Private suppliers in Sri Lanka in trouble from state payment arrears

PROGRESS REVIEWS: Sri Lanka PM meeting officials at the Finance Ministry

ECONOMYNEXT – Private firms which have provided services to Sri Lanka’s government ae in difficulties due to delayed payments Prime Minister Mahinda Rajapaksa has said.

Due to a vote on account on which the government is now working with, many private firms that have carried out projects are in difficulties, Prime Minister Rajapaksa has told a progress review meeting at the finance ministry Tuesday.

Cabinet spokesman Bandula Gunewardene said earlier that information has been sought from secretaries to all ministries to tabulate the total payment arrears.

The contracts had been awarded by the previous administration but had not been paid, he said.

“Many small and medium contractors and suppliers have told us that they are in difficulties,” Gunewardene said.

“They all have sad stories to tell. We have called for reports from all secretaries to find out the total.”

Sri Lanka’s fiscal authorities have a habit of running payment arrears to understate the budget deficit in the last two months of the year, which are then settled in January.

Sometime they are settled with so-called ‘provisional advances’ or printed money from the central bank, which in some years puts pressure on the rupee, if private credit is also picking up.

Sri Lanka’s private credit has been weak in 2019, after a currency collapse in 2018 and corrective measures.

The current administration has given a debt relief in a bid to boost private sector activity, though analysts say the credit system usually recovers from a currency collapse after about 18 months.

The current administration had slashed value added tax, which has raised concerns over the state borrowings.

Sri Lanka’s finance ministry has said it is aiming to keep the deficit around 5.5 percent of GDP in 2020 with expenditure cuts.

There have been also calls to cut interest rates raising fears over liquidity injections and pressure on the rupee. (Colombo/Jan29/2020)