Sri Lanka: President Ranil Wickremesinghe to present maiden budget in hopes of IMF loan
Ranil Wickremesinghe
30 August, 2022will mark the presentation of Sri Lankan President Ranil Wickremesinghe's first budget as head of his crisis-ridden nation. He will cut defence and other spending in an effort to secure help from the International Monetary Fund (IMF).
The staff-level agreement on extending crucial IMF assistance for Sri Lanka to address its greatest economic crisis since gaining independence from Britain in 1948 is expected to follow the interim budget for the remainder of the year, according to officials.
The island's tourism-based economy suffered from COVID-19, which also reduced remittances sent home by foreign workers. Rising oil costs, populist tax cuts, and a seven-month import restriction on chemical fertilisers last year, which ruined agriculture, all contributed to the damage.
As a result, there are ongoing shortages of essential goods, exorbitant prices, and widespread protests. As a result, President Gotabaya Rajapaksa was forced to leave the country, leaving Wickremesinghe in charge of restructuring the nation's massive debt to China and other nations while requesting an IMF bailout.
The finance ministry is held by six-time Prime Minister Wickremesinghe, who told Reuters this month that the budget he will deliver to parliament will cut spending by "a few hundred billion" rupees, including on defence.
In its most recent budget, which was unveiled in November, Sri Lanka sought to spend 3.9 trillion rupees ($11 billion).
In addition, Wickremesinghe is anticipated to lay out plans to aid low-income areas that have been hardest hit by the crisis and propose new taxes to reduce the country's budget deficit.
The interim budget is expected to lower the deficit objective from roughly 12% of GDP to 9.9%, but analysts caution that this is an ambitious goal because the economy is expected to fall by nearly 8% this year.
"A long-standing problem is budgets don’t meet revenue and deficit targets so this budget will have to really focus on proper revenue-based fiscal consolidation," said Shehan Cooray, head of research at Acuity Stockbrokers.
"The key things will be the budget deficit and primary deficit targets, which will be in line with an IMF plan."
According to rating agency S&P Global, the country skipped 22 million interest payments due on June 3, June 28, and July 18, as well as a principle payment due on July 25.
Wednesday marks the end of a visit by an IMF team that came last week, and Sri Lankan officials are hoping to push discussions for an emergency loan of approximately $3 billion by then.
(With inputs from agencies)
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