Monday February 26, 2024

Bankrupt Sri Lanka clears budget as IMF bailout delays

December 09, 2022


Colombo: Crisis-hit Sri Lanka's parliament on Thursday approved President Ranil Wickremesinghe´s 2023 budget, vital to raising government revenue and securing a twice-delayed IMF bailout.

The island nation has been reeling from more than a year of severe shortages and runaway inflation, prompting protests that ousted Wickremesinghe´s predecessor Gotabaya Rajapaksa in July.

Parliament voted overwhelmingly to sign off on Wickremesinghe´s plan to raise overall tax revenue by nearly 70 percent and privatise loss-making state enterprises after a month-long debate.

Wickremesinghe, a six-times prime minister, has already sharply raised taxes and increased fuel, water and electricity tariffs and rationed petrol and diesel in a bid to stabilise the economy.

His moves followed the government declaring bankruptcy in mid-April and defaulting on its $46-billion foreign debt for the first time since independence from Britain in 1948.

But the main opposition said Wickremesinghe´s first full budget was unrealistic and warned that the economic crisis could worsen next year.

"This is a failed budget," opposition legislator Eran Wickramaratne said on Thursday. "The numbers in the budget are unrealistic."

The budget expects a 69-percent increase in tax revenue next year and projects a narrowing of the budget deficit to 7.9 percent of GDP in 2023, down from 9.8 percent this year.

The central bank had initially expected a $2.9-billion bailout from the International Monetary Fund to materialise by August.

The bank later said it hoped a deal could be concluded by early December, but now say talks could drag onto early next year.

An agreement with all external creditors, including China which accounts for 52 percent of Colombo´s bilateral debt, is a pre-condition to drawing down any IMF support. Beijing has made no public statements on Colombo´s pleas to "restructure," a euphemism for a debt haircut, but officials say talks are still underway.

Japan and India are the other two major bilateral creditors owning 19.5 percent and 12 percent of Sri Lanka´s bilateral debt respectively.

Much of the foreign debt is in international sovereign bonds (ISBs) held by private investors and talks with them are also ongoing, officials said adding that a deal was yet to be struck.

The IMF has said Sri Lanka´s foreign debt must be "sustainable" to unlock any new external funding and the country should also restructure its myriad loss-making state enterprises.

Wickremesinghe has proposed the

sale of the country´s loss-making national carrier, Sri Lankan airlines, and

several other entities to raise foreign exchange and boost the country´s external reserves. Official figures show that major state businesses, including Sri Lankan airlines, lost $2.38 billion in the first four months of this year alone.