Sri Lanka passes budget for 2021
ECONOMYNEXT – Sri Lanka’s parliament passed a budget for 2021 with a super majority of 151 legislators of the 225 member assembly voting in favour and 52 voting against, in a budget that sought to boost import substitution amid a Coronavirus crisis.
The budget sought to raise 2,019 billion rupees in revenues (1,754 billion rupees in taxes) in 2021 up from an estimated 1,580 billion rupees (1358 billion rupees in taxes), and spend 3,534 billion rupees, up from 2,854 billion rupees this year.
It would give a deficit of 1,565 billion rupees (8.9 percent of gross domestic product), up from a controversial 1,266 billion rupees (7.9 percent of GDP), which is understated based on standard accounting practices.
Sri Lanka is under the worst import controls since 1970s after a period of severe monetary instability in March and April 2020, which led to a credit downgrade.
The government is saying key taxes would be kept unchanged in an improvement of policy. Sri Lanka’s budgets are an exercise in regime uncertainty where taxes are literally secretly hatched and brought in a black box and unleashed upon apprehensive economic agents.
The finance ministry did not announce many new taxes, though a 0.25 percent non recoverable tax secretly hatched tax came back as an insurance charge after a 2 percent national building tax was cut at the beginning of the year without parliamentary approval.
There were also not many expenditure proposals and no state wage hike in a further improvement in stability.
There were warning from opposition legislators that the heavily import substitution policy framework may dampen activity and make the economy less efficient and competitive. (Colombo/Nov21/2020)