The country faced a fiscal and forex crisis and although there are signs of economic recovery on the fiscal side in Sri Lanka, the forex situation should further improve for the relaxation of ban on vehicle imports, Chief Guest Duminda Hulangamuwa (PICTURED) opined addressing the 104th Ceylon Motor Traders Association AGM held in Colombo recently.
He however expressed optimism that with the bilateral debt restructuring and possible restructuring of the private debt which might work out to about USD 22 billion and bilateral funding commencing again there will be space on the forex side to relax the ban on vehicle imports by next year.
He said the central and provincial government salaries amount to about Rs. 1.5 trillion. The estimated expenditure on social welfare, public health and education is around Rs. 1.5 trillion which is close to Rs. 3 trillion. The estimated income at best is about Rs. 4 trillion annually.
There is a surplus of about Rs. 1 trillion expenditure minus income but that is before taking into account the domestic interest costs and debt repayments which is around Rs. 2.5 trillion ending up with a Rs. 1.5 trillion deficit.
And when considering the capital expenditure on top of that, which is Rs. 1 trillion there is a budget deficit of about Rs. 2.2 trillion.
Financing this deficit in the past was done by borrowings and printing money he said.
To overcome this situation the government had to indulge in difficult but necessary decisions to increase taxation to 36%, VAT to 18% and introduce tax on motor vehicles.
The motor industry came under prohibition. But that again there was a reason. At that time the country had exported about USD 12 billion of goods and had tourism and remittances of about USD 6 or 7 billion and from other services received about another two USD 3 billion, which added to around USD 22 billion. With this the country managed to just bridge it closely and whatever difference was borrowed from international markets.
However when the country lost tourism and remittance income of USD 7-8 billion the government had to impose controls on imports and the motor industry was one of the first casualties of that.
“Although others have been restored, motor vehicle imports are still banned. The ban could be relaxed only when the forex space improved to an acceptable limit,” he added.
