Is upcoming budget ‘a bag full of election goodies? Hint from Dr. PBJ

October, 9, 2014


Though it is widely reported that the budget for 2015 to be presented to Parliament by President Mahinda Rajapaksa on 24 October would include a lot of concessions to the people with an eye on upcoming elections, Finance Ministry Secretary Dr. P.B. Jayasundere gave an assurance that it would not be such a budget.

Dr. Jayasundere gave this assurance while addressing the local and foreign fund managers at the Capital Market conference co-sponsored by the Colombo Stock Exchange and the Securities & Exchange Commission of Sri Lanka held today (09 October) at the Cinnamon Lakeside in Colombo.

Dr. Jayasundere further added that these budget proposals to be presented by President Mahinda Rajapaksa is the 10th budget of the incumbent government and that it would take forward the policies introduced to speed up the economic development of the country.

Hence, though there were media reports last weekend that the 2015 Budget would be a ‘bag full of election goodies’ he could give an assurance that it would be a development oriented budget that would be in line with the direction so set, with significant emphasis on the Knowledge Economy concept with which the country has gained momentum, said the Finance Ministry Secretary.

The conference brought together capital market industry participants and institutional investors and provided an excellent opportunity to understand the potential investment opportunities available in the capital market and post war economic growth. Participants interacted with the government, regulators, issuers and market intermediaries and held one-to-one meetings with companies listed on the CSE. Institutional fund managers from East Asia, South Asia, Middle East, UK, Europe and the US attended the event.

A distinguished panel of speakers addressed the gathering at the conference on investment opportunities available in the Sri Lankan capital market as well as experiences of investing in Sri Lanka. Secretary of the Treasury Dr. P.B Jayasundara, Governor of the Central Bank Ajith Nivard Cabraal, Chairman of the Securities and Exchange Commission of Sri Lanka Dr. Nalaka Godahewa and Chairman of the Colombo Stock Exchange Vajira Kulatilleke addressed the forum.

The government has decided to present the 2015 Budget earlier than usual since it is considering the possibilities of holding a Presidential Election soon.

During the post war period the broad market index of the CSE, the ASPI has recorded a growth of over 300% from 1,800 to 7,200 level. The total value of the market, Market Capitalization too has appreciated significantly by over 350%. The Average Daily Turnover of the CSE has gone up from Rs 464 Mn to Rs 1,200 Mn in five years since 2009. During the post war period the Net Asset Value of Unit Trusts has gone up from Rs 6.7 Bn to Rs 75.7 Bn (1,029%).

The economy is expected to reach a level of over US$ 4,000 per capita before 2016. Accordingly, gross investment needs to rise above 33 % of GDP. Reducing the savings investment gap alone would not promote growth. It is equally important to recognize mechanisms that could mobilize savings to productive investments. The Government has recognized the crucial role of the local equity market in mobilizing local and foreign investments towards productive and efficient investments in Sri Lanka.

This forum is part of a series of activities planned by the CSE and the SEC to educate local and foreign Investors of the investment opportunities available in the capital market of Sri Lanka. The two institutions recently concluded successful investor forums in Mumbai, Dubai, Hong Kong, Singapore, London and New York. In addition forums have been conducted throughout the country to educate the general public as well as other stakeholders. Forums of this nature had a positive impact on the market.

The CSE has recorded a YOY growth of 22% and has become one of the best performing markets globally in 2014. Foreign investors account for nearly 30% of the total market turnover of the CSE and foreign investors continue to be the net buyers in the market with net purchases of Rs 10 billion in 2014. The total net foreign inflow during the last three years exceeds Rs 70 Bn. Platinum sponsors for the event are Ceylon Guardian, Citi Bank and NDB Capital Holdings while the silver sponsors are Deutsche Bank, Hong Kong Shanghai Banking Corporation and Sampath Bank PLC. The bronze sponsor for the event is Hatton National Bank PLC and Sri Lankan Airlines is the official airline partner.

The forum comes at an important juncture when there is significant worldwide focus on Sri Lanka’s growth prospects and it is anticipated that the forum will generate an overwhelming response from fund managers based overseas.

The Appropriation Bill with the estimated revenue and expenditure of the government for 2015 was presented to Parliament on 26 September by Prime Minister D.M. Jayaratne. According to the Bill the funds for government expenditure for next year has been increased by 17 percent compared to 2014.

While expressing his views, Deputy Secretary of the Finance Ministry S.R. Attygala told that the 2015 Appropriation Bill has allocated Rs. 3,053 billion for expenditure and the funds allocated through the 2014 Appropriation Bill for expenditure was Rs. 2,599 billion.

Accordingly, the expenditure for 2015 is set to increase by around Rs. 450 billion.

Apart from this, going further than the target of maintaining a budget deficit of 5.2 percent for 2014, it has been planned to reduce the budget deficit to 4.4 percent and increase the economic growth rate to 8.2 percent during next year.

Sri Lanka was able to reach a 7.8 economic growth during the second quarter of this year while the overall expected economic growth for this year is 7.8 percent.

In 2015, government investment it expected to be increased to 6.5 percent of the GDP and maintain inflation at 5.5 percent.

As a percentage of the GDP the current government debts which is around 75 percent is expected to be reduced to 71 percent.