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Sunday March 26th, 2023

Sri Lanka tax cuts to boost economy, 5-pct of GDP deficit in 2020: Treasury Secretary

ECONOMYNEXT – Sri Lanka’s economic activity will pick up following a series of the tax cuts and the expansion of economic activity will boost revenues and keep the deficit down in 2020, Treasury Secretary Sajith Attygalle said.

The government will also control non-essential expenditures in 2020, to keep the deficit down.

“Initially there would be a revenue dip,” Attygalle said. “We will prioritize expenditure and maintain the deficit around 5 percent of GDP in 2020.”

Sri Lanka’s economic growth dropped to 1.6 percent in the second quarter of 2019 down from 3.9 percent in 2018, from the effect of a currency collapse in 2018, which was worsened by a hit on tourism from Easter Sunday attacks.

The budget deficit expanded to 4.4 percent by July and was expected to expand to as much as 5.6 percent by the year end.

Sri Lanka’s cabinet has approved a value added tax of 15 percent to be cut to 8 percent, removed a nation building tax on domestic sales and replace it with a 8 percent tax, Minister Bandula Gunewardene said.

Attygalle said the new tax would have input credit.

The revenue drop from value added tax would not be 1 to 1 as there were other taxes in the economy he said.

The tax cuts would boost margins and profits of most companies, and retail prices may also come down in the case of companies where VAT and NBT was invoiced to final customers, analysts said.

Where retail prices fall, disposable incomes of consumers go up. Many firms with imported inputs have had their margins hit on the currency collapse in 2018.

Gunewardene said the turnover tax cuts would be effective from December 01.

Sri Lanka cabinet has approved a series of tax cuts including the removal of the economic service charge for companies and pay as you earn taxes for employees, which are advanced collections on income taxes.

A debit tax and debt service charge on banks would also be removed, Gunewardene said. There will be a threshold of 250,000 rupees on pay as you earn tax for salaried workers. (Colombo/Nov28/2019)

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Sri Lanka seeks to settle India ACU debt, credit lines over 5-years

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

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Sri Lanka coconut auction prices up 1.16-pct

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

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Sri Lanka in talks for billion dollar equivalent Indian rupee swap

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)

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