Uncertainty looms for MSME sector with “cosmetic budget” for 2022: COSMI

• Stresses this is not a period for testing economic theories and models, but a period for urgent action
• Notes gradual shifting towards a production-oriented economy from an import substitution economy is the way out 
• Says the new tax imposed on banks would make the hard-hit MSMEs further vulnerable

The government was called on by Confederation of Micro, Small and Medium Industries Sri Lanka (COSMI) to refrain from experimenting economic theories and models on the business community, especially on the MSME sector, as the operative environment is already challenging.  COSMI presented its critical views on the Budget 2022 presented recently and called it a “well planned cosmetic budget” that lacks the required strategy, direction, and coherence to steer the economy forward at a time of global crisis.

“Where the MSME sector is concerned a number of isolated interventions have been taken and the impact on the economic consolidation is not quite clear.  “This is not a period for experimentation of numerous economic theories and models rather a period for urgent action of the widely accepted, logical, and practical solutions and strategies,” said COSMI President Nawaz Rajabdeen in a statement to the media yesterday. 

While acknowledging the Budget 2022 is presented at “extremely difficult and exceptional circumstances”, it lacks smart thinking, a touch of ground realities, and is seen largely as a cosmetic exercise in desperate times, said Rajabdeen.

“It is the very circumstances that made 2022 budget onerous, such as the sharp revenue shortfall, rising expenditure, and excess money printing, among others that should have been effectively addressed rather than taking a political and unscientific approach towards addressing them,” he added, asserting the government must take the ‘bull by the horns’.  The chamber observed that the key-most challenges, such as; the rising unemployment and poverty, threatening food security, widening trade deficit, and fast declining foreign reserves have not been effectively addressed with a clear strategy in the budget.   Furthermore, the pre-budget market confusion and economic uncertainty are further aggravated in the post-budget context, the statement from COSMI highlighted.   According to the COSMI leadership, the long-term and sustainable way of “getting out of this economic mess” is the gradual shifting towards a production-oriented economy from an import substitution economy.   The introduction of several direct and indirect taxes could add to the short-term market confusion and aggravate the rising cost of production making Sri Lankan products and services uncompetitive in the export market which in turn could increase difficulties to the export sector.

Rajabdeen shared that the MSMEs are particularly concerned that the new tax imposed on the banks could be passed on to the end customers, making the hard-hit MSMEs further vulnerable in their day-to-day struggle for existence. The dilemma of MSEs is made worse with the import restriction as a shortage of industrial raw materials is witnessed, hampering production processes, he added.

On the fertiliser issue, the advisory from COSMI is to shift towards organic agriculture with a “carefully” designed phasing out strategy for each crop sector, as opposed to the sudden withdrawal of chemical fertiliser implemented by the government. The chamber acknowledged that the shortage of agricultural produce will have far-reaching long-term economic consequences across all sectors of agro-based industries, tourism and hotel industry, and many other related sectors further aggravating the economic wounds of the nation.

COSMI concluded by asserting that the government needs to understand that desperate and ad-hoc measures could backfire making the economy more vulnerable and desperate.   Unless the fundamental problem of fiscal consolidation is addressed, the economy will continue to be highly unstable,” said Rajabdeen.