Economy likely to shrink by 3.5%-4% this year: President

• Says contraction could be controlled at 3.5% if “planned properly”
• Cautions growth could be negative 4% if global issues continue
• Says the economy will move forward from 2024 as more assistance expected
• Points out high taxes required to put economy back on track
• Announces additional allowance for govt. employees by 3Q23

As Sri Lanka is yet to tackle issues from the domestic and international fronts that are impacting its economy,

President Ranil Wickremesinghe said he expects the country’s growth contraction to be controlled at about 3.5 percent for the year 2023, if “planned properly”.

However, he cautioned that growth could also be negative 4 percent if the ongoing global issues continue.
Sri Lanka’s economy is estimated to have contracted by 11 percent in 2022.
Addressing a ceremony at the Jaya Sri Maha Bodhiya premises on Saturday (28), the President asserted the need to finalise the negotiations with Sri Lanka’s forewing creditors so that the bailout programme from the International Monetary Fund (IMF) can be unlocked.

“We cannot continue without this support. If we don’t get this support, our economy will collapse. Funds and foreign exchange in our country are not sufficient. Last year our economic growth rate was minus 11 percent. This year, if we plan properly, we can make it minus 3.5 percent,” stressed Wickremesinghe.
The government expects to move forward with the economy from 2024 as more assistance is expected in the future.

With more relief expected along the way, efforts must be taken to boost revenue to at least 15 percent of the GDP, similar to the levels  in 2019 before taxes were dropped for diverse categories. To overcome the current turmoil scenario, Sri Lanka should ideally see its revenue increased by 75 percent over the next three years, he said.
“That is our challenge. That will require you to carry a heavy burden. However, we can go on,” said Wickremesinghe.

The President shared that countries willing to offer assistance are questioning how they can forward the funds collected by way of taxes from their citizens, while Sri Lanka chooses not to tax its population, and instead rely on relief packages.  “Without this step, we cannot move forward,” he said, justifying the need for the recent tax rate hikes.

 The move has received harsh criticism, particularly from salaried employees as they are unable to lose a chunk of their earnings when the cost of living is running at extremely elevated levels. Citizens also do not have the faith and the trust in the government  as to whether it uses the taxes collected appropriately and in a transparent manner.

Sri Lanka had 1.5 million tax files in 2019, which paid income taxes in full. Sri Lanka also had 122,000 files that contributed to the Value Added Tax (VAT) and the Nation Building Tax (NBT). With sweeping tax reductions announced in the latter part of 2019, the income tax files alone dropped to 400,000. Meanwhile, Wickremesinghe expressed confidence in the possibility of “bouncing back” from the current circumstance over time if a structured programme is implemented. 

He also revealed plans provide extra allowances to all government employees as a relief in the third quarter of this year the economy stabilizes or continues to improve. He said wages must improve along with the state of the economy.

“I agree that we are all in a difficult situation. All of us are bearing the pressure caused by the increase in the price of goods, transportation costs, and oil. We are unable to avoid this.  Being a politician makes it tough to speak this truth. But ,I always reveal the truth, even if I win or lose. I request everyone to support the parliament to get out of this difficult situation,” said Wickremesinghe.