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Budget proposals for 2010

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The 2010 Budget revenue has been estimated at Rs. 817.8 billion and expenditure at Rs.1279.8 billion. The tax revenue is Rs. 729 billion while the non tax revenue is Rs.88.8 billion

BUDGET SPEECH:

1. Honourable Speaker, it is with great honour that I present to this House the Budget for
2010 under the astute leadership of His Excellency the President Mahinda Rajapaksa.

2. At the very outset, it is my fervent duty to thank the people of this country who gave a
resounding mandate to His Excellency the President at the Presidential Election
concluded in January 2010 and the United People’s Freedom Alliance (UPFA) at the
General Election concluded in April 2010. The landslide victory at both elections is a clear
endorsement of policies pursued by the government since 2005 under the leadership of
His Excellency the President. Almost two thirds of our voting population placed
confidence in the bold leadership of His Excellency the President in the successful
elimination of LTTE terrorism and restoring peace. The mandate from the two elections
was also an expression of whole‐hearted support to the ‘Mahinda Chintana Vision
for the Future’ ‐ the election Manifesto of the President which promised to transform Sri Lanka
into the ‘Emerging Wonder of Asia’.

3. Hon. Speaker, the previous Parliament in November 2009 approved a Vote on Account
for the first four months of 2010 due to Presidential and Parliamentary Elections held
during that time. Thereafter, due to the limited time available to go through a full budget
cycle, His Excellency the President in terms of Section 150(3) of the Constitution of the
Republic, authorized expenditure for a further period of three months in 2010. This
Budget incorporates expenditure incurred by the government under these two
arrangements into the 2010 annual appropriation account and further seeks
parliamentary approval for expenditure for the balance part of this year to carry out
government operations. Therefore, the Draft Estimates placed before this august
Assembly, provide details of the annual provisions under each of the ministries and
programmes that require approval from the Parliament. In essence this is a transitional
Budget reflecting expenditure under previously functioning ministries adjusted to new
ministries and a stepping stone in making provision to firmly prepare the work plans
towards the 2011 Budget ‐ which is scheduled to be presented to the Parliament before
the end of the year.

4. Hon. Speaker, our government has managed many challenges. The 26 year conflict was
brought to an end and the entire country has been unified. We owe a special gratitude to
our brave soldiers who made peace and a unified Sri Lanka, a reality. The humanitarian
operation conducted by our brave soldiers under the leadership of our President as the
Commander in Chief that rescued nearly 300,000 hostages who were under the grips of
the LTTE leadership, was not only an admirable mission but also a mission that was
conducted while respecting all international Conventions and norms. There is nothing
that we need to hide and cover. As such, nobody has any right to interfere with our
internal affairs. Day to day life in the Tsunami affected coastal belt ‐ which was the area
most affected by the worst ever natural disaster experienced by our country ‐ has been
normalized. In comparison to other countries which have been confronted with similar
disasters, our Government and its machinery demonstrated unique progress in
implementing the post disaster recovery program. Sri Lanka’s unique standing in managing both natural disasters as well as manmade disasters are admirable and
certainly a model for even others to follow.

5. Our government managed to withstand the global economic and financial crisis without
experiencing a collapse in our banking and financial institutions. Despite serious financial
constraints and fiscal stress we have successfully carried forward infrastructure
development initiatives. The country is witnessing a steady progress in the construction
of power plants, sea and airports, expressways, the road network and bridges, new
irrigation schemes, water supply projects, schools, universities, hospitals, stadiums,
convention centres and several other infrastructure investments initiated under the
leadership of His Excellency the President ‐ under the ‘Randora’ programme to transform
Sri Lanka as a modern and well performing economy in the region. Our policies towards
restoring food security in the wake of an unparalleled global food crisis enabled the
country to move towards self sufficiency goals in rice, cash crops, animal feed, fruits and
vegetables. Ending the conflict in the North and East has helped the country to move onto
a large scale expansion in agriculture, livestock, fishery resources etc. On the economic
reform front, we also kept our commitment to refrain from privatization and persued a
viable alternative to neo‐liberal economic reforms. We placed confidence in three key
segments ‐ private, public and cooperative sectors in our economy. The government
made good progress in strengthening public services, including island‐wide educational
and health services, the regulatory framework and the rural economy.

6. Hon. Speaker, our economy like all other economies in the world, faced grave
uncertainties in 2008/9. Growth had started decelerating and external reserves as well
as fiscal reserves have started declining. The cost‐of‐living and inflation were rising. The
global economy was facing scarcity in food supplies and major supplying countries were
resorting to protectionism. It was not clear to policy makers in many countries and to
international financial institutions, how the global economic crisis would eventually
unfold. The global economic outlook at that time was bleak. In the meantime we had to
manage two key major internal challenges. First, the humanitarian operations launched
by the government in 2006 ‐ to liberate the nation from terrorism and pave the way for
peaceful living to our people in our land ‐ had reached the final phase and was
demanding an uncompromising commitment of our time, resources and the strength of
unity to end the conflict. Second, infrastructure initiatives which we had launched to
address lagging supplies in key facilities such as electricity had reached a mature stage of
construction, which could not have been suspended. Hon. Speaker, our government acted
intelligently in managing these internal and external complexities. Today, I can say with
confidence that we have weathered these crisis and challenges. The international
Monetary Fund (IMF) which extended support to stabilize our economy with US$ 2.6
billion Stand‐By Arrangement (SBA) has endorsed the ‘Mahinda Chintana Vision
for the
Future’ as a way forward to transform our economy. We also plan to claim our eligibility
for IBRD Credit considering our graduation to a middle income country status.
Improvements witnessed by us in the area of international finance has enabled us to shift
our medium term international bonds to long term debt, providing a better debt profile
to be managed.

7. Hon. Speaker, reflecting the unique resilience of our entrepreneurs, the steadfast
determination of our workforce and the policy environment that our government created
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Sri Lanka has attained middle income economy status with per capita income rising from
US$ 1,062 in 2004 to US$ 2,053 in 2009 ‐ an achievement that the whole nation can
proudly speak of. This means that our government has been successful in placing our
economy at an annual average growth of 6 percent during the past five years in
comparison to a growth rate of 4 percent in the preceding five years. Unemployment has
been brought down to around 5 percent from 8.3 percent in 2004. Inflation, which was a
perennial problem for almost two decades in the area of macroeconomic management,
has been stabilized at around 5 percent. International reserves which declined to a
critical low level of US$ 1.2 billion have been raised in excess of US$ 6 billion providing
stability to the exchange rate regime. These developments have helped us, to bring‐down
the rate of interest, which was another critical impediment that our economy had been
confronted with for many years, limiting growth potential of our entrepreneurs.
Although further progress is necessary in selected regions and communities, the poverty
indicators have also drastically declined to around 15 percent of the household
population as compared to 23 percent few years ago.

8. Hon. Speaker our people today, have better access to electricity, drinking water, a quality
road network, telecommunications, transport, primary and secondary education and
health facilities, than five years ago. The connectivity between the rural and urban areas
which we have established is far superior to the status of not only our neighboring
countries, but also in terms of other emerging economies around us. Our government
embarked on an island‐wide integrated development strategy in the rural economy
which had been marginalized for several years under successive governments. The ‘Gama
Neguma’ the national integrated rural development strategy of the government, provides
rural roads, electricity, drinking water and irrigation, sanitation facilities and a wide
range of livelihood activities targeting almost all districts in the country. As a result, there
has been a unique improvement in the rural economy and once again made the rural
sector attractive to our people. Hon. Speaker, ‘Mahinda Chintana’ development
framework which has harnessed the economic growth to consolidate progress in making
development more inclusive is an eye opener to the failures of post liberal policy regimes
commenced since 1977.

Financial Situation

9. Hon. Speaker, in addition to the details provided in the report prepared in terms of the
Fiscal Management Responsibility Act to this Parliament, I wish to make a snapshot
analysis on the current status of the financial and economic situation for the benefit of
the honorable members. The economy has rebound with a 6.2 percent growth registering
in the last quarter of 2009 and a 7.1 percent growth in the first quarter of 2010. Almost
all sectors have contributed to this recovery. In the agriculture sector – the production of
paddy and maze has shown a marked increase while the production of many varieties of
up and low country vegetables have suffered production losses due to adverse weather
conditions that prevailed in recent months. Fish production in the first four months has
increased by 6.2 percent. The shortfall in chicken, meat and egg production witnessed
during the last several months has shown a recovery and a full recovery is expected by
the end of the year. Tea production during the first four months of the year ‐ has
increased by 25 percent whilst rubber production has increased by 12 percent. Output
expansion in the factory industry was facilitated by favorable improvements in both
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export and domestic markets. Food, beverages and tobacco sub‐sector registered a
growth of 6.9 percent, while rubber based industry recorded a growth of 8.1 percent due
to increased external demand for tyres and gloves in the international market. Textile,
apparel and leather products recorded only a marginal growth increase of 1 percent. In
the service sector, cargo and container handling activities have shown a marked increase
of 41 percent and 27 percent respectively. Banking and Financial Institutions too have
shown an expansion in their turnover.

10. Export earnings increased by 7.1 percent to US$ 1,764 million in the first quarter of 2010,
largely due to the expansion in agriculture sector exports. Expenditure on imports
increased by 39.5 percent to US$ 3,235 million mainly due to the increase in the cost of
oil imports. Tourist arrivals increased by 28.5 percent reflecting a significant increase in
arrivals from Western Europe and South Asian markets. Worker remittances in the first
three months of 2010 increased by 14.1 percent. A strong growth in remittance income
and income from exports of services have neutralized the deficits in the trade account
and hence contributed to a lower current account deficit. Reflecting the improvement in
the overall Balance of Payments, total external reserves as at end April 2010 stood at US$
6, 578 million. The year‐on‐year growth in broad money in April this year, recorded 16.5
percent. The expansion in net foreign assets of the banking system as well as growth in
domestic credit has contributed to this increase. The credit extended to the private
sector which was contracting for several months has recorded an increase of 1.7 percent
in April reflecting a recovery in the economy. The domestic money market continued to
experience high liquidity. The Central Bank continued to absorb such excess liquidity
through the issuance of Central Bank Securities. Interest rates continued to adjust
downward reflecting market liquidity and low inflationary expectation. On a year‐onyear
basis, inflation declined to 4.6 percent by June 2010. The annual average inflation at
present is around 3.8 percent.

Fiscal Framework

11. Hon. Speaker, our fiscal strategy from 2005, has three fundamental objectives. First, we
consider that the historically high Budget deficit in this country must be phased out in
order to reduce the debt burden and strengthen the financial situation so that our people
will have better access to finance from our financial institutions. However, we do not
believe that such a deficit reduction should be done at the cost of economic growth. We
also do not recognize privatization of state enterprises, selling state assets and cutting
down public investments for fiscal adjustment. We believe such adjustment should be
done through improvement in the quality of government spending, by putting state
assets into productive use and collecting revenue through a broad based and low tax
regime. Implementation of such policies will certainly be conducive for business
development by the private sector and also be conducive to generate a high growth rate
in excess of 8 percent. Second, it is important that our operational expenditure is
managed well within our income. Therefore we believe that generating a revenue surplus
by a gradual increase in government revenue and economizing operational expenditure
of the government will be a way forward for a sustained improvement in government
finance. The generation of a revenue surplus will be the most constructive way of
reducing the budget deficit because it will provide fiscal space to accommodate high
public investments. Third, we believe that maintaining a public investment in the range
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of 6 to 7 percent of GDP in support of infrastructure development is essential to induce
the private sector to increase their investment. Unless strategic infrastructure is
provided by the government in a meaningful manner, private sector investments are
unlikely to generate desired development and create an inclusive growth.

12. Hon. Speaker, although the adverse global economic climate, high debt services and
global food insecurity, disrupted our policy direction towards generating a revenue
surplus, particularly during 2008/9, and disturbed our deficit reduction path, our
government managed to maintain public investment in excess of 6 percent of GDP every
year since 2005 in comparison to around four percent prior to that. Consequently, a
satisfactory progress has been realized in resolving the infrastructure bottlenecks of our
country. This infrastructure development enabled the country to function free from
power cuts, which was a common phenomenon prior to 2005. A decisive improvement
has been made to the road network by completing about 6000 kilometers of national and
provincial roads and 40 large bridges connecting previously unreachable destinations.
The capacity of providing drinking water has been increased, providing greater access to
quality drinking water to our people. The port facilities to cater to both transshipment
and international trade which were lagging are being developed. The country would
witness the completion of two international ports and a second international airport
towards the middle of next year ‐ expanding the growth potential of our economy.
Several major irrigation schemes including the ‘Uma Oya’ and ‘Moragahakanda’ projects
have been commenced to provide the much needed irrigated water to both southern and
northern districts in the country. Our vision is to increase the area under irrigation to
reduce vulnerabilities of our agricultural sector to the vagaries of weather.

13. All these together with several other infrastructure facilities are being undertaken with
grants and long term loans from our friendly countries, multilateral institutions, and the
capital market as well as from our domestic saving institutions such as the Employees’
Provident Fund. This naturally forms part of our debt, but the creation of such debt has
been done with a conscious commitment to create an asset base which will multiple in
value and be capable of generating a stream of income that can service such debt
comfortably. This is why Hon. Speaker, our government has been able to bring down
public debt in relation to GDP from 102 percent, in 2004 to around 80 percent at present.
Such a reduction is possible only when the growth in government borrowing is kept
below the growth in national income of the country. Hon. Speaker, this Parliament which
is solely responsible to manage our public finance must appreciate that the external debt
is also managed in an environment that many global currencies are subject to
unmanageable volatilities causing us to meet extra liabilities. It is in this background that
the conduct of macro public finance must be examined.

14. The deficit and debt reduction process which witnessed a temporary aberration in
2008/9 due to the global financial crisis will be arrested in 2010. Our government is
determined that both the Budget deficit and public debt will be brought down from 9.9
percent of GDP and 87 percent of GDP respectively in 2009 to 8 percent and 80 percent
respectively in 2010. Hon. Speaker we have framed this Budget with the prime objective
of consolidating our finance to reduce the revenue deficit from 3.7 percent in 2009 to 2.1
percent in 2010 and maintain public investment at 6.5 percent of GDP. Such an
adjustment will enable us to keep the deficit at 8 percent of GDP which is a 2 percentage
70
point reduction over the last year. This down‐ward path will be maintained in the next
three years. This also means that our debt in proportion to GDP will be placed below 70
percent of GDP in 2012. Our debt profile is well diversified, is less commercial and has a
long term maturity. The long term fiscal strategy of our government is to create a wealth
base far in excess in value of our total debt to make our nation free from the burden of
debt. More detailed policy initiatives which are now being gradually implemented and
expected to accelerate with the forthcoming Budget, will be placed before this House by
His Excellency the President in November 2010.

Medium Term Roadmap

15. Hon. Speaker, the realization of a ‘mine‐threat‐free’ Sri Lanka and complete re‐settlement
of internally displaced people are very critical targets in our development strategy in the
conflict affected areas. When the Northern Province was liberated from the LTTE, over
640 villages, covering 1,474 square kilometers had been laid with land mines. It is
estimated that about 1.5 million mines have been laid underground by the LTTE. As resettlement
had to be undertaken in this challenging environment, the government
prioritized the de‐mining operations in targeted places such as residential areas, public
places and farm lands. The government itself had to invest nearly Rs. 7,000 million
rupees to purchase de‐mining equipment and to setup a de‐mining unit as the capacity of
the international NGOs was inadequate to undertake a task of this proportion. While in
short term this is satisfactory progress, we will continue to expand de‐mining operations
with the assistance of our friendly nations and UN institutions. Within one year since the
end of the conflict, the government was able to resettle nearly 250,000 internally
displaced persons liberated from the terror of the LTTE. As of now, only around 25,000
displaced persons remain in the welfare centers and they too, will be re‐settled before
the end of this year.

16. The immediate relief and rehabilitation include the provision of family allowances and
dry rations followed by opening beneficiary bank accounts for each of the resettled
families to empower themselves to develop their own housing arrangements as well as
livelihood programmes. Distributions of roofing sheets and cement bags have been
provided for over 45,415 families to develop their core housing units. Each of the
identified households is assisted with a core housing unit and settlement assistance. We
propose to empower people to build their permanent homes with their participation in
construction activities. Already an assessment is being carried out to identify fully and
partially damaged houses, schools, hospitals, office buildings, court houses, bus‐stands
and market places to implement an accelerated rehabilitation programme. In addition to
owner driven home building initiatives selected townships will be developed depending
on community needs. The government greatly appreciates the generous offer extended
by the Government of India to build 50,000 houses for the benefit of these families,
following His Excellency the President’s recent state visit to India. Arrangements are
being made to bring about 40,000 hectares of cultivable areas in the northern and
eastern districts to full scale of cultivation in the forthcoming ‘Maha” season to improve
the livelihoods of the people as well as to transform economic activities in those areas.
The opening of the A‐9 road, removal of fishing restrictions, opening of bank branches
and unrestricted transportation have expedited business development in the north.
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17. A comprehensive medium to long‐term reconstruction strategy has been planned to
transform conflict affected areas in order to create decent living conditions. The
construction arrangement of railway lines in the northern sector connecting
Thalaimannar to Medawachchiya and Omanthai to Kankasanthurai and such
arrangement for the construction of national highways such as the A‐9 and the A‐32 ‐
have been finalized. Funding arrangements have been secured to implement water
supply, roads, electricity, schools, hospitals, court houses, administrative facilities, police
posts, drinking water, irrigation and livelihood programmes. Assistance to implement
rehabilitation and reconstruction programmes in the conflict affected areas have been
received from Australia, India, China, Japan, Switzerland, the United Nations, the World
Bank and the Asian Development Bank. Total funds mobilized for integrated conflict
affected area development is around US$ 2 billion, which will enable the government to
address pressing needs in these areas over the next two to three years. Hon. Speaker, His
Excellency the President repeatedly states that neither peace without development, nor
development without peace is sustainable. Now that the conflict has ended, the
government will concentrate fully on rapid development of those areas. The early
completion of these development initiatives will change the landscape providing northsouth
connectivity and build a strong economic base to exploit agriculture, livestock,
fisheries and tourism based investment opportunities in the north and east.

18. Hon. Speaker, ending the conflict has reopened opportunities to exploit the full potential
of tourism in Sri Lanka. The President has set up a target of 2.5 million tourists with
estimated foreign exchange earnings of around US$ 2.8 billion by the year 2016. This is
almost a five‐fold increase in tourist arrivals and a nine fold increase in foreign exchange
earnings. Such an expansion in tourism will undoubtedly generate direct and indirect
employment opportunities for around 500,000 people. The room capacity required to
accommodate increased tourists would be around 40,000 over and above the current
stock of around 12,000. This opens new avenues for our construction industry as well as
for our youth. Investment opportunities in tourism over the next six years are estimated
to be around US$ 3 billion and this requires the involvement in both private sector as
well as foreign direct investment. Seven resorts have been already identified to attract
investment to create a capacity of nearly 10,000 rooms in a resort environment. Large
hotels outside the resort environment and in urban townships and small and medium
investment in the hotels sector are also expected to add to the required capacity in
tourism. The government’s medium term strategy will also emphasize an integrated
development approach to establish linkages to the local construction industry, domestic
agriculture and a wide range of services. It also involves the creation of required skills
and diverting the labour force to these new economic activities.

19. Hon. Speaker, our government’s vision for future development envisages accelerating the
growth rate to around 8 percent in the medium term and placing the country’s growth
path around a double digit level thereafter. This means our country needs to raise total
investments to around 40 percent over the next ten years. As public investment will
concentrate more on the long term infrastructure and will be 6‐7 percent of GDP, private
sector investments need to be increased from the current level of 19‐20 percent to 31‐33
percent. This increase cannot be mobilized from our domestic private sector alone as the
country does not have domestic savings to meet such a large resource requirement.
Further, to create a modern economy we need investments in a wide range of businesses
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ranging from small and medium industrial and agricultural activities to IT and business
processing operations, renewable energy, ports, shipping, aviation and related services,
urban townships and various professional services including health, education, and other
managerial and skilled categories. Our own economic activities will need to have more
domestic value addition processes to maximize the best value within our economy. All
these demand not only investments in physical assets and in factories but also in a wide
range of skills development and technology transfers. Therefore, the government will
encourage both private investment and public investment of every sphere of economic
activity in the country.

20. Hon. Speaker, the government as the enabler, has a responsibility in this regard. One is to
put the policy right. Second is to infuse institutional efficiency. Third is to provide the
required infrastructure and regulatory services and the fourth, is to put national security,
law and order in place. In all these four areas we propose to move very rapidly and
decisively.

21. Hon. Speaker our tax system is outdated, complex, narrowly focused and unattractive to
investment and business development. It does not generate the required revenue and
encourage people to save. Therefore, we plan comprehensive reforms to our tax system.
His Excellency the President, having recognized the need for this transformation
appointed a Presidential Commissions on Taxation in 2009. The Commission which has
given valuable insight into our tax system is expected to finalize its recommendations on
tax policy, and tax administration before August this year. The interim recommendations
and directions provided by the Commission are to do away with the operation of multiple
taxes, and move onto a simple, broad based, low tax regime. The Ministry of Finance and
Planning and the relevant departments and agencies are working in this direction and
have undertaken preparatory work to ensure that our medium term taxation system will
be revenue buoyant, broad based, business friendly and equitable. In this context the
government has already initiated certain actions such as the removal of the Customs
surcharge, the introduction of a four band Custom tariff structure consisting of 0,5,15 and
30 percent and a rationalized duty structure for motor vehicles. The government has also
brought down total tax rates on consumer durables not manufactured in Sri Lanka such
as cameras, telephones, watches etc., below ten percent by eliminating many multiple
taxes on those items that had only encouraged smuggling, tax evasion and corruption. We
trust that this initiative will promote international shopping facilities in our country and
attract more global commercial activities. The government also proposes in the medium
term to bring down excessive tax rates on personal and corporate income as well as
banking and financial institutions and do away with ad hoc and unproductive tax
concessions offered by the Board of Investment and in terms of income tax laws. The
dichotomy between the BOI and non‐BOI regimes will be corrected to create a level
playing field. We believe that such a tax structure will be affordable to the taxpaying
community in our society. Economic activities that such a regime will promote in the
formal economy will increase revenue far in excess of the current level. The goal of our
government is to increase revenue in excess of at least 17 percent of GDP over the
medium term.

22. Hon. Speaker, global financial systems have undergone fundamental changes following
the financial crisis of 2008/9. The regulatory systems and supervisory controls exercised
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by the Central Bank of Sri Lanka as well as the Securities and Exchange Commission have
protected the country’s financial system from any casualties during the recent financial
crisis. Nevertheless, unauthorized operation of certain financial transactions and
financial scandals in selected financial institutions has caused serious threat to our
people and to well functioning financial institutions. In this background our government
proposes to introduce a series of legislative changes to existing banking and financial
laws in the next few months with a view to strengthen regulatory arrangements and
reform banking and financial institutions. Finance companies, specialized banking
institutions and micro financing institutions will be brought under strict regulatory
supervision to mitigate risks associated with such institutions. The Central Bank has
initiated action to encourage non‐bank financial institution to be listed in the Colombo
Stock Exchange to improve greater accountability in their performance. Securities and
Exchange Commission will introduce necessary legislation to promote further market
instruments to encourage companies using equity markets for capital formation, while
broad basing public ownership in business. However, Hon. Speaker, the government
wishes to urge our people to transact only with regulated financial institutions
approved by the Central Bank so that they will not be victims of corporate scandals. In
the financial sector, in order to strengthen the role of development banking, the nine
regional development banks have now been merged as a single regional development
bank with a strong capital base, to be the catalyst in uplifting the rural economy. Two
state banks, once considered insolvent by the then government, have been made strong
with AA rating on their performance. They no longer operate on the backing of Letters of
Comfort issued by the government for capital adequacy. They have met their capital
adequacy requirements satisfactorily. These two banks together with the National
Savings Bank, Sri Lanka Insurance Corporation and the provident funds will be catalysts
in equity market development in the future, in addition to mobilizing financial savings.

23. Hon. Speaker, it is necessary that our administrative systems and procedures be
modernized and made efficient to reward individual and entrepreneurial initiatives ‐
particularly in an economy like ours where small and medium enterprises are
predominant. Having recognized this, the Cabinet of Ministers has appointed a Sub‐
Committee under my Chairmanship to come up with necessary recommendations before
the formulation of the next Budget, to simplify all administrative and regulatory
procedures, practices and related laws. All line ministries have been requested to identify
specific areas pertaining to their respective fields of operation, which can be opened for
private sector investment, and private‐public cooperation. Line ministries have also been
requested to work out mechanisms through which the public sector could facilitate such
investments and business development by the private sector. The Board of Investment,
the Sri Lanka Tourism Development Authority and the Urban Development Authority are
also working very closely on new project profiles that will create urban space for private
investment to facilitate emerging commercial needs of our economy.

24. Hon. Speaker, our medium term strategy will also address the changes required in our
public services. Strategic public enterprises such as banks and utility services will be
reoriented with modern managerial skills and best commercial practices. All state
enterprises will be made commercially efficient to reduce their reliance on the
government budget by orienting them towards a dividend paying enterprise culture. Line
ministries and departments will be strengthened in their service delivery activities to
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ensure that the government machinery is at work. The newly created Ministry of
Management Reforms headed by the former Prime Minister will concentrate on required
administrative reforms in the public service to make and efficient government machinery
by reducing bureaucratic controls & interventions and simplifying outlived systems and
procedures. As stated in our Elections Manifesto, we give priority to address various
problems confronted by public servants, including remuneration issues. As you are
aware, Hon. Speaker, it is His Excellency the President who appointed a Salaries and
Cadres Commission on a permanent basis to deal with salary anomalies and raised the
minimum salary level of a public servant from Rs. 7,900 to Rs. 11,730 through his very
first Budget presented to the Parliament. The government introduced a Cost ‐ of ‐Living
Allowance which has now increased to Rs. 5,250 per month ‐ in addition to the salary,
concessionary housing loans, leave benefits, medical insurance and pension rights have
also been restored. Almost 500,000 personnel have been recruited to the public service.
Since government implemented a new salary structure, several Trade Unions have
demanded corrections of prevailing anomalies among services. Many of such services are
without proper Service Minutes. Government expects the relevant line ministries and
Salaries and Cadres Commission to finalize all such Service Minutes early, paving the way
to implement a new salaries structure thereafter. As in the past, all Trade Unions will be
invited for consultations in finalizing the new salaries structure that will be the basis for
the salary increase effective from 2011 Budget. Hon. Speaker, His Excellency the
President also promised to set up an Employees’ Pension Fund for the benefit of all
government and private sector employees who are not presently covered by any form of
pension. The relevant legislation and regulatory arrangements are being worked out to
promote a well functioning social security system for our workforce, effective 2011.

25. Hon. Speaker, our economy is heavily integrated with the global economy. As we depend
heavily on external trade and services it is necessary that we set our trade policy in a
manner conducive for development. In this regard we propose that raw material and
intermediate inputs are available to our domestic users at duty free prices. However,
commodities that Sri Lanka has a unique advantage to develop will require high taxes at
the point of import to encourage domestic value addition. In this context the agriculture,
livestock and fisheries sectors need special attention. It is with such intention we have
maintained high duties on the importation of milk powder, wheat grain, sugar, and
several agricultural produce, all of which can be produced or in relation which better
substitutes could be found in adequate quantities in the country. Hon. Speaker, we are
doing this because we believe this is the surest way of encouraging our farmers to
produce such essential items within our country. Similarly, in order to promote exports
in value added form, we propose to impose suitable taxes on any exports in raw form.

26. We must exploit full potentials of our exports. Tea ‐ which is one of our major export
commodities is still being exported in bulk form, while admiring our domestic
entrepreneurs who have established local brand names and traveled considerably on the
value chain. Regrettably the country as a whole has not exploited its full potentials. The
tea industry which currently generates about 1.2 billion dollar export earning, can
become a 2.5 billion dollar export activity, and provide much diversified employment
opportunities to the people if the industry can be converted to a value added export
activity. The government encourages all our plantation companies and manufacturers of
value added tea to move in this direction. The country’s rubber industry too has potential
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to hit a billion dollar threshold. The prospects of this industry have improved
considerably with the current trend in natural rubber prices. Sri Lanka is the world’s
largest cinnamon exporter. Although our exporters have made good progress, it is
necessary that the cinnamon export industry be converted into a billion dollar export
activity with well established Sri Lankan brand names.

27. The country’s textile and garment industry which has established an excellent market
network, kept to best practices, environmental compliances and quality assurances, has
the potential to double its current export earnings of 2.5 billion dollars to nearly 5 billion
dollars. Regrettably, this well performing industry has been subject to undue pressures in
recent times due to the use of trade concessions to achieve political objectives of external
elements. However this country needs to reduce the over reliance on traditional markets
and move towards emerging new economies rapidly. The government will introduce a
new incentive structure in the forthcoming Budget to encourage our exporters to
improve their competitiveness and penetrate new markets. Although Sri Lanka was not
known for exports of IT and business processing services, since 2005 this activity has
graduated to earn around US$ 250 million of foreign exchange, in addition to giving a
place of pride to our IT professionals enabling to establish their names in international
markets. This sector has a comparative advantage to become a billion dollar export
activity considering the skilled labour force and their exposure to international
languages. We have observed huge export potentials in food processing, gem and
jewelry, furniture, ceramics, sanitary ware etc. Hon. Speaker, we must not explore only
our export potentials in manufactured products but also in a wide range of services such
as ports, aviation and professional services, to maximize our earning capacity. Our
government’s vision is to increase the skills of our labour force which is looking for
overseas employment to enable much higher income. A skilled labour force could double
earnings from overseas remittances which are currently in the range of US$ 3.5 billion.
Oil exploration and associated industries will demand new skills and services which our
universities and skills education institutions need to respond to.

28. Hon. Speaker, food security is a paramount development objective in the ‘Mahinda
Chintana Vision
for the Future’. In this regard the government not only proposes to
increase our rice production but also to maintain adequate buffer stocks to ensure price
stability during ‐ off seasons. Hon. Speaker in the forthcoming ‘Maha’ Season, we have
planned to cultivate 750,500 hectares of land in comparison to 641,600 hectares
cultivated in the previous ‘Maha’ season. Out of this new space of almost 100,000
hectares of land, 40,000 hectares is expected to be cultivated in the North and East and
the balance in the rest of the country as farmers have gradually come back to agriculture
due a wide range of incentives, particularly the fertilizer subsidy and high producer
prices that this government was able to continuously ensure since 2005. Our plans aim at
reaching the self sufficiency target in producing maze to replace imports and be able to
release foreign exchange savings for development. We have also selected chilies, onions,
green gram, cowpea, soya beans, black gram, peanuts, kurakkan and ginger to be
produced in targeted areas in the country. Hon. Speaker, this country spends over US$
300 million in importing milk powder. Our strategy envisages increasing the milk
production by getting small and medium scale farmers as well as the large private sector
into this industry. A comprehensive planning framework is being worked out jointly by
Agriculture, Livestock, Plantation, Trade, Economic Development and Finance Ministries
76
to maximize agricultural production by ensuring the availability of quality seeds,
required credit, extension services, a marketing network and storage capacities. As an
urgent priority, the paddy procurement arrangement by the Paddy Marketing Board, Cooperative
societies and the private sector will be further strengthened to stabilize farmgate
prices.

29. A five year activity revival programme will form a part of government’s development
programme to mobilize a large number of small entrepreneurs scattered all over Sri
Lanka engaged in traditional and small business development projects. This development
strategy will include measures to streamline the availability of credit, quality raw
material and equipment, provide technical assistance and a marketing network targeting
specific retail outlets to assist small businesses in Sri Lanka. The Small and Medium
Enterprise (SME) sector which has suffered due to limited access to finance, high interest
rates and excessive transaction costs attributable to the conflict will be supported with
restructuring assistance under the enterprise revival programme to be launched from
the third quarter of 2010. A project proposal to obtain World Bank assistance to provide
long term financing has already been submitted.

30. Our commercial agriculture is largely concentrated in the plantation economy. In the
context of current market trends pertaining to export commodities, natural rubber, and
spices, the prospects of our plantation agriculture has improved considerably. This sector
is also managed predominantly by the private sector and through small holder
ownership arrangements. A sector strategy is being worked out by the Ministry of
Plantation to increase the production as well as exports through private investments.
Replanting and new planting of tea, rubber and coconut as well as moving to new crops
and value added industries have been recognized in this medium term strategy
particularly to expand the small‐holder production base, bring about productivity
improvements and diversify large scale plantations.

31. Hon. Speaker, our government considers that the development of irrigation systems is
vital not only to promote agriculture but also to maintain bio diversity and water
resources of our country. The government has embarked on the development of
Moragahakanda, Uma Oya, Deduru Oya, Weli Oya and several other irrigation schemes to
further diversify and broad‐base the availability of irrigation facilities to agricultural
areas. Such an expansion is expected to bring additional area of land under irrigation and
convert many lagging districts into economically prosperous areas during the next six
years. The required investment into these development initiatives which is around US$ 3
billion have been mobilized from our friendly donors. Hon. Speaker while expanding
irrigation infrastructure, we must also devote adequate resources for the maintenance of
both minor and major irrigation systems to ensure their safety and improve water
management in downstream development. The government has already implemented a
programme to improve dam safety in all major irrigation projects and increase water
reservoir capacity. Investment in this project alone is over Rs. 6,000 million. In the
meantime, a separate project targeting Rs. 3,000 million over the next five years will be
implemented from 2011 to rehabilitate all irrigation schemes as a major step towards
water resource management.
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32. Hon. Speaker, upgrading and developing the country’s road network is vital to bring
about an inclusive growth benefiting everyone in our society. During the last five year
period, around 25 percent of national roads have been rehabilitated. A further 15 percent
of the roads are under rehabilitation. The Ministry of Highways in its medium term
development framework has identified a further 2,600 kilometers of roads for
improvement and rehabilitation at a cost of US$ 2,000 million. The goal of the
government is to ensure that 60 percent of national roads will be in solid condition by
2015. In addition, the government expects to complete the Colombo‐Katunayake
expressway, the outer circular road and the southern expressway by 2012 adding 181
kilometers into the country’s road network. A feasibility study for the Colombo‐Kandy
expressway is in progress. Ring‐road connections to bypass major townships will be
developed to overcome road blocks along the national highways. The development of
highway networks includes the completion of the A‐9 and the A‐32 national highways
which will link north to the south. The government accords high priority for the
development of the provincial road network as well. Since 2005, this government has
developed 1,706 kilometers of provincial roads and a further 950 kilometers of roads are
under rehabilitation. Another 4,700 kilometers of provincial roads have been identified
for development over the next five years at a cost of US$ 945 million. Connecting all these
roads to rural villages is an integral part of our rural development strategy – ‘Gama
Neguma’. 20,000 kilometers or one fourth of the rural road network has been
rehabilitated under the ‘Maga Neguma’ programme spending US$ 360 million. Almost
2,500 kilometers of rural roads have been concreted. We expect a further 20,000
kilometers of rural roads to be improved to motorable condition with an estimated cost
of US$ 300 million over the medium term commencing from 2011. Our ultimate objective
of this road development programme is to transform well over 50 percent of the
country’s national, provincial and rural roads network into solid conditions.

33. Hon. Speaker, the investment of about US$ 2,500 million for the construction of four
power generation plants at Norachcholai, Kerawalapitiya, Upper Kothmale and Sampur,
has laid a solid foundation to augment our power generation capacity. Further, our
government has promoted several medium scale hydro‐power projects and renewable
energy initiatives to build a diversified power generation strategy over the medium term.
The ongoing rural electrification programme together with improvements proposed for
the transmission and distribution system will enable the country to provide ‘Electricity
for All’ by 2015. Our strategy therefore is to consolidate on these gains and make an
energy‐sufficient economy. In this context, electricity tariff will be designed to provide
sufficient flexibility for users to consume electricity during off peak hours, at low cost.
The heavy fuel supply for electricity generation will be maintained at cost price to ensure
a stable cost in power generation so that consumers need not be concerned over tariff
revisions during the year.

34. Hon. Speaker, our ongoing investment in the port sector is expected to be completed by
2012 by which time we expect a new capacity at both Colombo Port as well as at the
Hambantota Port. The first terminal to be built on a private‐public partnership basis at
the Colombo South Port will commence shortly, since breakwater construction is well on
target. Two more new terminals will be developed at regular intervals over the long
term. Industrial port facilities and related services will be developed at the Hambantota
Port. Investment will be attracted commencing from 2012 when ongoing major
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infrastructure developments such as the second international airport, first phase of the
Hambantota Port, the international convention centre in the south, the southern
expressway and Matara ‐ Kataragama railway line will reach near completion. The Galle
Port will be developed as a tourist port. The ports in Oluwil, Kankasanthurai and
Trincomalee will also come into operation at various stages, catering to our diverse
needs in global trade.

35. In the transport sector, the government’s strategy is to concentrate on restoration of
railway infrastructure and quality improvements in the public transport system. The
railway track from Kankasanthurai to Kataragama will be established over the next five
years. The work in this connection has already begun. A coherent national transport
policy will be put into place to transform all transport services including train, bus and
three‐wheeler taxis, into an efficient system. As the bus transport system is
predominantly operated by the private sector, investment opportunities for them in the
sector will be explored to meet required investments for the creation of a modern
transport system. The construction of a network rail system in the city of Colombo and
suburbs and the electrification of the railway system are medium term objectives.
36. Hon. Speaker, out of 17 universities currently in operation, five universities which are
located in the provinces require considerable investments to develop infrastructure and
upgrading to be placed on par with standards of other well established universities in Sri
Lanka. The Ministry of Higher Education will bring about a regulatory framework to
standardize and provide quality assurances in higher education in privately run
universities and learning institutions. The government proposes to build partnerships
with the private sector to facilitate students who qualify to enter universities but do not
get a placement due to do so due to limited openings. Such arrangements will address the
problems of a large number of students who are unable to find financial assistance, as
well those students who are leaving for various countries for higher education at a high
financial cost to their parents. This initiative will not only open more opportunities for
students who are unable to enter state universities but also save foreign exchange spent
on education abroad.

37. Hon. Speaker the newly created Ministry of Youth Affairs mobilizes all skills education
institutions under one roof. A large number of such skills education institutions in the
state together with several other privately managed skills education centers will be
jointly geared to address the emerging skills needs of a high performing economy. New
skills education programmes will be designed to enable youth to acquire marketable
skills required for higher earning jobs, both locally and overseas. In pursuit of the rapid
growth envisaged in the post‐conflict Sri Lanka, the government’s development strategy
places higher priority on a knowledge based economy. Economic progress based on
unskilled labour is fast diminishing as our society has attained sound educational
standards. We will focus on the development and export of professional skills and
expertise to enhance foreign exchange earnings as well as the reputation of Sri Lanka. As
our President always emphasizes, our government would like to see our engineers,
architects, technicians and project managers being engaged in construction activities
abroad. Similarly, the economy can provide medical scientists to collaborate in the
development of next generation drugs and medical treatment through clinical trials and
research and our legal, financial, accountancy, military and other professionals to be
79
engaged in consultancies with global customers and industries. Our knowledge economy
strategy will enable our teachers and nurses to become service providers to global
markets. Such reform initiatives will promote Sri Lanka as a knowledge hub providing
high quality services from which we target US$ 6 billion in 2015.

38. The creation of a healthy life for all will be the goal in our medium term health sector
strategy. The free health system which we have safeguarded for over sixty years has
earned much praise internationally. Physical and technical infrastructure of the health
service and upgrading its human resource base done during the last five years, has
positioned the country’s health system to be capable of meeting modern day needs.
Special strategies are being worked out to eradicate, dengue, malaria, rabies etc. As a fair
percentage of our population is aging, special health care centres will be set up across the
country to cater to the needs of the elders and to provide them with required protection.
Our scientists will be encouraged to undertake medical research in the areas such as
cancer and genetics. The Maharagama Cancer Hospital will be fully equipped with
accommodation facilities for visitors. A new registration requirement will be put in place
to halt the importation of low quality drugs and medicine into the country, and
streamline regular availability of essential drugs in all hospitals. A national policy on
nursing services will be introduced to improve the quality of such services. A special
programme targeting lactating mothers, infants and younger children to address
nutritional deficiencies of our society will be implemented through active counseling
involving our medical profession. Indigenous medicine will be popularized as a
supplementary health service. The Ministry of Health and the Ministry of Indigenous
Medicine will formulate a national health sector strategy to position Sri Lanka’s health
sector to meet the emerging needs of a middle income country.

39. Hon. Speaker, His Excellency the President in presenting the ‘Mahinda Chintana Vision
for the Future’ promised to implement fast tracked provincial development initiatives.
Such initiatives are designed to interface various development activities undertaken by
line ministries as well as by provincial councils. This three year strategy will be
implemented through ‘Rajarata Navodaya’, ‘Wayamba Pubuduwa’, ‘Pubudamu Wellasa’,’
Kandurata Udanaya’ and ‘Sabaragamu Arunalokaya’ and ‘Ran Aruna’. The unique
experiences gained in the implementation of ‘Uthuru Wasanthaya’ and ‘Negenahira
Udanaya’ in the conflict affected area development will be used in implementing these
initiatives. These regional development initiatives will initially target 10,000 lagging
villages scattered island‐wide with primary focus being given to provide drinking water,
access roads, electricity and quality housing. The 2010 Budget has provided the seed
capital, but the President himself proposes to engage in a consultative process involving
regional leaders, officials and other stake holders to accelerate the implementation
commencing from August 2010. Therefore, it is proposed that a supplementary
provision of Rs. 7,500 million will be incorporated into the draft estimates to take these
development initiatives forward, soon after this Budget is approved.

40. The urban development strategy will focus on the development of several cities and
townships. As a priority, the city of Colombo will be expanded to reflect, well spread
urban development in the western province. The proposed development will spread
beyond the outer circular road that will connect Kerawalapitiya, Kadawatha, Kaduwela
and Kottawa new townships. The border of the Gampaha ‐ Colombo Districts will be
80
transformed into a commercial corridor. The city of Colombo will be expanded to a new
land area of 450 acres to be reclaimed near the Colombo South Port. The Beira Lake and
the connected rivers will be rehabilitated to improve sanitation, the biodiversity and
commercial attractiveness of country’s capital city. The southern capital city of Galle will
be developed as a heritage city and be linked to the Galle Port which will be developed as
a tourism port. The City of Kandy and Anuradhapura will be preserved as Cultural
Heritage cities, aimed at maintaining the historical identity of these two unique
townships.

41. Hon. Speaker, “Mihinda Chintana Vision
for the Future” has recognized that when Sri
Lanka is placed on US$ 4,000 per capita income level, every family will have access to a
quality house. It has been estimated that the country’s housing stock needs to be
increased by 600,000 to clear the backlog as well as to meet the emerging demand. The
need of 400,000 housing units has been identified for urban shanty dwellers, plantation
workers, coastal fishermen, low income rural households and internally displaced
families. A six year planning framework is being worked out to implement this initiative
from 2011. This owner driven home building initiative will comprise of the provision of
housing material, finance, technical know‐how and relocation facilities. Housing needs of
upper and middle income families including public sector and private sector employees
will be addressed through housing finance schemes and township building programmes
promoted through private sector investments.

42. Supply and improvement of quality water for our people and industrial use and
development of modern sewerage systems particularly in urban townships is an area
which requires involvement of the public sector, private sector as well as the community
as investment requirements are substantial. Public investments to address water related
needs of our society will be met through large scale system developments, having done a
needs assessment in each province and while ensuring proper sequencing. The
concessional funding mobilized from international financial institutions will be diverted
to address drinking water requirements in Pradeshiya Sabha areas to supplement the
Community Water Supply Programme being implemented by the Government. Further,
Government Community Partnership (GCP) will be used to promote this strategy.
Investment to reduce non revenue water and improve management system in the
distribution of water will receive priority with regard to public investment. A US$ 150
million investment has been undertaken to introduce a modern sewerage system in
Colombo and suburbs.

43. Field level officials engaged in ‘Samurdhi’, agrarian services, planning, health and
industry will be mobilized to support a large number of low income families to improve
their livelihood, quality of life and to create a living environment which is not vulnerable
to preventable diseases. A social safety net for the benefit of vulnerable groups in the
country will be developed jointly with the assistance of religious establishments, civil
society groups and charitable institutions. Government partnerships with such
institutions are essential to promote a humane society.

44. Hon. Speaker, Research and Development will have to play a pivotal role in the postconflict
and middle income country development scenario in Sri Lanka. The New Ministry
on Research and Technology is entrusted with a wide coverage with almost all research
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institutions being brought under this ministry. These research institutions, together with
research institutions attached to the Plantation Ministry and researchers in our
universities must work together to contribute towards country’s development. Public
Private Cooperation (PPC) will be emphasized to enable all our research organizations to
mobilize high profile public sector researchers to cater to the needs of private sector
economic activities. The Government encourages the private sector to use these facilities
to develop new products and maximize Sri Lanka’s GDP, based on research and
technology.

45. ‘Haritha Lanka’ ‐ 2020 Environment Conservation Programme will be the cornerstone of
the government’s development strategy. This ten year strategy includes programmes to
protect water resources, catchment areas, forestry and wildlife, the ocean and aquatic
resources, coast and soil conservation, prevention of air pollution, promotion of
renewable energy, eco‐friendly industries, water management systems, healthy
townships, urban forestry and green villages. All development programmes undertaken
by both the private and public sector will be carried out in line with environmental
considerations to ensure bio diversity and that the richness of Sri Lanka’s environment is
not destroyed.

46. A ten year conservation programme will be implemented to protect Sri Lanka’s cultural
heritage, revolving around landmark Temples, Kovils, Churches, Mosques and ancient
cities. Performing arts, music, sports will also be integrated into the economic and social
development framework that will be implemented from 2011.

47. The campaign against the use of illicit liquor, drugs and narcotics will be strengthened
through strict enforcement of laws, as well as through educational programmes in
schools and religious institutions. Recognizing that strict implementation of law and
order is a critical prerequisite for a well functioning development regime, resources will
be devoted in the medium term to strengthen public security and law enforcement as a
priority in the post‐conflict security strategy, aimed at eliminating crime, unlawful
activities and underworld operations.
The Economic Outlook

48. Hon. Speaker, the rate of inflation at 4.6 percent in June 2010 recorded a downward
trend for consecutive four months ‐ a salutary macroeconomic outcome. As I stated
earlier, our economy has registered a strong rebound with first quarter registering a 7.1
percent growth in GDP. The projection for the year indicates that Sri Lanka’s economy
may record a growth rate in the range of 6.5 – 7 percent in 2010. Consequent to favorable
weather, extra land available for cultivation during the ‘Maha’ Season 2010/11 and the
recovery in livestock and fisheries sector, the growth in plantation agriculture and
industries, the economy is projected to be buoyant in 2010. With the rapid recovery in
tourism, financial and capital market performance, the consolidation in the
telecommunications industry, growth in energy based sectors, improvement in domestic
and external demand and new openings in a knowledge based economy, investment in
relation to GDP is expected to exceed 30 percent supporting a strong growth momentum
over the next three years. Although the trade deficit continues to remain stressed due to
volatile and high oil prices and increased import demand associated with high economic
82
growth, the current account deficit is likely to be moderate due to sustained expansion in
tourism, overseas remittance and the increase in service related income. The overall
Balance of Payments is expected to remain in surplus as the capital inflows are expected
to be strong. Given the international price movements, year‐on‐year inflation as well as
average inflation is likely to be around 7 percent in 2010. As the economy is expected to
grow at a range of 6.5 ‐ 7 percent with moderate inflation, unemployment is projected to
further decline to around 4 percent over the medium term. The Budget for 2010 is
formulated to support this economic outlook.
Budget 2010

49. Hon. Speaker, I now turn to the Budget estimate for 2010. Table 1 annexed to my Speech
provides the Budget Outcome for 2010. The total revenue is estimated at Rs. 817.8 billion
consisting of Rs. 729 billion tax revenue and Rs. 88.8 billion non‐tax revenue.

50. The income tax is expected to generate Rs. 160.3 billion while tax on external trade is
expected to generate 145.2 billion. Tax on Goods and Services is expected to generate
423.4 billion. This is nearly 60 percent of tax revenue. There is an increase of 17.8
percent in the overall tax revenue, compared to only a 5.7 percent increase in 2009.
Considering the strong rebound of our economy and gradual recovery particularly in
international trade and services, the government considers that the projected increase is
reasonable.

51. Hon. Speaker, total expenditure is Rs. 1,279.8 billion that comprises Rs. 928.3 billion of
recurrent expenditure and Rs. 352.5 billion of capital expenditure. The estimated
recurrent expenditure is an increase of 5.5 percent. Expenditure on salaries and wages to
provide education, health, national security and other public services is Rs. 296.7 billion
and records a 9.4 percent increase. Salary expenditure on education and health at both
national and provincial level is estimated at Rs. 107.8 billion while non ‐ salary recurrent
expenditure of these two services is projected at Rs. 34.1 billion. The salary expenditure
in providing public services is expected to cost Rs. 48.8 billion, while non‐salary
recurrent expenditure is projected to cost Rs. 11.3 billion.

52. The expenditure for defence and public security is projected to total Rs. 186.3 billion in
comparison to 187.2 billion in the previous year reflecting a moderate expenditure on
salary and operational expenditure of these services. However, expenditure on other
goods and services estimated at Rs. 91.5 Billion is a considerable reduction from the last
year level of Rs. 108.5 billion mainly because of the reduction in such expenditure on
national security. However, interest expenditure at Rs. 337 billion, records and increase
of 8.9 percent over last year and account for 36 percent of the total recurrent
expenditure.

53. The 2010 Budget also provides large sums of money by way of subsidies and transfers.
The total expenditure on these items is around Rs. 202.9 billion of which expenditure on
pension to public servants is estimated to cost Rs. 93 billion. Expenditure on fertilizer
subsidy is estimated at Rs. 30 billion, while ‘Samurdhi’ and welfare payments are
83
projected at Rs. 35 billion. A further Rs. 42.3 billion is provided to meet operational
expenditure of statutory agencies.

54. Hon. Speaker public investment is projected at Rs. 361.5 billion in comparison to
Rs. 330.4 billion in 2009. Rs 83.4 billion is provided for the development of highways
while Rs. 30.5 billion is provided for port and aviation sector development. Capital
expenditure on water sector development is around Rs. 25 billion while Rs. 12 billion is
provided for continued work in irrigation. Public investment in education and health is
projected at Rs. 40.8 billion. Rural Sector infrastructure development consisting of access
roads, electricity and minor irrigation ad community water supply is projected at Rs. 16
billion.

55. Hon. Speaker, based on the above revenue expenditure flows, the Government projects a
Budget deficit of Rs. 438.8 billion in 2010 in comparison to 476.4 billion ‐ a reduction of 2
percentage points over last year. This reduction, as you would note, will take place
largely from the improvement in government revenue while stabilizing total expenditure
virtually at previous year’s level. Hon Members will agree that this is a credible
improvement considering the challenges the country has undergone. You would also
notice that the revenue deficit is projected to decline from Rs. 179.9 billion in 2009 to Rs.
110.6 billion. In relation to GDP, the revenue deficit is projected to decline from 3.7
percent in 2009 to 2 percent in 2010 while the Budget deficit is projected to decline from
9.9 percent to 8 percent. In the Medium Term Fiscal Policy Statement given in Fiscal
Development 2010 prepared in terms of the provisions of Fiscal Management
(Responsibility) Act No. 3 of 2003, which is presented to the House today, along with
other budget documents, fiscal deficits are projected to peg at 6.8 percent and 5.0 percent
for 2011 and 2012 respectively.

56. The fiscal deficit of 8 percent of GDP in 2010 which works out to Rs. 438.8 billion is
expected to be financed largely from domestic sources. The total domestic financing is
projected at Rs. 315.3 billion in comparison to Rs. 392.5 billion in 2009. The net foreign
borrowings which are largely committed funds, is projected at Rs. 123.5 billion in
comparison to Rs. 83.9 billion in 2009. As the proposed Budget Outturn indicates a
reduction in domestic financing by Rs. 77.1 billion, the government expects pressure on
interest to ease in the remaining months of the year, facilitating credit expansion for
private sector development.

57. Hon. Speaker, for accounting purpose the above economic analysis needs to relate to
Treasury Operations in terms of receipts and payments. The total receipts of the
government other than government borrowings is estimated at Rs. 841 billion, while
total payments including debt repayments is estimated at Rs. 1,821 billion, Therefore the
gross borrowing requirement to be recorded in public debt transactions in government
accounts is estimated at Rs. 980 billion of which Rs. 565 billion will be for debt
repayment. The government will plan the borrowing programme in consultation with the
Central Bank of Sri Lanka to meet the deficit financing requirements within the overall
monetary policy framework that aims at achieving a monetary growth of around 14 to 15
percent.
84

Conclusion

Hon. Speaker, as the newly formed Cabinet Ministries have just begun to assess their
scope of work within the context of ‘Mahinda ChintanaVision
for the Future’ development
Framework, the medium term road map which I just outlined and the Budget
provisioning for 2010 which is placed before you, will provide a solid basis to complete
all preparatory work and finalize action plans to be implemented commencing from July
2010. Recognizing the importance of consolidating recent gains in stabilizing the
financial situation and the economic recovery, this Budget has given priority to maintain
a deficit substantially below last year’s level without disturbing development activities
for which a public investment of 6.6 percent of GDP is protected. Our road map spells out
a vast area of new openings for investments that will be required from the private sector
and donor community to accelerate post conflict socio‐economic developments in this
country. The entire Government machinery is being reorganized to respond to private
sector investment proposals in areas outlined in the road map. Similarly, the Government
will closely work with our farming community and other stakeholders to accelerate food
production and contribute towards food security and high income generation. As
outlined in the road map, the Government will strengthen its commitment to provide
education, health, assistance to vulnerable groups, the rural community, traditional and
small enterprises, public servants and the working population to improve their living
conditions in terms of a variety of programs revolving around the proposals in this
Budget and the medium term road map. Post‐conflict security priority will be devoted to
combat crime, under world operations, drugs, and ilicit liquor trade.
Hon. Speaker, let me summarize some of the key benefits cascading from this Budget to
our people;
• This Budget protects a total provision of Rs. 7,363 million for the provision of free text
books, nutritional food, school uniforms, subsidized transport and scholarships to around
3 million school children
• Rs. 2,500 million has been provided, in support of nutritional improvement of around
74,000 expectant mothers and infants,
• For around 25,000 displaced people living in welfare centers Rs. 7,500 million is
provided for dry rations and food
• Rs. 9,300 million has been provided to extend income support for the total of low income
families benefitting under the ‘Samurdhi’ programme
• Social security availed by way of retirement benefits for around 450,000 public servants
and allowances for around 6,000 disabled soldiers, is provided with Rs. 102, 500 million
• In support of the farming community with a total number of beneficiaries of around 2
million farmers involved in higher agricultural production, Rs. 35,000 million is provided
to meet expenditure in respect of fertilizer subsidies, subsidize credit and procurement
of paddy at the guaranteed price
• In keeping with the commitment to provide free health, Rs 13,300 million is secured to
supply drugs and pharmaceuticals to around 50 million in and outdoor patients using
government healthcare facilities
• Budgetary support of Rs. 6,650 million is earmarked in respect of subsidized transport to
meet expenditure of Sri Lanka Railways and Ceylon Transport Board
85
• Budgetary provisions in support of public investment in water supply will ensure
100,000 new water connections in 2010 and to be augmented to 150,000 per year
thereafter
• 250,000 new electricity connections in 2010 and 300,000 new connections per annum
thereafter will be available under public investment expenditure for the power sector
• The ongoing road rehabilitation programme will add 530 km of rehabilitated national
roads, 34 new bridges and 300 km of rehabilitated provincial roads in 2010. Further, 720
km of rural roads will be upgraded with nearly 200 km thereof being concreted. 181 km
of express ways, 104 bridges and 1, 500 km national roads will be upgraded in the next 3
years. 1,800 km of provincial roads are supported by the public investment programme .
A further 15,000 km of upgraded rural roads will be added in the medium term
• The road map provides investment opportunities to the private sector in a wide range of
areas including resort hotels and tourism related facilities, construction, IT and Business
Process Outsourcing, skills development, clinical trials and research, plantations, urban
development, industrial townships, international shopping facilities, renewable energy ,
higher education , medical facilities, agriculture, livestock, and a wide range of value
added manufacturing and services
• The ongoing public investment in support of creating new capacity in power generation
and distribution and port facilities, highways, irrigation and drinking and industrial
water supply is bound to improve the investment climate and business development with
enhanced competition in exports and import substitution
• High investment is the surest way to accelerate our growth beyond the 8 percent target.
Our road map positions the Government as an enabler to support every stakeholder who
participates in this process to facilitate development. Our efforts to reduce the Budget
deficit, broaden the tax base with a simpler and low tax regime, strong financial and
capital market facilities, expanded public investment in infrastructure and facilities for a
skilled and knowledge based economy will enable every person in the society to be an
active partner in this development process.
Hon. Speaker, Development is the central focus in the post conflict Sri Lanka since peace
without development is no peace. Hence, development can no longer be postponed or
compromised for politics. Hon. Speaker, you are well aware that successive governments
of our country since independence have experimented with various development models.
I myself as a career public servant and later as a politician have witnessed this frustrating
experience. The economy as a whole did not achieve even a 5 percent annual average
growth till 2005 and lagged behind other nations who were way behind us at the time we
gained independence. Our country essentially went back and forth with war and peace
experiments during the past 26 years, undermining the magnitude of the threat posed by
LTTE terrorism not just to our motherland but to our neighboring countries and even to
the rest of the world. LTTE terrorism not only eliminated a large number of our
democratic leaders from all communities but also assassinated one of the most respected
leaders in India – a close friend of Sri Lanka. Eventually, our country lost valuable lives,
property, mutual trust and relationship among communities and peaceful living for 26
years, during which time the world continued to move rapidly ahead of us. Many poor
countries and third world nations have gained emerging economy or advance nation
status during this period. Several nations in Asia alone have gained significant economic
influence in the global economy. India, China, Korea have emerged as powerful growth
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nations in Asia followed by several other high performing nations. So, Hon. Speaker we
need to regain what LTTE terrorism denied this nation. That is nothing but economic
development and better living conditions to all Sri Lankans, whether they live in Sri
Lanka or abroad. This is the goal encompassed in the “Mahinda Chintana – Vision for the
Future” – the election manifesto of his Excellency the President. No other political party
ever promised or offered such a vision. It is not just a series of promises or a set of
handouts. It is a promise to transform Sri Lanka as the ‘Emerging Wonder of Asia’. Let
each one of us make our contribution, to ensure that this goal is made a reality. The same
determination, sacrifices and commitment that our country made during the last four
years to end the conflict need to be sustained in realizing this goal in the next few years.
All promises made to our people will be fulfilled in this process, ensuring better life for
all.





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