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Tuesday February 27th, 2024

Sri Lanka aims to cut deficit, have non-traditional budget in 2022

VICTIM OF GLOBAL POLICY: Sri Lanka pushed up state spending under ‘revenue-based-fiscal-consolidation’ and is in further trouble after taxes were cut in 2019.

ECONOMYNEXT – Sri Lanka aims to make a ‘significant reduction’ in the country’s runaway fiscal deficit in 2022 and have a ‘non-traditional budget’ senior officials said as the country is also facing severe monetary instability due to artificially low interest rates.

“This is not a traditional budget. From the mingling I had with the finance minister and finance ministry officials, I have an understanding that he (finance minister) will make this as a transformation budget,” Presidential Secretary P B Jayasundara told a media briefing on Tuesday (02) at the Presidential Media Centre.

“The budget will focus on increasing the country’s revenue as a whole based on the president’s“Vistas of Prosperity and Splendour,” he said referring to President Gotabaya Rajapaksa’s election manifesto.

Treasury Secretary Attygalle said a new economic growth is expected along with the normalization of the country.

“We are planning to reduce the budget deficit by a significant level. Maintaining a higher budget deficit is against the state’s fiscal policy,” Attygala said.

Attygala said the budget will curtail non-priority spending while maintaining funds for government’s development projects unhindered.

“The government’s policy is to reduce the budget deficit to 4.5-5 percent (of the GDP). We are getting into that path of reducing the budget deficit by a significant portion while maintaining the government expenditure and development activities,” he said.

Sri Lanka’s last year budget deficit hit close to 14 percent of gross domestic product, which was reported 11.1 percent through number juggling its worst in 37 years, after a reckless tax cut in December 2019, shortly before a Coronavirus pandemic hit.

Money printed to finance the deficit and keep rates artificially low has depleted foreign reserves and also effectively transferred a part of the central government foreign debt to the central bank, which is now having negative net reserves.

With money printing injecting rupee reserves to the banking system, demands to transfer money out have risen above inflows.

The monetary instability has raised fears of external debt default, with the central bank finding it difficult to provide dollars (convertibility) to the money printed for current imports, let alone repay debt.

The budget document is seen as President Gotabaya Rajapaksa administration’s first economic blueprint to spell out the economic policy through 2024 amid the county facing a risk of sovereign debt default, a claim rejected by Jayasundera.

Finance Minister Basil Rajapaksa will deliver the 2022 budget on November 12 and it is expected to be one of the trickiest budgets in Sri Lankan history amid sharp revenue shortfall.

Sri Lanka is a victim of several years of ‘revenue-based-fiscal-consolidation’ where spending-based-consolidation was pooh-poohed as part of a US-driven global drive to eliminate tax holidays backed by the International Monetary Fund critics say.

Sri Lanka has been brought to the brink of default through a combination of ‘revenue-based-fiscal consolidation which pushed up state spending to over 20 percent of GDP from 17 percent and un-anchored monetary policy for ‘stimulus’ which generated external instability.

The ‘fiscal stimulus’ tax cut in December 2019 came on top of spending hikes from ‘revenue-based-fiscal consolidation’ from 2015.

Sri Lanka has pursued ‘flexible-inflation-targeting’ a highly discretionary framework which allowed the central bank with a domestic anchor involving a high-inflation target of up to 8 percent.

It was compounded by a ‘flexible-exchange-rate’ a highly discretionary external anchor, which involves rapid switching between pegged and floating exchange rates that leads to steep currency collapses and almost immediate downgrades.

In 2018 Sri Lanka was downgraded as the currency collapsed in a ‘flexible-exchange-rate’ amid money printing despite a steep tax hike and a correction in the deficit.

Another downgrade followed in a March 2020 currency collapse and later in the year.

Rating agencies have warned of further downgrades if foreign reserves fall. (Colombo/Nov03/2021)

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Sri Lanka sets up fund to help children of Gaza

The United Nations Relief and Works Agency for Palestine Refugees in the Near East is mandated to provide education, health, relief and social services, and emergency assistance to refugees. (Pic courtesy UNWRA)

ECONOMYNEXT – Sri Lanka’s cabinet of ministers have approved a proposal by President Ranil Wickremesinghe to set up a fund to help children caught in the war in Gaza, a statement said.

The government will contribute a million US dollars and use funds allocated by state agencies for Ifthar celebrations.

Public contributions are also called.

The Presidential Secretariat is requesting public donations citizens for the “Children of Gaza Fund” to be contributed to account number 7040016 at Bank of Ceylon (7010), Taprobane Branch (747) by 11th April.

Deposit receipts should to be forwarded to 0779730396 via WhatsApp. (Colombo/Feb27/2024)

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Top US official calls for inclusive reforms, deeper defence ties with Sri Lanka

ECONOMYNEXT — United States Deputy Secretary of State for Management and Resources Richard Verma in discussions with Sri Lanka officials had called for inclusive reforms and stronger human rights and also discussed deeper defence and maritime cooperation.

The United States remains committed to the economic growth and prosperity of Sri Lanka, statement from the US Embassy in Colombo quoted the official as telling government, civil society and economic leaders during his February 23-24 visit to Sri Lanka.

“Verma met with President Ranil Wickremesinghe and Foreign Minister Ali Sabry to discuss progress on Sri Lanka’s IMF program, including inclusive economic and governance reforms aimed at keeping Sri Lanka on the path to sustainable economic growth.  Deputy Secretary Verma stressed the vital need to protect human rights and fundamental freedoms, including freedom of expression. They also explored opportunities to deepen defence and maritime cooperation between the United States and Sri Lanka, including strengthening the Sri Lanka Navy’s capabilities to safeguard national security and promote a more stable Indo-Pacific region,” the statement said.

 On February 23, aboard the SLNS Vijayabahu, one of three former U.S. Coast Guard cutters transferred by the United States to Sri Lanka, Deputy Secretary Verma said: “I am pleased to announce that the Department of State has notified Congress of our intent to transfer a fourth medium endurance cutter to Sri Lanka.  The Department obligated $9 million in Foreign Military Financing to support this effort.  We look forward to offering the cutter, pending the completion of Congress’ notification period.  If completed, this transfer would further strengthen defense cooperation between the United States and Sri Lanka.  The ship would increase Sri Lanka’s ability to patrol its Exclusive Economic Zone, monitor its search and rescue area, and provide additional security for ships from all nations that transit the busy sea lanes of the Indian Ocean.” 

 Participating in the announcement at Colombo Port were Sri Lanka State Minister of Defense Premitha Bandara Tennakoon, Commander of the Sri Lanka Navy Vice Admiral Priyantha Perera, and U.S. Ambassador to Sri Lanka Julie Chung, who remarked, according to the statement: “The United States has previously transferred three cutters to the Sri Lankan Navy, which deploys these ships for maritime operations and law enforcement missions, countering human trafficking and drug trafficking, while supporting humanitarian assistance and disaster response efforts. The eventual transfer of a fourth vessel would be just one more point in a long history of cooperation between Sri Lanka and the United States in preserving a free and open Indo-Pacific region.” 

Verma also visited the site of the West Container Terminal (WCT), a deepwater shipping container terminal in the Port of Colombo. The WCT, currently being constructed by Colombo West International Terminal (CWIT) Private Limited with 553 million US dollars in financing from the U.S. International Development Finance Corporation, will provide critical infrastructure for the South Asian region, the embassy said.

“Operating near capacity since 2021, the Port of Colombo’s new addition will be the port’s deepest terminal and aims to boost Colombo’s shipping capacity, expanding its role as a premiere logistics hub connecting major routes and markets, boosting prosperity for Sri Lanka without adding to its sovereign debt,” it said. (Colombo/Feb27/2024)

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Sri Lanka police chief appointment against constitution: Opposition Leader

Samagi Jana Balavegaya leader Sajith Premadasa addresses the rally

ECONOMYNEXT – The appointment of Sri Lanka’s new police chief Deshbandu Tennakoon is against the constitution as the decision lacked required votes at the Constitutional Council, Opposition Leader Sajith Premadasa said.

President Ranil Wickremesinghe on Monday (26) appointed Deshbandu Tennakoon as the 36th Inspector General of Police (IGP) of the country after the Constitutional Council (CC) cleared the official who along with three other police officers were asked by the Supreme Court to compensate 2 million rupees in a fundamental rights case last year.

“CC didn’t approve IGP’s appointment. Votes: 4 for; 2 against; 2 abstentions. At least 5 votes are required for a decision,” Premadasa said in his X (Twitter) platform.

“Speaker has a casting vote only in case of a tie. 4/2 is not a tie! Constitution is being blatantly violated for the second time. Shame on you speaker!”

Speaker Mahinda Yapa Abeywardena was not reachable for a comment on the Opposition Leader’s claim.

The President Media Division (PMD) said the President appointed Tennakoon “as the IGP in accordance with the provisions of the Constitution”.

The island nation’s Supreme Court on December 14 ordered Tennakoon when he was the Acting IGP and three other officials to pay a compensation of 500,000 rupees each for the violation of the fundamental rights of an individual.

The Supreme Court also instructed the Police Commission to take disciplinary action against the said Police officers including Tennakoon after it considered the petition filed by W. Ranjith Sumangala who had accused the Police officers of violating his fundamental rights during his detention at Mirihana Police Station in 2011.

The Supreme Court held that the four police officers violated the fundamental rights of the petitioner by his illegal arrest, detention and subjection to torture at the Mirihana Police Station, which was under the supervision of Tennakoon at the time of the arrest. (Colombo/Feb 27/2024)

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