Annual Report 2008 - Ministry of Finance and Planning

7. Development Finance
269
millers had with the H.E. the President on 04th April 2006,
it was decided to release the borrowers who have repaid
more than 75 percent of the capital outstanding on the loans
granted during 1997 to 2000.
Although, majority of the defaulters made a genuine effort
to repay their loans, some were not keen to repay their
loans. Therefore, a considerable amount of loans that were
granted to paddy millers and paddy collectors during 1997
to 2000 were remaining in the non-performing category of
the banks and it badly affected the profit and liquidity ratio
of the banks.
In view of the above, Rs. 100 mn was set apart in the
2008 budget to write off the loans that were granted to
paddy millers during 1997 to 2000. Accordingly, following
concessions were provided to the paddy millers in order to
activate the defunct Small and Medium Scale Paddy Milling
sector.
• To write off the outstanding amount of the borrowers
who have paid 60 percent or more. (The loss of Rs. 90
mn. was borne by the Treasury)
• To write off the total accumulated interest of the above
loans until end of 31.12.2007. (The loss of Rs. 25 mn.
was borne by the banks)
Fertilizer Subsidy
It is generally accepted that increasing agricultural
productivity is critical to stimulating the rate of economic
growth in developing countries where agriculture plays a
vital role in the economy. Among the key complementary
determinants of agriculture productivity, fertilizer is
considered as one of the most significant productivity
determinants. The role of fertilizer subsidy in stimulating
growth and addressing food security and poverty alleviation
objectives has emerged as an important agricultural policy
of the present government. The sudden and sharp increase
in world food and fertilizer prices during 2007 and 2008 have
created the need for prompt action in meeting productivity
and social welfare goals putting the fertilizer subsidy
program high on the list of options of the government. Apart
from fulfilling the food security in the short run, income gains
transferred to farmers through the subsidy are expected to
result in increased savings and investment in complimentary
productive assets while contributing to growth in the long
run. In addition, it is expected that the income transferred
to farmers will address the social and political objectives of
poverty alleviation and enhanced equity.
In this backdrop, the government continued its pledge to
provide the major fertilizers namely Urea, TSP and MOP at
Rs. 350 a 50 kg. bag for the paddy farmers during the year
2008 as well, despite the soaring fertilizer prices.
The progress made in this concessional programme during
the year is given below.
Table 7.7
Loans written off by banks
Total Amount on 31.12.2007 More than 60% repaid up to 31.12.2007
No of Value No of Interest Value
Bank Borrowers (Rs. mn) Borrowers (Rs. mn) (Rs. mn)
Bank of Ceylon 41 17.9 38 14.2 2.6
People’s Bank 345 252.8 137 65.5 19.7
Rajarata Deve: Bank 110 21.9 73 9.5 2.7
Total 496 292.6 248 89.2 25.0
Source: Department of Development Finance
Ministry of Finance and Planning Sri Lanka
Annual Report 2008