This proposal will enhance worker remittances into the country and help to finance the widening trade deficit and maintain a positive balance of payment position. The budget reiterates the need for permitting professionals to earn in foreign currency and retain such funds in foreign currency accounts within the country. The budget also allows expenditure incurred on acquiring international accreditation as a deductible expenditure from taxation. These measures are expected to enhance foreign currency earnings and further facilitate the management of foreign reserves. The down-side risks Effective policy coordination is certainly the way forward as set out in the budget 2007 and it is interdependent on action by all policy-making authorities. If one or two policy areas lag behind, then the sustainability of achievements over the long term will become an issue. The monetary policy has to play its part to bring down inflationary expectations, while the investment policy has to attract FDIs and  BIS Review 7/2007  3  other investment flows. The reserve management policy should attempt to enhance foreign reserves through increased worker remittances and other flows. Pushing all these policy fronts to work within the open economic policy framework and keeping pace with each other is critical to the success of the medium term development plan. Very close coordination is essential for it and it is certainly a challenge. At the same time, the fiscal policy should make all attempts to stick to its revenue and expenditure targets.

Ranee Jayamaha: Budget 2007 – a path ahead Speech by Dr Ranee Jayamaha, Deputy Governor of the Central Bank of Sri Lanka, at a seminar organised by the Society for International Development, Colombo, 21 November 2006. *  *  *  Let me first elucidate the key themes underlying the budget and identify the strategies and future directions as announced in the budget. I will then try to outline the macro-economic policy framework highlighted in the budget focusing on the need for closer coordination. Underlying themes First, the govt. intends to achieve sustainable development, in particular, a growth around 8-10% in the medium term by focusing on productivity increases through enhancement of infrastructure investments, provision of support facilities, diversion of funds, where possible, from recurrent expenditure to capital expenditure and clearing any administrative impediments. Second, the 2007 budget attempts to reduce income disparities in different regions and provinces by improving island-wide infrastructure facilities which includes roads, rail roads, port services, airports, telecommunication, etc. and address poverty and unemployment issues. Third, the budget aims to improve the service economy to promote Sri Lanka as a trading and service hub in South Asia. Accordingly, sustainable development through investments in infrastructure (Rs 735 bn), the attainment of an equitable growth and improving the service economy are three key themes underlying the 2007 budget. The strategy and way forward or the path ahead The year 2007 budget sets out a 10-year horizon within which a medium term plan is presented for the period 2006 - 2009.