Targeted stimulus an option to push economic growth: SLBA Chief

• Stresses SL must achieve an economic growth of 4-5% beyond IMF’s 3% forecast
• Says  targeted incentives for growth sectors critical - a negotiation SL has to undertake
• Points out SL can’t expect revenues to go up by simply increasing VAT to 18 percent on every possible product

• By Nishel Fernando 

Sri Lanka may need to consider a targeted stimulus package to boost growth in productivity sectors upon completion of the on-going debt restructuring exercise, Sri Lanka Banks’ Association Chief said.

SLBA Chairman and Standard Chartered Sri Lanka Chief Executive Officer Bingumal Thewarathanthri asserted that it remains critical for Sri Lanka to at least achieve an economic growth of 4-5 percent beyond IMF’s forecasted 3 percent over the next few years.   

“The real challenge is whether the IMF forecasted growth of 3 percent is enough or should we look at 4-5 percent growth? We need to seriously look at where growth is coming from and we might have to look at a targeted stimulus. I am not talking about giving incentives to everybody, but targeted incentives for growth sectors would be critical.  That’s a negotiation we have to undertake,” he said. 

Thewarathanthri made these observations addressing a panel discussion under the theme ‘Sustaining Stability’ organised by Central Bank last Thursday.

“It’s something for policymakers to sit and understand where we can stimulate a little bit and let the growth come. This would be critical for any government,” he added. 

Thewarathanthri also pointed out that the country’s economy would not be able to cope if the skilled migration continues to keep up at the current levels. 

“We all agree there is a massive brain drain in the country. It’s a staggering number; we have lost thousands of people in the banking sector along with every sector. Can we go on like this for another two years? I don’t think so. Especially, the lower end of executive cadre, they are really suffering with taxation and inflation that we have gone through last two years,” he added.

On the other hand, he stressed that Sri Lanka’s tax structure and investment facilitation should also be competitive with other emerging markets to attract investments.  

“New companies will look at opportunities at other markets as well, because you are competing with other emerging markets. We should not think that companies will come with all the conditions we have,” he said.

Thewarathanthri opined that policymakers should take up these ground realities with the IMF to come up with solutions. 

“We are agreeable for a larger part of the programme, but on certain things, we should be open- minded to negotiate.

We can’t expect the revenues to go up by simply increasing the VAT to 18 percent on every possible product. it doesn’t work,” he said.

He cautioned against the dire consequences of granting subsidies and fiscal incentives in an ad-hoc manner at the request of certain industry groups.

“We should be data-driven, carefully thought through; we shouldn’t give stimulus packages just because particular business communities are complaining, as we have done in the past. We had given subsidies for everyone; we should never get into that,” he said. 

Having said that, Thewarathanthri asserted the only path for Sri Lanka not to fall into another default is to continue with the current IMF programme. 

“The reality is that we have to stay with the programme. Argentina is a classic example, we can relate a little bit.  Moving away from policies and moving away from the path continuously along with political changes are things we shouldn’t do. So staying on the path and IMF will be critical,” he added.