New Delhi: Sri Lankan President Ranil Wickremesinghe is set to cut defence and other expenditures in an attempt to win International Monetary Fund (IMF) support as he presents his first budget Tuesday since taking over as leader of the country. The interim budget for the year will be followed by a staff-level agreement on providing IMF help for Sri Lanka to tackle its worst economic crisis, according to officials, reported news agency Reuters.
The island’s tourism-reliant economy was badly impacted by Covid-19 that led to a decrease in remittances from workers overseas. It became worse owing to rising oil prices, populist tax cuts, and a seven-month ban on the import of chemical fertilisers last year that devastated agriculture.
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It caused massive shortages of basic items, soaring prices, and mass protests that forced President Gotabaya Rajapaksa to escape the country, leaving his successor, Wickremesinghe, to tackle debt restructuring from China and other countries while seeking a bailout from the IMF.
What’s expected to be unveiled in the budget?
Wickremesinghe, who holds the finance portfolio, told the news agency that the Budget will slash expenditure by a “few hundred billion” rupees, including defence that will be presented to the Parliament.
In the previous budget presented in November, Sri Lanka aimed for 3.9 trillion rupees ($11 billion) expenditure. The new President is also expected to announce measures to support low-income communities worst hit by the crisis and announce new taxes to shrink its fiscal deficit.
The interim budget is aiming to bring down the deficit target from about 12 per cent of gross domestic product to 9.9 per cent, but analysts warn this is an ambitious goal since the economy is projected to contract by an estimated 8 per cent this year.
“A long-standing problem is budgets don’t meet revenue and deficit targets so this budget will have to really focus on proper revenue-based fiscal consolidation,” Shehan Cooray, head of research at Acuity Stockbrokers told Reuters
Cooray added it will focus on the budget deficit and primary deficit targets, which will be in line with an IMF plan.
The nation of 22 million failed in paying interest payments due on June 3, June 28, and July 18, and a principal payment due on July 25, according to rating agency S&P Global.
An IMF team that arrived last week concludes its visit on Wednesday, and Sri Lankan officials hope to have a staff-level agreement in place to advance talks for an emergency loan of about $3 billion.