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

to make sri lanka a service hub in south asia and a part of the global supply chain. many firms in east asia and india have already linked themselves to the global supply chain and there lies an opportunity for sri lanka to establish such links now. in this regard, sub - contracting, outsourcing, encouraging business processes, back office functions, strategic partnerships, franchising, promoting off - shore insurance businesses, and the provision of logistical support will be promoted. this move would also help to attract foreign direct investments to the country. other strategies include the following : improvements to public service • addresses issues relating to public service and improve the delivery mechanism. about 15 % of govt. revenue has been provided for administrative, regulatory and other services and improvements to the public service delivery programme to make it more responsive to public needs. in delivering public services the budget advocates to use e - governance structures which are speedier than the present rule based structures. • promotes productivity and request public service to eliminate waste and duplication while encouraging to complete activities which have already begun by spending agencies before venturing into new areas. to further facilitate the completion of unfinished work, the budget enables the roll over of all unspent provisions of previous years to the ensuing year. • addresses the welfare issues of selected community groups and measures to extend the safety nets. reopening of closed factories and revival of failed businesses in the 2007 budget, the fiscal arm has been extended to promote the re - opening of closed factories, abandoned companies and business entrepreneurs which can be revived through provision of debt relief, 3 year tax holidays and an exemption from economic services tax for a period. the budget proposes to grant rs. 2 bn. to lankaputhra development bank which will provide equity or debt to such factories on the basis of solid restructuring plans. these efforts will also increase employment throughout the country. let me now deal with how the budget has linked the key policy areas within a well - coordinated macro policy framework 2007 budget very explicitly articulates a well - coordinated medium term macro policy framework, which includes fiscal policy, monetary policy, reserve management and investment policy. through fiscal policy measures, it is intended to : • promote economic growth beyond 8 % and provide impetus to ensure sustainability of growth over the long term • enhance productivity through value addition with particular focus on industrial and agroprocessing ventures. • where there is a high content of value addition in local businesses, boi approval will be granted on the basis that duty free imports of