ADB identifies two development challenges
Simplifying tax system, broadening manufacture base:
The Asian Development Outlook 2009 (ADO) has identified the
broadening of its manufacture base and simplifying the tax system as
development challenges for Sri Lanka. Economist, ADB Hasitha
Wickramasinghe told a media briefing.
She was speaking at the launch of the Asian Development Outlook (ADO)
2009 at the Sri Lanka Resident Mission yesterday.
She said that the Government started rationalizing tax exemptions
provided to foreign companies, which have been costly in revenue terms.
Lead Economist Sri Lanka Resident
Mission, ADB, Narhari Rao and Country Director, Sri Lanka
Resident Mission ADB Richard Vokes at the media briefing.
Picture by Sumanachandra Ariyawansa
Export zones have been set up and wide ranging incentives have been
offered to attract foreign direct investment for industrial development
since the opening of the economy in the seventies.
In the 2009 Budget it raised the issue of broadening its
manufacturing base. However, doing this and attracting investments may
be difficult during the global recession, and the success of both will
depend on improving the investment climate, she said. Wickramasinghe
said that the economy has moved from agriculture to services, but the
manufacturing base continued to concentrate on garments, processed food
and chemical and plastic products.
The Government has proposed to set up a task force to simplify the
tax system identifying its importance. However, such initiatives have
fallen far short of expected outcomes in the past on numerous occasions.
The challenge is to ensure that the proposed task force will not be a
similar one, she said. Referring to the development challenges
identified in 2008 she said that the brain drain was still an issue. The
reason for this situation was the slowdown of recruitment of the twenty
biggest companies in the stock exchange.
However, it will reduce with some migrant workers returning as a
result of job losses and stoppage of recruitment abroad. However, with
the end of the military confrontation a positive reduction of the brain
drain is anticipated, she said.
Meanwhile, the ADB Country Director Richard Vokes said that Sri
Lanka’s economy has managed relatively well under difficult
circumstances, and now it needs to meet the challenges of post-war
development with the expected opening of the North of Sri Lanka.
Inflation is expected to decelerate in 2009 due to the global
economic downturn and weak domestic demand is common to many developing
countries across the region, he said.
Lead Economist Narhari Rao said that inflation which dropped to 7.6
percent to reach a single digit for the first time since July 2006. is
expected to average 8 percent in 2009. There will be a large decrease in
Sri Lanka’s growth but still would be somewhat better but much below its
He said that the export demand will drop by 3 percent in volume terms
but will pick up by 5 percent in 2010.
The drop in import prices will be a positive sign towards Sri Lanka
and on the other hand remittances from migrant workers are also likely
to drop in 2009.