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Tuesday June 18th, 2024

Sri Lanka projects higher economic growth than IMF up to 2027

ECONOMYNEXT – Sri Lanka’s central bank is projecting higher economic growth for the next five years with output recovering to 5.0 percent by 2027 compared to 3.1 percent by the International Monetary Fund.

Sri Lanka’s economy is projected to contract 2.0 percent in 2023 and expand 3.3 percent in 2024, in projections released in the central bank’s annual report.

Growth will recover to 4.-0 percent by 2025, 4.4 percent by 2026 and 5.0 percent by 2027.

The IMF is projecting -3.0 percent contraction in 2023 and a recovery to 1.3 percent by 2024.

Growth will be 2.6 percent in 2025, 3.0 percent in 2026 and 3.1 percent 2027 and 2028.

A higher growth will have positive effects on debt levels and government revenues.

Sri Lanka’s growth slowed, especially after the end of a 30-year war amid aggressive monetary policy and currency collapses under ‘flexible inflation targeting and output gap targeting, according to critics.

Sri Lanka’s central bank by operating money and exchange policies simultaneously, (trying to collect reserves while printing money for a policy rate), had denied monetary stability to people and businesses for decades triggering exchange controls and trade restrictions, critics say.

Sri Lanka’s economy contracted 7.8 percent in 2022 after the worst bout of monetary printing by the central bank in its history, to suppress interest rates in the previous two years and target an output gap (Keynesian stimulus), which ended in default.

Suppressing interest rates by liquidity injections began in the 1920s as previously fringe ideology became mainstream policy in the US and UK, triggering international external disequilibrium in the ensuring years and ending a liberal economic order based on sound money.

In the 1930s in particular, saw gold pegs collapse and an epidemic of tit-for-tat protectionism. The 1931 devaluation of the pound drew praise from Keynes. Regular devaluations and also IMF programs followed after it was set up.

Systematized by Cambridge and Harvard academics, Keynesian style stimulus (output gap targeting then described as IS-LM) revived after the US Fed’s housing bubble broke and is expected to be legalized in a new monetary law backed by the IMF.

Sri Lanka got caught up in the

In the existing law, though output gap targeting was practiced under flexible inflation targeting, the central bank was expected to only provide stability, not growth by printing money through open market operations and other means to suppress short term rates. (Colombo/April27/2023)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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Sri Lanka telecommunications bill some clauses ruled unconstitutional by SC: Speaker

ECONOMYNEXT – Sri Lanka’s Supreme Court has found a number of clauses in a proposed amendment to the Telecom Telecommunications Amendment bill unconstitutional, speaker Mahinda Yapa Abeywardana said.

“Clause No 8, proposed section 9A 2 of the bill is inconsistent with Article 12 1 of the constitution, however this inconsistency shall cease if word ‘may’ will be replaced with word ‘shall’ as set out in the determination of the supreme court.”

“Clause No 9 is inconsistent with Article 12 1 of the constitution and only can be passed with special majority required under paragraph 2 of the Article 84. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.

Clause No 12, proposed section 17 10 of the bill is inconsistent with Article 12 1 of the constitution and can only be passed with special parliament majority required under Article 84 paragraph 2. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.”

Sections of clauses 13, 18, 20, 33 and 35 were also in violation of the constitution, and could only be passed by a special majority of parliament. (Colombo/Jun18/2024)

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Sri Lanka to exempt one house from imputed rent wealth tax: President

ECONOMYNEXT – Sri Lanka will exempt one house from a proposed wealth tax outlined in an International Monetary Fund program, President Ranil Wickremesinghe said.

About 90 percent of the people’s houses are likely to be exempt from the proposed tax, he said.

“[O]ne house will be exempt from this,” President Wickremesinghe told parliament Monday.

“It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house

“Don’t worry your house will be safe.”

The IMF program document however did not mention an exemption on one house, but did mention an exemption threshold.

Taxing houses and thrift in general could have detrimental effects on people’s well-being, housing stock and their willingness to remain in the country without migrating, critics say.

Related Sri Lanka to tax imaginary rents on houses under IMF deal

The mechanism of imputed rents was used because rates on houses were assigned to provincial councils and courts could strike it down.

Opposition legislator Harsha de Silva said the Samagi Jana Balwegaya welcomed President Wickremesinghe’s statement. (Colombo/June18/2024)

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