• Budget of consolidation
• CB to raise Rs.250 m from debentures
• Privatisation falls short of targetted Rs. 8 bn for '98
• Fiscal deficit likely to overshoot estimates
• SEC tightens surveillance
• Share market propaganda futile
• The three "M"s of Islamic global banking
• Smog hits Malaysian rubber
• SEC elected to International body
• Tea imports protest
• House adds status to workers
• New series on plantations 2
• Insurance academy gains recognition
• Quality control convention in October
• Rubber Research Institute workshop
• Hemas diversifies its product range and mercy missions
• HDFC to cut red tape
• Mahaweli Cement gets ISO standards
• Three new faces on UMLL Board
• The correct figures...

Budget of consolidation

Government planners are preparing for the presentation of the country's 1999 budget on November 5 but it is unlikely to be a pro-election budget as many anticipate it to be, official sources said.

They said that the budget, to be presented in Parliament by Deputy Finance Minister Professor G.L.Peiris, will be"one of consolidation like in past years" and an effort will be made to curb military spending.

There is widespread speculation that a snap presidential poll is on the cards in the first quarter of next year instead of the delayed provincial council polls and in such an event, private sector economists and businessmen expect a populist budget to enable the government to address the various vote banks.

But the official sources, who declined to be identified, noted that so far there has been no direction from the top for a "pre-election spending budget" to be prepared. "Even President Chandrika Bandaranaike Kumaratunga has allowed government planners to prepare a budget that would consolidate the economic gains in the previous years," one source noted.

The sources said that next year's defence budget would be kept to the1998 estimated budget target of Rs.44 billion. But on Tuesday, the government presented five supplementary estimates in parliament seeking an additional Rs.12.2 billion for defence spending this year.

"The defence establishment wanted a 60 billion-rupee allocation for this year which the government was unable to provide," the source said. The budgeted figure and the supplementary vote would make it a total of Rs.56.2 billion for the year.

Defence spending last year totalled Rs.47 billion. This year's expenditure has risen due to the ongoing Jayasikuru operation to open the Vavuniya-Jaffna road, which has become a costly exercise to government coffers.

As it has proved in the past, the military establishment is unlikely to keep to the 1999 defence budget levels, and as the war hots up, would seek additional spending through a supplementary vote in parliament.

The sources however asserted that government planners would stick to a "budget of consolidation" this year and discourage any addition to the defence budget but didn't rule out the possibility that this may be changed at the last minute.

"As long as there is no talk of election and no set dates for any type of election in the near future, we can resist the presentation of a populist budget," the source added.

Sri Lanka's economic fundamentals and economic management have been praised by the World Bank and the IMF and so far budget deficit targets are on track with agreed levels.

But both agencies fear that, with elections expected in the next two years, spending may get out of control and raise the budget deficit.

"I sincerely hope that the elections will not be a recipe for abandoning well articulated economic policies that are helping to create progress, generate jobs and improve economic conditions," said World Bank representative in Colombo, Roberto Bentjerodt, in an interview with 'The Sunday Times,' some months back.

But last week, he told this newspaper that pre-election spending, next year, is inevitable because historically that has been the case and "one would be naive to think that there won't be similar pressures (on the budget)."

However Bentjerodt hoped the government would be able maintain its sound macro economic management policies and "won't be tempted to undo this."

CB to raise Rs.250 m from debentures

Commercial Bank will raise Rs 250m through an issue of 250,000 Unsecured Redeemable Subordinated five year debentures carrying a floating rate coupon of the 3-month T-bill yield plus 100 basis points. The coupon is payable quarterly having a floor of 12 per cent and a cap of 16 per cent.

The debenture will be open for subscription by end September. The Bank reserves the right to allot 50 per cent of the issue on a preferential basis.

The balance 50 per cent shall be allotted on a pro-rated basis if over subscribed.

"The issue is primarily aimed at institutional investors," Commercial Bank Chairman Mahendra Amarasuriya said.

One year T-bill yields have moved up from 9.29 per cent at the beginning of the year to 12.98 per cent by end August. Similarly the weighted average of 12 months and 4 year bonds yields have edged up 240 basis points and 184 basis points respectively over the same period, the sponsoring broker CT Smith Stockbrokers said.

Increased government borrowing, tight monetary policy and pressure on the currency will result in rates edging up further during the year. The floating rate debenture offers an ideal opportunity to exploit the upward movement in interest rates.

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Privatisation falls short of targetted Rs. 8 bn for '98

By Mel Gunasekera

Bearing the brunt of crashing regional markets and falling currencies the downturn in the Colombo Stock Exchange has affected Privatisation proceeds, expected to fall short of targets for 1998,a top PERC official said.

The budgeted target for 1998, is Rs. 8 bn. The shares of privatised ventures, especially the plantations stocks were disposed by PERC through the stock market. But lackluster sentiments have brought in only around Rs. 4 bn to Rs. 5 bn to the state coffers todate.

"Our target for this year was Rs. 8 bn. But due to the depressed conditions in the stock market, we may be hard pressed to achieve that," PERC Director General, Mano Tittawella said.

"But it does not bother us too much, because in privatisation you don't take in yearly targets," he said.

It's not like selling chocolates or something like that. You have to take the revenue over a period of time, he said.

From 1994-1998, around Rs. 36 bn has been raised through privatisation, with around Rs. 8 bn to 9 bn coming in every year. With the next batch of privatisations, the government stake of 19% in eight plantations has been put on hold due to poor market conditions, while PERC is forging ahead with plans to dispose of the government's stake in enterprises like Pugoda Mills, Bogala Graphite, Kahatagaha Graphite and the remaining regional plantation companies. The next IPO on offer is Elkaduwa Plantations, while the remaining plantations would be disposed by the year end. Some of the sugar companies would also be privatised once the court cases against them are resolved. There are some residuals of minority shareholders we have in small enterprises.

Most of them are stock market related sales, and we are looking at privatising them next year, he said. "They will be disposed of depending on how well the market performs." Once the new Insurance Act comes into place next year, the two insurance companies would be privatised. "We will start off with something small like the National Insurance Corporation, but then again no decision has been made," he said.

PERC is also looking at reforming state enterprises by giving them more competition and making them more independent. The state sector does not need to be privatised, but it can compete alongside with the private sector, like in the instance of the banking sector.

Just selling enterprises for revenue is not the objective, while selling shares is just one aspect of it. "Presently, we are studying some sectors along with the line ministry and we will assist them to work along with the line ministries." It's too premature, we have not selected the areas. In about six month's time we will know which areas we are going to look into but at the moment there is no decision on it," he said.

Fiscal deficit likely to overshoot estimates

The budget deficit for 1998 is expected to be in the range of 7.5 per cent to 8 per cent of GDP, a top broking firm has forccast. With heavy defence spending requirements. and slower than expected revenue collections fiscal deficit is expected to overshoot the target significantly in 1998, a CT Smith report states.

The Government targeted a fiscal deficit of 6.5 per cent of GDP for 1998 (excluding grants and privatization proceeds). The corresponding figure for 1997 was 7.6 per cent of GDP, a leading broking firm said.

The Government estimated defence expenditure to be Rs 44bn in 1998 (4.4 per cent of GDP).

However Parliament recently approved supplementary estimates for defence expenditure for Rs 12.2bn. (1.2 per cent of GDP), pushing estimates to 5.6 per cent of GDP.

Revenue shortfalls are also being experienced due to the introduction of GST and other wide ranging tax concessions that have led to the slackening in the revenue collection, the report states.

The provisional statistics for the first quarter of1998 show that while total revenue has increased by 8.6 per cent, the tax revenue has grown by only 3.9 per cent.

The growth in total revenue of 8.6 per cent falls short of the targeted growth for the year of 11 per cent.

The Budget deficit for the first six months according to Central Bank statistics is Rs. 44 bn (deficit excluding grants). This is around 4.3 per cent of forecast GDP for 1998.

The combined impact of increased estimates for defence and revenue shortfalls could push the budget deficit up by 1.5 per cent to 2 per cent of GDP.

However it is likely that in the second half of 1998, the government will prune down its capital expenditure and that revenue collection, especially from improving administration of GST could improve. Either way it is unlikely that the deficit of below 7.5 per cent could be achieved during the year.

Gunatunga appointed

Sampath Bank Limited has announced the appointment of Mr. Edgar Gunatunga as Chairman since the demise of Mr.Dunstan D.de.Alwis P.C

SEC tightens surveillance

The Securities and Exchange Commission (SEC) has responded to the steady flow of privatisation by introducing post-prospectus checks, a top SEC official said.

"The checks would mainly ascertain whether the capital raised from these privatised companies have been used for the purpose stated in the prospectus," SEC Director General, Kumar Paul said.

The SEC is also checking the trading of securities after rights , bonus and dividends are declared for possible instances of insider dealings, front running , market manipulations etc,

SEC beefed up its surveillance operations with the influx of privatisation companies coming into the market.

Since inception, the SEC has detected seven instances of insider dealings pertaining to fourlisted companies,Manager Surveillance SEC, Dhammika Perera said.

Originally the SEC did not have prosecuting powers and had to be satisfied with malfeasance to offenders, but subsequently with more teeth to the SEC Act, it has become possible to prosecute or compound offences as the case may be.

Meanwhile the SEC is also in the process of amending the Takeovers and Mergers code. Among the area under review is the section on mandatory offers. In a takeover of more than 30% of the shares of a company, the offeror (buyer) now has to make a mandatory offer to minority shareholders.

But this rule puts certain restraints on buyers in the case of underwriters, banks who accept shares as collateral, and buyers who may come forward to rescue an ailing company etc. "We have amended it as it's not effective the way it is as some people are unfairly penalised," Manager Legal SEC, Kithsiri Gunawardena said.

Mind Your Business

By Business Bug

On the upward

Those watching the financial markets recently would have noticed an upward trend in interest rates.

In keeping with this momentum, we hear the Treasury hopes to aggressively market Treasury Bills in the near future.

The thinking is that with the stock market not experiencing the best of times there is plenty of ''money in hand'' among local retail and institutional investors, waiting for opportunities - a theory justified by the success of the recent debenture issues.

And, higher interest rates for the 'T' Bills are likely to materialise, they say.....

Card has it

The pioneers in the cellular phone industry were also the pioneers in the 'card' system for mobile phones.

Their rivals now realise that this 'card' system is not a bad option, faced as they are with cut-throat competition from other networks and the ubiquitous phone boxes.

At least one other cellular operator is therefore seriously contemplating a ''card system'', we hear.....

In the cold

Our athletes didn't quite strike gold at Kuala Lampur, but they certainly impressed and even won some medals.

Now, on their return, there is a clamour from several leading business houses for sponsorship deals.

All that is well and good but there are no takers for the champion athlete who raised more than a few eyebrows with her antics.

Her sponsorships deal is still on but advertisements featuring her have been put in cold storage, we hear.

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