Sri Lanka working towards a revised budget in August

Parliament at Shri Jayewardenepura

The sun sets over the Parliament at Shri Jayewardenepura

ECONOMYNEXT- Sri Lanka has revised spending lines of individual ministries as part of efforts to present a revised budget for the rest of 2022, Cabinet spokesman Minister Bandula Gunewardene said.

Sri Lanka is expected to raise taxes and also cut capital spending as part of efforts to reduce the budget deficit and money printing to restore monetary stability under a program with the International Monetary Fund.

“The revised data relating to ministries have been completed,” Minister Gunewardene said.

“A revised budget for the balance of the year will be presented to parliament next month.”

Sri Lanka has already raised value-added tax and a telecom tax and has announced more taxes to come on line in October for which legislation has to be passed.

Overall Sri Lanka expects to return to the tax framework which existed before December 2019, when sharp cuts were made as part of fiscal stimulus accompanied by money printing (monetary stimulus) to close an output gap.

Sri Lanka has earlier said it is hoping to strike a staff-level agreement with the IMF in August which will lead to firm negotiations with creditors and Executive Board approval for a program and a drawdown.

Sri Lanka defaulted on its foreign debt after seven years of money printing under flexible inflation targeting and boosting spending by around 3 percent of gross domestic product to 20 percent of GDP after spending-based consolidation (cost cutting) was dropped under revenue-based fiscal consolidation.

A country’s central bank usually has to achieve monetary stability by eliminating conflicting money and exchange policies that lead to forex shortages before the first drawdown, to prevent the money being busted on imports.

As of July 2022 the central bank is still running conflicting money and exchange policies triggering forex shortages.