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Monday, September 27, 2010

Govt. committed to IMF programme

BOI tax concessions only for large FDIs, new regime begins 2011
Deposit insurance scheme implemented by the end of this month
New electricity
tariff to breakeven CEB by 2011
Regulation of private sector superannuation funds early 2011
Banking Act amendments end December 2010

The Executive Board of the IMF last Friday approved the fourth tranche under the US$ 2.6 billion standby facility amounting to US$ 212.5 million. These funds are expected to be transferred today bringing total disbursements under the programme to about US$ 1,274.8 million.

The third tranche under the standby facility which was due at the beginning of the year was approved at the end of June only after the IMF was certain the government was committed to the programme after missing a 7 percent of GDP budget deficit target, reaching 9.9 percent instead.

The fourth tranche also comes with confidence that the government was committed to the programme. The Ministry of Finance has written another Letter of Intent dated September 14, 2010 reiterating the government’s commitment to the programme and included fresh targets that would supplement the initial Letter of Intent dated July 16, 2009, when the US$ 2.6 billion standby facility was first approved by the Executive Board of the IMF.

According to the new Letter of Intent, the government has said the following measures would be taken:

It said the BOI incentive regime would be rationalised by reducing excessive concessions, and concentrating on large investment projects with a sizable component of foreign funds.

"The consultative process already started is moving forward for the new regime to be implemented from the beginning of 2011. Taking the Presidential Tax Commission’s final recommendations submitted to the President recently, the government would formulate a new investment incentive regime to be implemented along with a rationalisation of the tax system and for trade taxes," the Ministry of Finance letter to the IMF said.

The electricity tariff would be rationalised in 2011 to move the Ceylon Electricity Board towards breakeven. "The government is also committed to dealing with the non-performing debt of state owned enterprises, and in particular the Ceylon Electricity Board would restructure its overdue obligations accumulated up to end 2009 to the Ceylon Petroleum Corporation by end 2010. We remain committed to move the joint operational balance of both state enterprises to breakeven in 2011,"

The Ministry of Finance told the IMF that the implementation regulations for the proposed deposit insurance scheme under the Monetary Law Act covering all licensed banks and finance companies would issued by the end of this month. It is also seeking cabinet approval of a regulatory framework for private sector superannuation funds by empowering an the Insurance Board of Sri Lanka by end December 2010, by which time amendments to the Banking Act would also be submitted to parliament.

The Ministry of Finance said the government was committed to achieving a budget deficit of 6.8 percent of GDP in 2011 and 5 percent in 2012. The government is hoping tax revenues would improve up to 16.5 percent of GDP by 2012 from 15.5 percent in 2011 while recurrent expenditure is expected to some down by half a percent in 2011.

source - www.island.lk