ANNUAL REPORT MINISTRY OF 2010FINANCE AND PLANNING SRI LANKA This Report is Published in Terms of Section 13 of the Fiscal Management (Responsibility) Act No. 3 of 2003 MINISTRY OF FINANCE AND PLANNING (AS AT 31ST MARCH 2011) His Excellency the President Mahinda Rajapaksa Minister of Finance and Planning Hon. Gitanjana Gunawardana Deputy Minister of Finance and Planning PRINCIPAL OFFICIALS P.B. Jayasundera Secretary, Ministry of Finance and Planning Secretary to the Treasury P.A. Abeysekara D. Vidanagamachchi Deputy Secretaries to the Treasury S. Fernando Director General, Administration Ms. T. de S.A. Wijayanayake Legal Advisor Ms. D.G.P.W. Gunatilaka Tax Advisor Ms. H.M.N.S. Gunawardana Project Director Fiscal Management Efficiency Project HEADS OF TREASURY DEPARTMENTS (AS AT 31ST MARCH 2011) Department of National Planning B.M.S. Batagoda - Director General Department of National Budget Ms. G.D.C. Ekanayake - Director General A.K. Seneviratne - Additional Director General Department of Public Enterprises S.R. Attygalle - Director General Ms. L.D. Senanayake - Additional Director General Department of External Resources M.P.D.U.K. Mapa Pathirana - Director General A. Kumarasiri - Additional Director General Department of Management Services Ms. N. Godakanda - Director General A.M.A. Dayaratne - Additional Director General Department of Fiscal Policy K.M.M. Siriwardana - Director General Department of Trade, Tariff and Investment Policy N. Gunawardana - Director General Department of Development Finance D.S. Jayaweera - Director General Department of Public Finance P.M.P. Fernando - Director General Ms. W. Samaraweera - Additional Director General Ms. K. Gunawardena - Additional Director General Ms. A. Harasgama - Additional Director General Department of Legal Affairs Ms. H.M.N.S. Gunawardana - Director General Department of Treasury Operations M.S.D. Ranasiri - Director General P.T.G. Gunathilake - Additional Director General C.N. Wijeyasekara - Additional Director General Department of State Accounts N.G. Dayaratna - Director General M. Mahinda Saliya - Additional Director General Foreign Aid and Budget Monitoring Ms. M. Gamage - Director General W.I. Tissera - Additional Director General Department of Management Audit W. Ekanayake - Director General K.M. Jayatilake - Additional Director General HEADS OF DEPARTMENTS UNDER THE PURVIEW OF THE MINISTRY OF FINANCE AND PLANNING (AS AT 31ST MARCH 2011) Department of Inland Revenue K.M.S. Kandegedara - Commissioner General Department of Customs Ms. S. Karunaratne - Director General Department of Excise D.G.M.V. Hapuarachchi - Commissioner General Imports and Exports Control Department W.A.R.H. Wanshathilake - Controller Valuation Department P.W. Senaratne - Chief Valuer Department of Census and Statistics Ms. D.B.P.S. Vidyaratne - Director General HEADS OF STATUTORY BOARDS / STATE BANKS / OTHER INSTITUTIONS UNDER THE PURVIEW OF THE MINISTRY OF FINANCE AND PLANNING Central Bank of Sri Lanka A. N. Cabraal - Governor P.D.J. Fernando - Deputy Governor K.G.D.D. Dheerasinghe - Deputy Governor Securities & Exchange Commission of Sri Lanka Ms. I. Sugathadasa - Chairperson M. Cader - Director General Insurance Board of Sri Lanka Ms. I. Sugathadasa - Chairperson Bank of Ceylon G. Wickramasinghe - Chairman B.A.C. Fernando - General Manager People’s Bank W. Karunajeewa - Chairman N. Wasantha Kumar - General Manager National Savings Bank P. Kariyawasam - Chairman H. M. H. Bandara - General Manager State Mortgage & Investment Bank J. Wellawatta - Chairman W.M. Dayasinghe - General Manager Lanka Puthra Development Bank U. Liyanage - Chairman S. Edirisuriya - General Manager Sri Lanka Savings Bank A. Dhahanayake - Chairman S. Weeratunga - General Manager Housing Development Finance Corporation Bank Ms. S. Wickramasinghe - Chairperson S. Amerasekera - General Manager Pradeshiya Sanwardane Bank Ms. J. Kuruppu - Chairperson R. Siriwardane - General Manager National Lotteries Board C. Athaluwage - Chairman M.S. Karunaratne - General Manager Development Lotteries Board J.R.W. Dissanayake - Chairman J.D.C. Jayasinghe - General Manager Lady Lochore Loan Fund Ms. G. Wimalaweera - Chairperson U.G. Hewage - Manager Trustee National Insurance Trust Fund S. Abeygunasekera - Chairman National Development Trust Fund A. Dahanayake - Chairman S. Weeratunge - General Manager Employees’ Trust Fund Board K.M.A. Godawatta - Chairman M.C.H. Gunarathne - Additional General Manager Sri Lanka Insurance Corporation G. S. Senerath - Chairman N.B. Hapuhinne - General Manager Sri Lanka Accounting & Auditing Standards Monitoring Board P. Samarasiri - Chairman A.S. Ratnayake - Director General Public Utilities Commission of Sri Lanka J. de Costa - Chairman D. Kumarasinghe - Director General Sri Lanka Social Security Board N. C. Amarasinghe - Chairman K.N.J. Cooray - General Manager Sri Lanka Export Credit Insurance Corporation D.P. Mendis - Chairman D. Ranasinghe - General Manager Local Loans & Development Fund N.G. Dayarathne - Chief Executive Officer Agriculture & Agrarian Insurance Board Ms. S. Ariyadasa - Chairperson P. Weerasinghe - General Manager CONTENTS CHAPTER 1 Development PERSPECTIVES 21 Economic Policy in Brief 22 Macroeconomic Overview 25 Reconciliation and Development 35 Thrust on Public Expenditure 43 Economic Infrastructure – Randora 46 Power and Energy – Towards an Energy Hub 46 Roads 51 Ports – Towards a Naval Hub 59 Aviation – Towards an Aviation Hub 60 Transport 61 Water Supply and Sewerage – Towards Quality Living 64 Irrigation - Water is Our Heritage and Life 69 Health – Towards a Quality Life 78 Education and Technology – Towards a Knowledge Society 87 Communication 91 Tourism 92 Environment - A Land in Harmony with Nature 94 Real Economy – Towards High Productivity 94 Agriculture 94 Livestock 99 Plantation 101 Fisheries 103 Industry 104 Regional Development – Gama Neguma 105 Rural Development 105 Reducing Regional Disparities 109 Welfare and Social Security 112 Grass-root Development 112 Welfare and Social Safety Measures 119 Housing 121 Private Sector Development 122 Capital Market Activities 122 Private Sector Development 125 Domestic Demand 127 Domestic Demand Supply of Goods and Services 127 Investment and Savings 133 Inflation 135 External Sector 136 Balance of Payments 136 Labour Force 140 Employment Creation 140 Labour Productivity 141 Wages 142 Labour Standards 143 CHAPTER 2 FISCAL Development 145 Overview 146 Government Revenue 149 Government Expenditure 156 Recurrent Expenditure 156 Public Investment 160 Performance of the Provincial Councils 169 Debt Management 170 CHAPTER 3 REFORMS INITIATIVES 173 Overview 174 Tax Reforms 174 Banking Sector Reforms 185 Capital Markets Reforms 186 Insurance Reforms 187 Procurement Related Reforms 188 Other Reforms 191 CHAPTER 4 state OWNED ENTERPRISES (SOE) 201 Overview 202 SOE Contribution to the National Economy 202 Partnership Role in Development 203 Finance Sector 205 Infrastructure Development Enterprises 216 Service Sector 223 Performance and Issues of Other SOEs 231 CHAPTER 5 FOREIGN FINANCING 243 Overview 244 Financing for Roads and Highways 253 Financing for Power and Energy 259 Financing for Water Supply and Sanitation 262 FInancing for Ports and Aviation 266 Financing for Railways 268 Financing for Agriculture and Irrigation 270 Nothern Province Development 274 Mobilizing Resources for a Caring Society 283 Financing for Education and Health 284 CHAPTER 6 Development FINANCE 289 Overview 290 SME Sector 290 Small and Medium Enterprise Development Facility Project 290 Small and Medium Enterprise Regional Development Project 291 Microfinance Sector 293 A Regulatory and Supervisory Mechanism for Microfinance 294 Foreign Assistance to Microfinance 295 Agriculture Sector Financing 297 Fertilizer Subsidy Programmes 297 Purchasing Programmes 301 Other Programmes Facilitated 303 Financial Assistance Schemes 303 CHAPTER 7 FINANCIAL Statements 307 Financial Statements 2010 308 Statement of Financial Performance for the Year Ended 31st December 2010 309 Statement of Cash Flow for the Year Ended 31st December 2010 310 Statement of Financial Position as at 31st December 2010 311 Analysis of Total Expenses of the Statement of Financial Performance for the Year ended 31st 312 December 2010 Statement of Accounting Policies 313 Notes to Financial Statements 315 Head-wise Summary of Expenditure Account with Budgetary Provision 2010 366 SRI LANKA AT A GLANCE - 2005 & 2010 SRI LANKA AT A GLAnce - 2005 & 2010 2005 2010 2005 2010 GDP GOVERNMENT FINANCE GDP at Market Prices (Rs.Bn.) 2,453 5,602 Revenue (Rs.Bn.) 380 817 GDP at Market Prices (USD Bn.) 24.4 49.5 Tax Revenue (Rs.Bn.) 337 725 Services (USD Mn.) 14,155 28,640 Total Expenditure (Rs.Bn.) 585 1,280 Industry (USD Mn.) 7,368 14,594 Current Expenditure (Rs.Bn.) 444 937 Agriculture (USD Mn.) 2,885 6,344 Public Investment (Rs.Bn.) 225 357 Per Capita GDP at Market Prices (Rs.) 124,709 271,259 Revenue Deficit/GDP % -2.6 -2.1 Per Capita GDP at Market Prices (USD) 1,241 2,399 Budget Deficit/GDP % -8.7 -8.0 Inflation - GDP Implicit Price Deflator (%) 10.4 7.3 Revenue (USD Mn.) 3,779 7,233 Inflation - CCPI (%) (Annual Average) 11.0 5.9 Tax Revenue (USD Mn.) 3,352 6,414 Unemployment No. ('000) 623 401 Total Expenditure (USD Mn.) 5,819 11,329 Unemployment (%) 7.2 4.9 Current Expenditure (USD Mn.) 4,412 8,293 Labour Force Participation Rate (%) 49.3 48.1 Public Investment (USD Mn.) 1,479 3,153 Budget Deficit (USD Mn.) -1,716 -3,939 STRUCTURE OF THE ECONOMY Share of GDP (%) TOTAL GOVERNMENT DEBT (USD Mn) 22,115 40,600