President sets macro-economic fundamentals for recovery

• Talks with IMF reaches final phase 
• VAT rate to be increased to 15 percent
• Govt. revenue to be increased to 15 percent of GDP
• US style Inspector General to be appointed for expenditure management 
• Debt restructuring talks in progress
• Compulsory tax registration for all above 18 
• Only electric powered vehicles for govt. institutions 
• Foreign investors invited for joint venture with Sri Lankan partners 

By Yohan Perera and Kelum Bandara   

President Ranil Wickremesinghe who presented the interim budget to Parliament outlines proposals for improving macro-economic fundamentals to revive the crisis hit economy .  The increase of revenue and streamlining revenue collection remained key in his economic plan to put the economy back on track. Asserting that talks with the International Monetary Fund (IMF) had reached the final phase, the president said, his fiscal stabilisation programme envisages government revenue to increase to around 15 percent of GDP by 2025 from the 8.2 percent of GDP as at end 2021.  

The government is targeting a primary surplus of more than 2 percent of GDP in 2025 and expects to improve upon this level thereafter.   

“We aim to reduce public sector debt from around 110 percent of GDP as at end 2021, to no more than 100 percent of GDP in the medium term, “he said.   

Responding to his critics on the economic crisis, he said.   

 “On many a occasion, I have pointed out the extent and depth of the economic crisis that we are facing. We have not fallen into such an economic abyss in our recent history. Some people in our country do not yet have a real understanding of its severity. When pointing out the difficulties and hardships, they are viewed with sarcasm. They think like crabs that happily lay in the water that is on the fire, until it reaches boiling point. However, there are also those among us who think in a more responsible manner, having understood the gravity of this situation and resolutely seek to battle in dousing the fire,” he said. 

 
“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 organizations, is launching a programme to ensure food security. The process of providing daily needs like gas, electricity and fuel without a shortage has been initiated. Schools have opened, and the universities are commencing their academic activities,” he said.  
The president emphasized the need for a national economic policy framework to be adopted for 25 years at least.   
The Interim Budget includes the provisions to accommodate the policy package introduced in January 2022 provisions for strengthening social safety net programmes, additional cost due to increased interest payments in 2022, receipts of foreign assistance through repurposed projects by the World Bank and the Asian Development Bank (ADB), provisions for financing obtained through the Indian Line of Credit and increased cost of fertilizer subsidy, among others.   

“As I promised earlier, we have directed around Rs. 300 billion out of capital expenditure and less priority spending allocated in the original budget 2022 for above purposes, including the provision of relief to those who are affected by the economic crisis,” he said.   

The VAT rate will be increased to 15 percent from the current rate of 12 percent with effect from September 1.   
The president proposed to introduce compulsory tax registration for all residents above 18.   I also propose to take action to attract foreign investors and/or technology holders to establish joint ventures with Sri Lankan partners for industrial investments with advanced technologies to ensure better utilization of our mineral resources and increase value addition without jeopardizing the interests of the national economy and the sustainable use of resources,” he said.   

For effective expenditure management. he said he would introduce a system like Inspector General (IG) in the USA, tasked with making sure government expenditure system is working well and in the way it is intended.   
“The IG will be strongly empowered and will actively engage in protecting the integrity of the government by detecting and preventing fraud, waste, and abuse in government institutions,” he said.  The retirement age of public servants will be brought down to 60 from 65. All those above 60 in the government sector will have to retire by December.   

The purchase of fossil fuel-based vehicles for public sector will be suspended from hereafter as a government policy.   

 As per this policy, only electric-powered vehicles will be purchased for the use of the public sector in the future and the private sector will also be encouraged to use electric vehicles.   

In purchasing vehicles for the public sector, suitable categories of vehicles are decided on the basis of the efficiency and prices of the vehicles. This proposal will be implemented step by step and will be completed by January 1, 2026. 

• The president emphasized the need for a national economic policy framework to be adopted for 25 years at least

By Yohan Perera

We don’t agree with the proposal to increase VAT to 15 percent:  Harsha de Silva 

Interim budget comprises proposals which we have said should be implemented a long time ago. The issue is how would the government get about implementing these proposals. Almost 80 percent of proposals in the interim budget are ones which we called for in the implementation a long time ago. The SLPP always opposed these kinds of proposals. One wonders what they are going to do. Also we don’t agree with the proposal to increase VAT to 15 percent. We feel that the low  income group should not be given a heavy tax burden. VAT affects all people including the low income group.

You cannot expect anything different from any other party: 

Duminda Dissanayake

There is an economic crisis in the nation. That is why we always said there should be an all party government. You cannot expect anything different from any other party. If the nation falls further, no one will be able to revive it. We still call for an all party government.

We have to safeguard the nation: 
Rohitha Abeygunawardena

This interim budget is introduced for the remaining four months. We have to safeguard the nation. We have to revive the economy, Tourism industry is already picking up. State enterprises is a burden for the nation. They should be restructured. and converted into vibrant institutions. We will support President Wickremesinghe to revive the nation’s economy. We have to revive the nation first and it is possible to think of party policies only after this task is fulfilled.

There is cold response for this budget from govt. itself:  Jathika Jana Balawegaya MP Harini Amarasuriya  

What has been done today is reversing some economic policies which were proposed earlier in the Budget 2022. One has to see whether those who agreed for the policies taken six months back will accept the new policies which were presented today. There is cold response for this budget from the government itself. Therefore we see instability of the government. We cannot oppose the proposal to open local universities to foreign students.