Sri Lanka Election Results Make Policy Direction a certainty. No More Wait and See for Investors

28th January 2010, www.lankabusinessonline.com

Sri Lanka's policy direction is clearer after a President Rajapaksa was returned to power with a bigger majority allowing investors to emerge from any 'wait and see' attitude, a top official said.

"The mandate means we have a clear path chartered for the next six years," Central Bank governor Nivard Cabraal said.

"We have eliminated the war. We have obtained a mandate from the people. We have put forward a plan of action in the Mahinda Chinthana (Rakapaksa's platform)."

Though parliamentary elections are due before April 2010, Cabraal said the policy path is already set.

"The presidential elections has made certain of the outcome of the parliamentary elections," Cabraal said.

"There is no need to wait and see. Investors could set their plans in motion, notwithstanding the elections."

Cabraal said the government was committed to a fiscal consolidation of bringing down the budget deficit. For 2009 the government set a 7.0 percent target and 6.6 percent for 2010.

And in 2010 the government was planning a 6.6 percent target.
The mandate would strengthen the government's hand to act on the basis of a report of a taxation commission that is being prepared.

"We have committed ourselves to a certain consolidation path," he said. "We are not digressing. We are looking forward to the taxation commission."

Cabraal said following the report from the taxation commission a changes will be made to taxes on a pre-determined path.

"There will be a cohesive plan," he said. "We want to give some certainty to economic agents to act."

Cabraal had earlier said that taxes on banks would be reduced on phased basis over several years to allow them to build up capital. Effective income taxes on banks are now nearly 60 percent.