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. therefore, the budget has to be viewed as a forward looking medium to long term strategy. the sustainable development strategy rests on the following : regional and provincial development with focus on rural roads, housing, electricity, water supply and livelihood development ; human resource development programmes ; and other sectoral programmes. the infrastructure development will expand economic activity, address capacity constraints and bottlenecks. to sustain growth momentum, it is planned to increase investment / gdp ratio to about 30 %. diversification of exports, relocation of export ventures and provision of support services will address regional disparities and unemployment issues. the budget also plans to improve human resource skills and enable youth to further their career paths. the skills imbalance will be addressed through the university curricula and the universities will be persuaded to improve research skills and talents of undergraduates to cater to the demands made by the business community. through infrastructure improvements, such as ports, airports and financial services, it is proposed

the regulatory challenges which have to be addressed by the regulators. in meeting these challenges, the local banks must make best use of the existing resources to minimize the cost of full compliance. they can build on their existing data bases and leverage on the default data available in institutions such as the credit information bureau. they can benefit from data pooling within the industry. all these resources must be harnessed. it is important that the banks do not lose sight of the long term benefits of basle ii of better capital allocation and consequently, better pricing, because they are embroiled in the details necessary to meet the deadline. the ultimate objective is financial stability. i am sure that this dialogue that we have initiated today will result in a fruitful exchange of views on this important subject and will help to consolidate our implementation plans on this long journey that we have all commenced. i therefore wish you all a very stimulating and useful discussion and a very successful seminar. thank you.