Infrastructure-driven and export-led growth
16 June 2017
The Prime Minister and Minister of Finance has presented the third budget of his government with a resolve to power growth through investments in infrastructure which will sustain the economic development. These investments will straddle more than one financial year and will change the shape of the country as enhanced road and transport improvements will be a game changer to improve competitiveness. It is logical that financing such projects will imbalance the current state of affairs, hence the loan from India.
The challenge over the years has been to steer the ship clear in the face of adverse external head winds. The economic conditions have generally improved with our main traditional markets doing rather well compared to previous years. This scenario has also helped our small island export-led economy. The exchange rate, price of oil and low interest rate have more or less stabilized, thereby removing the risk of external shocks.
The vision of late has been economic diversification and transformation. It is refreshing to note that we are on the right track with all the main sectors posting positive growth, namely: tourism, financial services, agro, textiles and ICT.
Regarding the transformation, the challenge has been job creations and the jury is still out on this one as it remains work in progress. Our concern is that we may be treading on the path of jobless growth.
A lot of the measures announced are long term in nature and will straddle more than one financial year in terms of implementation which will make its monitoring less tangible but the challenge of creating jobs in the short term remains, the more so that it is directly linked with the feel-good factor, an indicator which is so important yet not measurable by hard numbers.
There are some small measures which may have a long-term lasting effect like:
- Opening up of the economy where foreigners can acquire properties for less than $500,000 with a multiple entry visa for 180 days
- Relaxation for cooperatives to import labour
- Stringer criteria for setting up of GBC 1 companies, to create substance
- No cash betting over Rs 2,000
- CSR: 50% remains with the private sector for now, thus alleviating funding of many NGOs
- Introducing a dividend tax on those earning more than Rs3.5m, 5% excess applicable
- 3% tax for domestic companies involved in exports
Is this the budget of this government, third time lucky, the one that turns the corner in terms of breaking the 4% growth barrier, the one that triggers the much awaited take-off?
The Prime Minister has clearly taken charge of the country and of the economy by annexing a Three Year Strategic Plan ending 2020. This budget augurs well in terms of social intention and the public sector investment that is much needed. The expected growth of 4.1% will depend on its successful implementation .