Financial Times

Government unveils economic stimulus package


The government this week unveiled an economic stimulus package aimed at revitalizing several key industries including tea, rubber, cinnamon, apparel, leather, tourism and construction. In a notice appearing in newspapers this past week, the government outlined its plan, drawn up by a presidential task force on economic development.

The government will provide one month's working capital loans to tea factories through commercial banks at concessionary rates on the recommendation of the Sri Lanka Tea Board (SLTB). It will also suspend the recovery of loans extended for tea factory modernization under the Plantation Development project for a period of one year. The government is also establishing a state tea trading institution sponsored by the SLTB to intervene in the tea auction to purchase as and when required in order to obtain a price of Rs.45 per kg for green leaf when the price of tea reaches Rs.300 per kg. Such purchases of tea are to be supplied to the suppliers of countries such as Iran and Russia under concessionary loans.

The government will also maintain a CESS on the import of tea and restrict the importation of substandard teas to Sri Lanka as well as provide a mixture of fertilizer at Rs.1000 per 50 kg bag to tea smallholders until the price of green leaf reaches Rs.45 per kg. A 2% extra CESS will be imposed when the export price of tea exceeds Rs.300 per kg. Those funds will be used to recover the fertilizer and other costs.

The government will implement a subsidy scheme for manufacturers who are engaged in the rubber industry in order to ensure that the rubber grower obtains at least Rs.150 per kg. The present CESS will be increased by Rs.5 per kg on imported latex and other rubber products. The export CESS will be suspended from the domestic rubber manufacturing industries for one year.
The 15% electricity surcharge will be suspended and the price of furnace oil will be reduced by Rs.10 per litre. Interest rates of loans of the rubber manufacturing sector will be reduced and the repayment period will be extended. The government will also provide financial assistance to local industrialists to produce tyres used in buses and trucks in place of imported tyres.

A special subsidy scheme will be implemented for cinnamon exporters through the Export Development Board in order to increase the price of cinnamon.

Textile and Leather

A production subsidy of 5% will be provided to textile and leather exporters who maintain the same level of employment and export income at 2008 levels with higher value addition. There will be a reduction of the prices of diesel and furnace oil and a removal of the 15% surcharge on electricity, reduction of the interest rates and suspension of Economic Service Charge for one year.

A concessionary loan scheme will be implemented for tourist hotels which maintain the same level of employment.
The government plans to reschedule existing loans by granting extensions for repayment and reducing interest rates as well as removing the interest rate on the penalty of the loans taken by tourist hotels. The 15% surcharge on electricity for all tourist hotels will be removed.

Fuel prices and bank interest rates will be reduced. The Ministry of Finance and Planning will give priority to provide counterpart funds for the road development projects at the national and provincial level funded by the World Bank, Asian Development Bank and Japan.

Priority will be given to the construction activities in the Northern Region in addition to the Eastern Region.

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