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Wednesday December 8th, 2021

Sri Lanka policy consistency in 2022 budget vital for FDI: BOI chief

ECONOMYNEXT – Sri Lanka’s 2022 budget should ensure policy consistency and direction if the country needs to see more foreign direct investments, the state-run Board of Investment (BOI) chief said this week.

Finance Minister Basil Rajapapaksa will present ruling Sri Lanka Podujana Peramuna’s (SLPP) budget for 2022 amid monetary instability and earlier value added tax cuts which had devastated state finances raising fears of sovereign default.

It is expected to be the and the government’s economic policy framework for the next three years at least until the 2024 presidential polls.

“The important thing is the policy consistency on the macro and the micro point of view,” Sanjaya Mohottala, the chairman of BOI, told a forum organized by NextGenSL, a cross party political grouping and Germany’s Friedrich Naumann Foundation for Freedom.

“So that stability is something that everyone, including the existing investors, and the new investors will look at.”

“If you do have exposure to the local market then you need to have that stability statement, you have to make sure that the liberal policies remain such to ensure… currency and capital can flow both ways.”

Foreign Direct Investment has been on a falling trend since its record high of 1.8 billion US dollars in 2018 thanks to the sale of Hambantota port to a Chinese firm.

The FDI in 2019 fell to 793 million US dollars and last year it recorded 548 million US dollars.

The policy consistency, difficulties in opening and doing business and exchange rate risks have been the key concerns of foreign investors.

The government interventions with sudden change in policies including expropriation have dented investor sentiment on Sri Lanka despite the end of long conflict in 2009.

Analysts have said that ‘regime uncertainty’ which attenuates private sector profits including expropriation along with monetary instability from a Latin America style central bank and nationalism as key problems for both foreign investors and ordinary citizens to build a house or buy a car.

RelatedSri Lanka battered by unceasing ‘regime uncertainty: Bellwether

Monetary instability compounds regime uncertainty in a vicious self-feeding cycle. Sri Lanka is now under a series of import and foreign exchange controls. Forex controls started two years after a money printing Latin America style central bank was set up in 1950 by US ‘money doctor’.

Mohottala said though the budget may not change the country’s direction overnight, it could lay a foundation for a better economy in the future.

“Overall goal of the country is to get the policies right for this country to double the GDP in next 10 years.” he said.

“Covering investment climate and value propositions, ensuring and maintaining and retaining the value propositions, are absolutely necessary.”

So in terms of minimum inconsistencies I look forward to, in terms of policies.”

Many foreign investors who wanted to start businesses in the past have been compelled to choose some other peers because of long delays, alleged corruption, and bureaucratic bottlenecks which are yet to be addressed.

“I think going forward we need to have a better understanding, better clarity, better transparency, and a better consistency, and the important thing is you need to put that foundation for development,” Mohottala said.

“So I would like to see and I hope. cohesiveness in terms of the thrust, the development and the supporting infrastructure supporting industries to come in and provide the base in terms of the policies to be able to pull this off.”

“If that happens then of course the FDI would be at the door.”

Investors and ordinary people look to Sri Lanka’s budgets in fear where taxes hatched in secret are unleashed year after year and they are passed with a parliamentary majority of the ruling party.

In Sri Lanka taxes are used for a variety of state interventions, but fails in its primary task of balancing the budget.

In 2019 taxes were slashed without going to the parliament for ‘stimulus’ and large volumes of money was printed for ‘stimulus’ shattering the country’s external sector as a pandemic added to the countries woes.

The central bank suggested last year that taxes should be used to kill undesirable companies as determined by the omniscient state, going beyond the usual ‘picking winners’ interventionism to killing identified ‘losers’.


Sri Lanka to pick losers as omniscient elites drive interventionism to extremes: Bellwether

“Additionally, appropriate revisions to the import tariff regime and other taxes, such as corporate tax, could be used to boost selected economic sectors and also to discourage undesirable sectors with marginal domestic value addition,” the central bank said.

Sri Lanka raised taxes from 2015 and ratcheted up state spending from 17 percent to around 22 percent of gross domestic product under a disastrous ‘revenue-based-fiscal-consolidation’ before suddenly cutting taxes in 2019 for ‘stimulus’. (Colombo/Oct24/2021)

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