging Wonder of Asia. Let each one of us make our contribution, to ensure that this goal is made a reality. The same determination, sacrifices and commitment that our country made during the last four years to end the conflict need to be sustained in realizing this goal in the next few years. All promises made to our people will be fulfilled in this process, ensuring better life for all.

(Concluded)