Banks have not passed on reduced interest rates announced by CB to entrepreneurs; lack of demand another bugbear

By Saman Indrajith

Entrepreneurs have not really benefited from the drop in inflation, due to the lack of demand and shrinking economy, Chairperson of Sri Lanka United National Businesses Alliance (SLUNBA), Tania Abeysundara said on Wednesday in a televised interview.

She said that their businesses are operating at 40 percent capacity and most of the money they earn is taken back by the government, through increased utility bills and taxes.

“We are not benefiting. We need to buy goods to ensure the businesses keep on operating. What we produce goes into the market, people consume and we get money. It’s a rotation. Now the consumer market is down by 40 to 60 percent. Food consumption is down by at least 40 percent, and the finished clothing market is down by 60 percent,” she said.

Abeysundara mentioned that inflation has dropped because there is more supply than demand. Companies can’t reduce supply further without shutting down certain operations.

She said that the Central Bank has asked the banks to reduce interest rates. However, the banks only give loans at a floating rate and the rate is still about 23 percent, she said.

“How do we run a business after taking a loan at 23 percent?” she said.

Abeysundara added that the government has also not done enough to encourage foreign investments. Even now, most foreign investors have to come meet the Minister and his or her family, she said.

“There is no reason to invest in Sri Lanka. Even Sri Lankan entrepreneurs aren’t getting any benefits. We are an import economy, and we cover it by taking loans. Out of the importers, about 30 percent do not pay taxes because they work with cash and not through banks,” she said.

These importers send most of the money through the black market and manage to clear the imported goods through their connections, she said.They also control the supply of goods, she added.

She said that all countries had achieved development by promoting SMEs, and that the Asian Tigers, and even China, had promoted SMEs to ensure that their economies could provide jobs to people.