Sri Lankan President Ranil Wickremesinghe on Tuesday said that negotiation with the IMF on a bailout package has reached the final stage as he presented an interim budget in Parliament, aimed at boosting revenue and providing relief to people hit hard by the island nation's worst economic crisis in decades.
President Wickremesinghe, who is also the finance minister of the cash-strapped country, told Parliament that the interim budget will lay the foundation for changing the economic design which existed in the country so far. The talks with the International Monetary Fund (IMF) on a bailout package have been successful and reached the final stage, Wickremesinghe said, adding that once talks are completed he will brief Parliament on the way forward.
"Discussions on debt restructuring will be held with the main countries that provide loan assistance to our country. The United Nations in collaboration with leading international organisations, is launching a programme to ensure food security," he said. An IMF team is currently in Sri Lanka to discuss the bailout programme, which could be the antidote for the country's current economic travails.
President Wickremesinghe and the IMF team last week analysed Sri Lanka's current economic crisis as they held crucial talks to finalise the bailout package and secure a staff-level agreement for the cash-strapped country. The IMF has laid down debt restructuring as a key element to any facility being approved. Sri Lanka is in dire need of bridging finance after a bailout from the global lender.
Sri Lanka, a country of 22 million people, is under the grip of an unprecedented economic turmoil that has left millions struggling to buy food, medicine, fuel and other essentials. The country, with an acute foreign currency crisis that resulted in foreign debt default, had announced in April that it is suspending nearly USD 7 billion foreign debt repayment due for this year out of about USD 25 billion due through 2026.
Sri Lanka owes USD 51 billion in foreign debt, of which USD 28 billion must be paid by 2027. In his address to parliament, President Wickremesinghe said that several people are still unaware of how serious the financial crisis is and added that it is imperative to use this opportunity to correct past mistakes and implement long-term policies that will stabilise the economy and help us recover from the challenges.
The interim budget has introduced a number of tax reforms pertaining to Income Tax, Value Added Tax (VAT), Telecommunication Levy and Betting and Gaming Levy. Wickremesinghe announced that the VAT rate will be increased from current 12 per cent to 15 per cent with effect from September 1, 2022. It was only in June that VAT was increased to 12 per cent from 8 per cent.
The implementation of these proposals will help increase the revenue and gradually reduce the printing of money for government expenditure, he said. Wickremesinghe proposed to issue 20 per cent state of state-owned banks such as Bank of Ceylon and People's Bank to employees and depositors. An additional allowance of Rs. 2,500 to be given to pregnant mothers, in addition to the Rs 20,000 allowance.
He proposed to introduce a mandatory requirement for all citizens above the age of 18 to register with the land Revenue Department. The retirement age of government and semi-government employees will be reduced to 60 years, he added. He said all government and semi-government employees who have served up to the age of 60 years should retire by December 31, 2022.
In his speech, President Wickremesinghe also emphasised the need to form a government of all parties to tackle the island's worst ever economic crisis. "We can no longer be a nation dependent on loan assistance. We can also no longer be used as a tool of interference by other countries with strong economies," Wickremesinghe said.
"All this can be achieved, only if we work together in unity with common consent. I reiterate the invitation to all the parties represented in this Parliament to join an All-Party Government, since this unprecedented situation is the responsibility of us all, and therefore need to prioritize the necessities of the country and the nation," he added. Since becoming President to fill in the void left by his ousted predecessor Gotabaya Rajapaksa in mid July, Wickremesinghe's efforts to bring in a government of unity had so far failed.
"Some parties say that they will not join an All-Party Government due to action by the Government which they cannot condone. Others express a reluctance to join due to their opposition to the policies," he said. The lawmakers will debate the budget from Tuesday to Friday week. They will vote on it after the debate. The lawmakers will debate the budget from Tuesday to Friday week.
Wickremesinghe earlier said he was keen to provide relief through the interim budget to the people, who have been struggling with daily power cuts and shortages of basics such as fuel, food and medicines. The Sri Lankan Cabinet last week also approved a budgetary framework which where 9.9 per cent of Gross Domestic Product budget deficit in 2022 will be brought down to 6.9 per cent by 2023.Sri Lanka is also aiming to bring down the primary deficit, or the deficit without interest costs, a key performance criterion in an IMF fiscal framework from a negative 4 per cent in 2022 to a deficit of 1 per cent in 2023 in a 3 per cent of GDP correction, the EconomyNext news portal reported.