Hoping for an IMF loan, the Sri Lankan president is preparing to present his first budget

Sri Lankan President Ranil Wickremesinghe looks on during an interview with Reuters at the presidential secretariat, amid the country’s economic crisis, in Colombo, Sri Lanka, August 18, 2022. Photo: Reuters

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Sri Lankan President Ranil Wickremesinghe looks on during an interview with Reuters at the presidential secretariat, amid the country’s economic crisis, in Colombo, Sri Lanka, August 18, 2022. Photo: Reuters

Sri Lankan President Ranil Wickremesinghe will cut defense and other spending on Tuesday in a bid to win support from the International Monetary Fund (IMF) as he presents his first budget since taking over as leader of his troubled country .

Officials hope the interim budget for the rest of the year will be followed by a staff-level agreement on extending much-needed IMF assistance to Sri Lanka to deal with its worst economic crisis since independence from Britain in 1948.

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Covid-19 has battered the island’s tourism-dependent economy and reduced remittances from overseas workers. The damage has been compounded by rising oil prices, populist tax cuts and a seven-month ban on the import of chemical fertilizers last year that devastated agriculture.

The result was chronic commodity shortages, exorbitant prices and mass protests that forced President Gotabaya Rajapaksa to flee the country, leaving his successor, Wickremesinghe, to manage the restructuring of billions of dollars of debt to China. and other countries while seeking a bailout. of the IMF.

Six-time Prime Minister Wickremesinghe, who holds the finance portfolio, told Reuters this month that spending would be cut by “a few hundred billion” rupees, including on defence, in the budget he will present to the parliament.

Sri Lanka targeted 3.9 trillion rupees ($11 billion) in spending in its latest budget, presented in November.

Wickremesinghe is also expected to outline measures to support low-income communities hardest hit by the crisis and announce new taxes to reduce its budget deficit.

The deficit target is expected to be cut from around 12% of gross domestic product to 9.9% in the interim budget, but analysts warn this is an ambitious target as the economy is expected to contract d about 8% this year.

“A long-standing problem is that budgets are falling short of revenue and deficit targets, so this budget will really need to focus on proper revenue-based fiscal consolidation,” said Shehan Cooray, head of research at Acuity Stockbrokers.

“Key elements will be fiscal deficit and primary deficit targets, which will be in line with an IMF plan.”

The nation of 22 million missed interest payments due on June 3, June 28 and July 18, and a principal payment due on July 25, according to rating agency S&P Global.

An IMF team that arrived last week wraps up its visit on Wednesday, and Sri Lankan officials hope to have a staff-level deal in place to advance talks for an emergency loan of around $3 billion.

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