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Monday February 6th, 2023

Amid Chinese tourism shutdown, Sri Lanka says flights to and from Beijing to increase

Chinese Ambassador to Sri Lanka Qi Zhenhong delivered a special message from Chinese President Xi Jinping to President Gotabaya Rajapaksa on June 16 Photo Credit: Chinese Embassy Twitter page

ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa’s office on Monday said the Chinese ambassador to Colombo has revealed that Beijing will operate three flights to Sri Lanka from this week while local carrier Sri Lankan also will reciprocate by increasing flights to Beijing.

It was not immediately clear why both countries want to boost the number of flights when there is no demand for air travel in the two countries. Most Sri Lankans cannot go on business trips as earlier because of dollar shortages. Chinese visitors, who were at the top of the tourist arrival list, cannot come because the Chinese government has not lifted a travel ban.

“It has been decided to increase the number of flights between China and Sri Lanka,” President’s Media Division (PMD) said in a statement,

“Accordingly, China will operate three flights to Sri Lanka from this week. Sri Lankan Airlines offers
frequent flights to China,” it said.

“This was revealed by the Chinese Ambassador to Sri Lanka Qi Zhenhong when he paid a courtesy
call on President Gotabaya Rajapaksa at the President’s House in Colombo.”

The PMD said the Chinese Ambassador briefed the President on the economic and humanitarian assistance provided and
expected to be provided by the Chinese Government to Sri Lanka.

“Measures have been taken to provide opportunities for Sri Lankan medical students to return to China to continue their studies.
Further development of bilateral trade and economic activities were discussed at length,” the PMD said.

“President Rajapaksa commended China for its support to Sri Lanka as a friendly country during this
current economic crisis.”

The Chinese Embassy in Colombo did not comment on the meeting. But on Thursday, the embassy on its official Twitter page said Ambassador Qi Zhenhong went to the Presidential Palace and delivered the birthday congratulatory letter from President Xi Jinping to President Gotabaya Rajapaksa.

“The two sides also conducted friendly exchanges on China’s aid to Sri Lanka and the promotion of major economic cooperation projects.”

China, the largest bilateral commercial loan lender of Sri Lanka, has pledged 2.5 billion US dollars to overcome Colombo’s ongoing economic crisis. However, the loans have been delayed as Beijing has said it will wait until there is clarity on the IMF negotiations and debt restructuring.

Beijing has not been in favour of any debt restructuring. However, it has agreed to lend Sri Lanka further loans to repay its own past loans. (Colombo/June 20/2022)

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Sri Lanka’s banks may have to re-structure loans caught in progressive tax

ECONOMYNEXT – Sri Lanka’s banks should explore restructuring loans of salaried employees hit by progressive tax, Central Bank Governor Nandalal Weerasinghe said as progressive income taxes were imposed at lower thresholds amid high inflation following a sovereign default.

There have been complaints mainly by picketing state enterprise executives and also other workers of such agencies such Sri Lanka Port Authority that high progressive taxes were putting their bank accounts into overdraft after loan installments were cut.

“Yes, they have mentioned that,” Governor Weerasinghe said responding to questions from reporters.

“We have told the banks earlier as well. Because the interest rates are high and their business being reduced, the SME sector, the repaying capability has reduced.

“We have told them to explore their repaying capabilities and restructure their loans in order to safe guard both sides. At this time also we are asking the banks to do that.”

In the case of some state enterprises, the Pay-As-You-Earn tax, through which income tax is deducted from salaried employees in the past was not paid by the employee but the SOE.

Bad loans of the banking system overall had risen after the rupee collapsed, reducing the spending power in the economy, while rates also went up as money printing was scaled back, foreign funding stopped and the budget deficit widened.

The rate hike has prevented possible hyperinflation and a bigger implosion of the economy by stabilizing the external sector in the wake of previous mis-targeting of interest rates.

In the current currency crisis a delay in an IMF program due to China not giving debt assurances as well as fears of domestic debt re-structure has kept interest rates elevated.

Sri Lanka’s economic bureaucrats in 2020 cut taxes and also printed money, in a classic ‘Barber Boom’ style tactic implemented by UK economists and Chancellor Anthony Barber in 1971 to boost growth and employment.

The ‘Barber Boom’ ended in a currency crisis (at the time the UK did not have a floating rate and the Bretton Woods system was just starting to collapse under policies of Fed economists) and inflation of around 25 percent in the UK.

The UK implemented a three-day working week to conserve energy after stimulus while Sri Lanka saw widespread power cuts as forex shortages hit.

Read more:

Anthony Barber budget of 1971

Anthony Barber budget of 1972

Similar policies saw a worldwide revival as the US Fed economists injected money during the Covid crisis mis-using monetary policy to counter a real economic shock and boost employment while the government gave stimulus checques.

Now the world is facing an output shock as a hangover the Covid pandemic recedes.

The re-introduction of progressive tax at a maximum rate of 36 percent while tax brackets high jumped with the rupee collapsing from 200 to 360 to the US dollar had reduced disposable incomes further.

Salaries employees were encouraged to get loans in 2020 with the central bank mandating a 7 percent ceiling rate for five years.

However, any borrower who got loans on floating rates long before the scheme are now facing higher rates. (Colombo/Feb06/2023)

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Sri Lanka to address SME tax problems at first opportunity: State Minister

ECONOMYNEXT – Problems faced by Sri Lanka’s small and medium enterprises from recent tax changes will be addressed at the first opportunity, State Minister for Finance Ranjith Siyambalapitiya said.

Business chambers had raised questions about hikes in Value Added Tax, Corporate Income Tax and the Social Security Contribution Levy (SSCL) that’s been imposed.

It should be explored on how to amend the Inland Revenue Act, Siyamabalapitiya said, adding that the future months should be considered as a period where the country is being stabilized.

Both the VAT and SSCL are effectively paid by customers, but the SSCL is a cascading tax that makes running businesses difficult.

In Sri Lanka SMEs make up a large part of the economy, accounting for 80 per cent of all businesses according to according to the island’s National Human Resources and Employment Policy.

(Colombo/ Feb 05/2023)

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Sri Lanka revenues Rs158.7bn in Jan 2023 up 51-pct

ECONOMYNEXT – Sri Lanka’s government revenues were 158.7 billion rupees in January 2023 but expenditure and debt service remained high, Cabinet spokesman Minister Bandula Gunawardana said.

In January 2022 total revenues were Rs104.5 billion according to central bank data.

Sri Lanka’s tax revenues have risen sharply amid an inflationary blow off which had boosted nominal GDP while President Ranil Wickremesinghe has also raised taxes.

Departing from a previous strategy advocated by the IMF expanding the state and not cutting expenses, called revenue based fiscal consolidation, he is attempting to do classical fiscal consolidation with spending restraint.

President Ranil Wickremesinghe has presented a note to cabinet requesting state expenditure to be controlled, Gunawardana told reporters.

State Salaries cost 87.4 billion rupees.

Pensions and income supplements (Samurdhi program) were29.5 billion rupees.

Other expenses were 10.8 billion rupees.

Capital spending was   21 billion rupees.

Debt service was 377.6 billion rupees for January which has to be done with borrowings from Treasury bills, bonds and a central bank provisional advance of 100 billion rupees, Gunawardana said.

Interest costs were not separately given. (Colombo/Feb05/2023)

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