Sri Lankan businesses gain protection from influence, not strategic value: IMF
ECONOMYNEXT – Some of Sri Lanka’s most protected companies gained their protection through high tariffs and tax breaks from effective lobbying rather than strategic value or capacity to employ people, the International Monetary Fund has said.
The most protected segments of the economy benefit from both high tariffs and paratariffs, the IMF said.
In addition, some sub-sectors have a third layer of protection on their inputs through selected tax holidays or exemptions.
Consequently, the effective rate of protection (ERP) for the top 10 most protected sectors reach between 170 and 524 percent as of 2015, according to the latest assessment by the IMF’s executive board of its program with Sri Lanka.
“Interestingly, some of the most protected sectors do not necessarily represent strategic development or high employment activities, but appear effective in lobbying for protection,” the IMF said.
Protection is granted by tariff, non-tariff, and tax exemptions.
“Moreover, the increase in the web of protective barriers seem to coincide with the decline in total contribution of state-owned establishments to sectoral value added,” the IMF said.
“Furthermore, it appears that the government gave up direct ownership in some sectors, but simultaneously ensured the lasting protection of private companies in those same sectors.”
According to the IMF report the most protected manufacturing sectors in Sri Lanka are:
1 Processing and preserving of fruit and vegetables
2 Manufacture of bakery products
3 Manufacture of macaroni, noodles, couscous and similar farinaceous products
4 Manufacture of refined petroleum products
5 Manufacture of refractory products
6 Distilling, rectifying and blending of spirits & Manufacture of wines
7 Manufacture of other porcelain and ceramic products
8 Manufacture of articles of concrete, cement and plaster
9 Manufacture of soft drinks; production of mineral waters and other bottled waters
10 Manufacture of dairy products
(COLOMBO, June 22, 2018)