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Friday July 12th, 2024

Sri Lanka will need Rs275bn to give Rs20,000 pay hike to state workers, hike VAT 4-pct: Minister

ECONOMYNEXT – Sri Lanka will need an extra 275 billion rupees to give 20,000 rupee salary hike to state workers, requiring value added tax to be raised by 4 percent, State Minister for Finance Shehan Semasinghe said.

To generate money for a 20,000 rupee salary hike, value added tax on the people will have to be raised from the current 18 percent to 20 percent, he said.

Meanwhile import duties will also have to be raised by around 42 percent.

Sri Lanka has already given a 10,000 rupee salary hike to state workers from taxes collected from the people.

Sri Lanka’s debt sustainability path set in an International Monetary Fund program will also be undermined, he said.

Sri Lanka’s current default was also linked to forex shortages that emerged when rates were cut with printed money claiming inflation was low (flexible inflation targeting), as deficits expanded in part due to 20,000 rupee salary hike in 2015, analysts have said.

The currency crises from ‘flexible’ inflation imposed on a reserve collecting central bank also led to the inability to settle maturing foreign debt using rupee cashflows of the government.

This in turn led run down of reserves and heavy borrowings to repay maturing debt, leading to rapid expansion of the net (and gross) external debt stock, which outpaced the actual foreign financing of the budget.

Under flexible inflation targeting, when budget deficits expand with state salary hikes, rates are cut with printed money claiming inflation is low, triggering currency depreciation, and confidence shocks to investors.

Up to 2022, out of 555 billion rupees of new taxes collected from the people since 2014 when spending based consolidation (cost -cutting) was abandoned under ‘progressive Saltwaterism’, 495 billion went as salaries and pensions to state workers.

As a result most other current spending was met with borrowings. By 2022 salaries and pensions accounted for 72 percent of the taxes collected from the people. (Colombo/July09/2024)

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Sri Lanka appoints new Attorney General

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has appointed K A Parinda Ranasinghe PC as Attorney General.

He was appointed in terms of Article 61E (b) of the Constitution of Sri Lanka, the president’s media division said.

The new AG received the appointment from President Wickremesinghe at the Presidential Secretariat on Friday.

He fills the post after the retirement of former Attorney General Sanjay Rajaratnam. (Colombo/Jul12/2024)

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Sri Lanka rupee closes stronger at 301.70/302.00 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger at 301.70/302.00 to the US dollar on Friday, from 302.80/303.00 to the US dollar on Thursday, dealers said, while bond yields were up.

A bond maturing on 15.12.2026 closed at 10.90/11.00 percent, up from 10.85/95 percent.

A bond maturing on 15.12.2027 closed at 11.75/80 percent, up from 11.80/88 percent.

A bond maturing on 01.05.2028 closed at 11.90/12.00 percent.

A bond maturing on 15.09.2029 closed at 12.10/30 percent, up from 12.15/25 percent. (Colombo/Jul12/2024)

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Sri Lanka stocks close up, muted activity

ECONOMYNEXT – The Colombo Stock Exchange closed up on Friday, data on its site showed.

The broader All Share Index closed up 0.35 percent, or 41.71 points, at 11,843; while the more liquid S&P SL20 Index closed up 0.56 percent, or 19.20 points, at 3,454.

Turnover was low at 653 million.

“The market picked up a bit from yesterday but it’s still below the psychological 12,000 mark,” Softlogic Stockbrokers said.

“Local retail participation drove the market predominantly.”

John Keells Holdings Plc brought in Rs109mn to the turnover, and the share closed flat at 194.50.

Melstacorp Plc contributed in Rs104mn to the turnover, and the share closed flat at 85.00.

Sentiment around the banking counters was mostly negative. Sampath Bank Plc closed down at 77.00, closed flat at 101.25, and Hatton National Bank Plc closed flat at 195.25.

The top contributors to the ASPI were Commercial Bank of Ceylon Plc (up at 103.50), Bukit Darah Plc (up at 397.00), and Hayleys Plc (up at 101.00).

Foreign participation remained low as well. There was a higher net foreign outflow of 101 million.

“Foreign selling was seen on John Keells Holdings, and banking counters; Hatton National Bank Plc (down at 195.00), Pan Asia Banking Corporation Plc (down at 20.70), and Commercial Bank of Ceylon Plc.

There was selective foreing interest on the diversified financials sector, particularly in companies that had vehicle leasing portfolios. “We think this might be due to the news of the vehicle import ban possibly ending.”

LOLC Holdings Plc closed up at 440.50, People’s Leasing and Finance Plc closed up at 12.20.

Softlogic Holdings Plc which announced the date of its rights issue, closed up at 8.50. (Colombo/Jul12/2024)

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