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Tuesday May 30th, 2023

Analysts’ view on Sri Lanka’s 2023 budget

Danushka Samarasinghe,  Chief Executive Officer/Director at Nation Lanka Equities (Pvt) Ltd

“Fears of additional taxes such as wealth tax, increase in VAT (value added tax), additional taxes on revenue etc. came to rest with the announcement of the 2023 budget proposals. Ending of uncertainty and speculation is a positive.”

“But it would have been better if there was time bounded targets for increasing government revenue from measures such as divesting state owned assets and SOEs. Just a mere mention of the intention of divestiture may not hold water. Also any significant reforms to reduce the public sector headcount was the need of the hour and seems to be omitted.”

Naveed Majeed, Senior Vice President, Asia Securities

“Investors were on the sidelines for the past couple of weeks in the anticipation of a capital gains tax on the stock market. But the absence of such a tax on the equity market will be viewed positively by the investors. But having said that, taxes that were introduced in the interim budget will go on to impact corporate performance broadly because now it’s a flat 30 percent corporate tax without any concessionary rate.”

“From a tax impact, we are going to see the disposable income being squeezed and then you are going to see an impact on demand which will impact corporate and finally the high-interest rates. While this might be one of the investment areas not being taxed, on the other hand, we are going to see corporate earnings being at risk.

Finally, it’s not going to be an entire index run but specific rather its going to be specific companies that are resilient that investors need to position for.

Dimantha Mathew, Head of Research at First Capital

“In terms of investor sentiments, there was nothing related to securities…There was only a mention of reducing para-tariffs in the long term…Which is a good thing,”

“I don’t think there would be a major reaction in the market because the budget that was presented today did not have any direct.”

Professor W. Wimalaratana, President of Sri Lanka Economic Association

“As a document, the budget is good and this is not an exceptional budget. Even in the past, when you are looking at budget speeches, budget documents all those were really attractive. When you are going to deliver, there will be a lot of issues. Supplementary budgets will be presented to the parliament because of allocated money is not sufficient.”

“When we look at the current economic crisis situation, this should be an exceptional budget. The main focus should be to expand the revenue of the government while reducing expenses. When we look at the budget there are no sufficient concrete strategies to increase the government revenue. Also privatization has been included.”

Sujata Gamage, Senior Research Fellow, LIRNEasia 

“They are opening another few medical colleges. It is amazing I mean we keep producing these doctors for the foreign market. We need a higher education responsibility act. The relative amounts for higher education and school education has changed over the years the relative percentage for higher education has increased.”

“We need quality education. But right now we are paying for paper qualifications. I remember in 2003 World Bank noted that we spent more on higher education as percentage of education budget than the normal.” (Colombo/Nov14/2022)

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Sri Lanka cabinet approves President’s proposal to resume Japanese LRT after soared ties 

ECONOMYNEXT – Sri Lanka’s Cabinet of Ministers approved a proposal by President Ranil Wickremesinghe to resume the unilaterally cancelled Japan funded Light Rail Transit (LRT), cabinet spokesman said, as the island nation is in the process of mending ties with Tokyo.

However, any such deals are likely to take place after the debt restructuring and Sri Lanka starts to repay its foreign loans to come out of default, analysts say.

Former President Gotabaya Rajapaksa unilaterally cancelled the 1.5 billion US dollar LRT and East Container Terminal (ECT) projects in 2021. Japan agreed to fund the LRT project while it was one of the tripartite members of the ECT project along with India and Sri Lanka.

The abrupt cancellation hit the diplomatic ties between the two countries and Sri Lankan government officials have said Japan had given the project to Sri Lanka at a very lower financing cost.

President Wickremesinghe returned from Japan late last week after having met top officials of the Japanese government including its prime minister.

“In recent history, due to the stopping of several agreements and proposals suddenly, President Wickremesinghe went to Japan after creating the background to clear some of the worries we have,” Cabinet Spokesman Bandula Gunawardena told the weekly media briefing.

“Before he went, he got the approval from the cabinet to resume the discussion on the light railway project. He got the approval from the cabinet to get parliament approval for bilateral agreements signed or any other investments project. Any change or cancellation of a project could be done only with the approval of the parliament.”

Japan has backed Sri Lanka under Wickremesinghe’s presidency after the island nation declared sovereign debt default. (Colombo/May 30/2023)

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Sri Lanka to tighten grip on television with broadcast law

ECONOMYNEXT – Sri Lanka has formulated a broadcast authority law to regulate electronic media which will be made public soon, Cabinet spokesman Minister Bandula Gunawardana said.

“The draft prepared by a cabinet subcommittee under Justice Minister Wijedasa Rajapaksa has discussed with various parties will be given to all media institutions and broadcast media,” Gunawardana said.

“We do not have to hide or force anyone. A legal framework that can be acceptable to all for all sectors.”

“In a week or two Minister Wijedasa will discuss with state and private stakeholders.”

At the moment Sri Lanka has issued frequencies without conforming to an “international procedures”, he said.

In Sri Lanka television frequencies are issued under a state television act.

Successive administrations in Sri Lanka has since around 1980 mis-used state television duopoly which including for conducting elections according to critics.

Private television as well a raio emerged around the 1990s and has since over shadowed state media.

There have been calls by ruling party politicians from time to time to control private media. There is now calls to control social media.

At a Committee on Public Accounts meeting of the Department of Government Information, ruling coalition legislators called for regulation of television content. (Colombo/May30/2023)

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Sri Lanka rupee at 296.75/297.25 to dollar at open, bond yields steady

ECONOMYNEXT – Sri Lanka’s rupee opened at 297 /297.50 against the US dollar in the spot market on Monday, while bond yields were steady, dealers said.

The rupee closed at 296.75 /297.25 to the US dollar on Monday after opening around 296.50 /297.50 rupees.

A bond maturing on 01.09.2027 was quoted at 26.50/75 percent steady from Friday’s close at 26.50/65 percent.

Sri Lanka’s rupee is appreciating amid negative private credit which has reduced outflows after the central bank hiked rates and stopped printing money. (Colombo/ May 29/2023)

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