The Nation GAIN

Wednesday, May 2, 2012

CBEU asks for 15%-25% salary hike

By Dilina Kulathunga

The Ceylon Bank Employees Union (CBEU), which consists of about 18,000 employees from leading state banks in the country, continues to demand for a 15% to 25% salary increase from the treasury.

“We are asking for what we deserve according to the ‘Collective Agreement’ with the employers which we have entered in to, to increase the salaries of the employees from the laborer level to Chief Manager Level. After all, this is not an unreasonable demand because we are asking for only a maximum of 8% annual salary hike”, the president of the CBEU, Amarapala Gamage said.

According to Gamage the employers are bound to increase the salaries once in every three years based on the ‘Collective Agreement’ and this year’s increment was due on 01^st January 2012 although by now almost four months have lapsed. The last time an increment was granted as per the agreement was on 01^st January 2009.

Further he added that as a result of this trade union action which commenced on the 02^nd of April the employees of the leading sate banks such as People’s bank, Bank of Ceylon, National Savings Bank and The State Mortgage and Investment Bank have done away with reporting to work on weekends, collection of credit and any form of function in the bank to demonstrate their protest.

“We had a fruitful discussion with the secretary to the treasury, Dr. P.B Jayasundara and also with the top management of these banks who are yet to come to a compromise. We are looking forward to a positive response failing of which we are going to resort to another trade union action on the 24^th this month”, Gamage further added.

Meanwhile the head of retail banking at People’s Bank Renuka Jayasinghe when contacted by The Nation said that the operations of the bank had been as usual and the Saturday banking too had not been affected so far despite the claim by the CBEU that the employees had not been reporting since they resorted to a trade union action from the 02^nd April 2012.

“In fact the employees reported to work on the 14^th April in view of the Sinhala and Tamil New Year, though the union earlier decided not to report for work”, Jayasinghe added.

Policy inconsistency deterring investment – ADB

Boosting private investment will be a major challenge going forward as growth in private investment—domestic and foreign—is falling below planned levels despite the improved political and economic environment, the Asian Development Bank cautioned in its latest report last week. Releasing the Asian Development Outlook 2012, it stated that one reason for the failure is that the government has taken only a few steps to reduce red tape and improve the business climate needed to create the conditions for ramping up private investment.

“Although Sri Lanka’s position in the World Bank’s Doing Business index has improved in 2012 to 89 (out of 183 countries) from 98 in 2011, some challenges still deter private investment especially paying taxes,” the ADB said in the report titled ‘Economic trends and prospects in developing Asia: South Asia’.

It noted that investor confidence is a key factor in attracting investment and this requires a predictable policy environment as articulated and reinforced through the legal, regulatory, and institutional framework.

“Thus, the lack of such an environment for the private sector is a major obstacle to private sector development. Developing that framework will reduce uncertainties in the business environment and avoid unplanned actions that may send mixed signals to potential investors,” the report highlighted.

The government’s Development Policy Framework for 2010–2016 seeks private investor participation (beyond the traditional areas of industry and commerce) in infrastructure. The framework projects private investment to rise from around 21% of GDP in 2011 to about 26–28% in the next few years.

Meanwhile, the report also noted that the impact of currency depreciation on external debt, additional budget borrowing, and slower growth is on course to worsen the debt-to-GDP ratio in 2012.

The public debt ratio has been reduced over the last few years, although it was still very high at an estimated 78.9% of GDP at end-November 2011.

The ADB report has forecast that Sri Lanka’s GDP is expected to edge down to 7.0% in 2012 from the high 8.3% in 2011 but recover to 8.0% in 2013. It further projected that export growth is expected to fall to 11.0% in 2012, mainly owing to weaker demand, especially from Europe although the trade gap is projected to stabilise, as import growth will also be much slower as higher interest rates, tighter credit, and a marked depreciation in the exchange rate are felt, especially for consumer goods.

“The current account deficit is projected to edge down to 6.4% of GDP in 2012, reflecting the more stable trade gap and continued large gains in remittance receipts,” it noted.

Port shift not compulsory - SLPA Chief

By Dilina Kulathunga

The Chairman of Sri Lanka Ports Authority (SLPA), Dr Priyath Bandu Wicrema last week said that the recent directive to shift vessels carrying imported vehicles from Colombo Port to Hambantota with effect from May 31, 2012 is not mandatory and that the clearance at Colombo port would purely depend on space availability.

“Certainly it is up to the vehicle importers to decide between the two ports. But we have made ourselves very clear that we do not allow any vehicle to be parked inside container terminals which has been the practice. So, as long as they can clear their vehicles immediately upon unloading we do not oppose anyone to import vehicles through Colombo port,” the SLPA Chief said in an exclusive interview with The Nation.

The Sri Lanka Ports Authority said in a statement last week the decision to unload motor vehicles imported to Sri Lanka at Hambantota Port remains unchanged despite ‘disparaging remarks by some parties’.

“SLPA would like to state that the ongoing process of handling ships carrying vehicles at Magam Ruhunupura Mahinda Rajapaksa Port from May 31, 2012 will remain as decided,” the statement noted.

Meanwhile, the chairman of Ceylon Motor Traders Association (CMTA), Tilak Gunasekera who in a complete change of stance to which he said a fortnight ago that member companies importing brand new vehicles would not consider importing from the new port, last week said that it will now be up to the individual companies to decide on which port they would use.

“I believe it is up to the individual companies to decide whether they are going to clear their shipments from Colombo or H’tota. But, since the used vehicle importers would shift to the new port we do not expect major crisis in space in Colombo. Sri Lanka Customs is also very efficient that the clearance could be done pretty fast”, Karunarathne added.

He further added that luxury vehicles such as Audi, Mercedezs, BMW, Jaguar and the likes are anyway shipped in containers so that they would anyway continue to be cleared from Colombo while the other cheaper car importers can decide between the two ports.

Vehicle Importers Association of Sri Lanka in a press conference held a fortnight ago expressed positively for the SLPA’s decision to redirect the vessels carrying vehicles to H’tota from June 1, 2012.

Speed breaker on remittances?

The Central Bank says that workers’ remittances, which are estimated to grow substantially in 2012, are expected to moderate its growth in the medium term in line with expanding domestic economic activities.

“With the tight domestic labour market conditions, migration for foreign employment is expected to decline gradually resulting in a deceleration of workers’ remittances in 2013 and beyond in contrast to the substantially high growth rates recorded since 2009,” the Central Bank 2011 Annual Report stated.

Workers’ remittances, which constitute a greater share of private transfers, continued to be the foremost foreign exchange earner in 2011, surpassing the export earnings from textiles and garments for the third consecutive year. Gross workers’ remittances increased notably by 25 per cent to US dollars 5.1 billion, from US dollars 4.1 billion in 2010.

Economic growth to lose pace in 2012

The Sri Lankan economy is projected to grow at a slower rate of 7.2 per cent in 2012 compared to the impressive growth rate of 8.3 per cent recorded in 2011, the Central Bank admits. With the expected revival in the global economy, the economy is however expected to regain pace next year expanding by around 8 per cent and continue to grow over 8 per cent per annum over the medium term.

“The increase in capacity utilisation, improved productivity and diversification supported by continued development of infrastructure facilities, and continued expansion in income generating activities in the Northern and Eastern provinces will provide the basis for sustained growth over the medium term,” the Central Bank highlighted in its 2011 Annual Report released last week.

It noted that in order to sustain the expected high growth, investments are required to be raised gradually to around 32-33 per cent of GDP in the medium term, and this level of investment is mainly expected from domestic savings.

However, in 2011 domestic savings declined from 19.3 per cent in 2010 to 15.4 per cent as domestic consumption (as a percentage of GDP) increased from 80.7 per cent in 2010 to 84.6 per cent. On the other hand, total investment as a percentage of GDP increased from 27.6 per cent in 2010 to 29.9 per cent in 2011 as private investment increased from 21.4 per cent in 2010 to 23.7 per cent in 2011 while public investment increased marginally to 6.3 per cent from 6.2 per cent in 2010.

Pure economics not practical: Cabraal

By Dilina Kulathunga

Despite the Central Bank being an independent body, Governors of Central Banks cannot act in a tunnel vision purely focusing on economic fundamentals ignoring the political scenario of those countries, the Governor of the Central Bank said last week answering a question on the feasibility of adopting a formula for the revision of petroleum prices reflecting market fluctuations.

“We must realise that we do not live in a pure economics world. This is a world of politics and economics and therefore every economically sound decision may not be politically viable”, CBSL Governor, Ajith Nivard Cabraal pointed out.

Addressing the media following the presentation of the 2011 Annual Report, the Governor further noted that although that as the governor of the CB, he totally endorsed such a formula in place, it was important to understand whether our people were prepared to go to the filling station not knowing how much they would have to pay for a liter of Petrol the following day.

“Unfortunately it doesn’t work that way always everywhere and that is why we need to strike the correct balance between economics and politics in making such policy decisions”, he said illustrating how difficult it was in the neighbouring India to increase price of fuel by as little as Rs. 3 to Rs. 4 as it was strong enough for a regime change.

He further acknowledged that although he himself had so many discussions with the government authorities on matters which are economically significant, these discussions are not shared to the general public always as there was a clear demarcation as to what is and what is not published.

Responding to criticisms levelled against the secretary to the ministry of finance, Dr P. B Jayasundara and himself on mismanaging the economy by several sections of the economy, he asked whether the achievement of the highest growth rate of 8.3% in 2011 in the history of Sri Lanka a crime.

“Last year has been a historic year for Sri Lanka since liberalisation with many achievements in our economy. We had the highest gross official reserves of US $ 8.2 billion by mid August 2011, above 8% growth for two consecutive years, lowest inflation for the past 38 months and the lowest unemployment rate of 4.2% among others”, he added refuting those allegations.

During the latter part of 2011 the 3% Rupee depreciation was criticised as ‘too little too late’ but since last February the criticism of the policies were of ‘too many, too late’ questioning the consistency of the economic policies which creates an uncertain environment for the stakeholders to consider decisions.

Responding to these latest developments the governor said that those were not ad hoc decisions but were judgmental calls which were taken at right times because the CB had a clear vision unlike many others who found fault with everything but could not be held accountable for what they said.

Tackling inflation, a key challenge - CB

By Azhar Razak

The Central Bank of Sri Lanka (CBSL) last week said that given the uncertain outlook for global commodity prices, especially with regard to oil, the key challenge ahead would be to maintain inflation at a low and stable level.

“Although the recently implemented policy measures would moderate growth and ease demand pressures to some extent, monetary policy will need to continue to focus on restraining demand pressures to maintain inflation at a mid-single digit level,” the island’s monetary authority highlighted in the CBSL Annual Report 2011 released last week.

The report noted that managing supply side shocks to ensure an adequate domestic food supply would also be required to complement demand management strategies whilst developing quality seed varieties to suit local conditions, expanding cultivation to different agro climatic zones to ensure uninterrupted supply, increasing storage facilities and improving supply chains to ensure a reasonable price for producers and consumers are some areas that may need to be addressed in this regard.

“The weak recovery in the global economy as well as geopolitical uncertainties in Sri Lanka’s traditional export markets is likely to affect export growth. Demand for exports needs to be improved through diversification of both markets and products. Also, foreign inflows must be strengthened, particularly in the areas of service inflows and FDIs through appropriate policies and macroeconomic environment,” CBSL identified.

It further added that high oil prices in international markets can have a significant impact on an oil dependent economy like Sri Lanka pointing out that policies need to be put in place to mitigate the impact of high oil prices by promoting energy efficient production technologies, increasing the use of renewable energy sources and energy conservation.

“Moreover, a price mechanism that reflects movements in international energy prices may need to be considered to help avoid the need for large adjustments of domestic energy prices while lessening the burden on public enterprises,” the Report suggested.

Meanwhile, the report cautioned that since substantial decline in unemployment is expected to tighten labour market conditions, policies need to be put in place to improve labour productivity and to address structural rigidities in the labour market while increasing capital intensity to deal

with any manpower shortages.

“Attention should also be paid to realign Sri Lanka’s education system to generate a human capital base with the skills necessary to sustain this new growth momentum,” it further pointed out.