Debt repayment continues to be a major item in Sri Lanka’s budget for the year 2018, which presented to Parliament this week. It seeks to restrict deficit to 4.5 per cent of GDP, and proposes new levies to cover cost of environment protection
Sri Lankan Finance Minister Mangala Samaraweera presented the 2018 budget to Parliament early this month. The budget proposes new taxes, increased charges for government services, and the further privatisation of state-owned enterprises.
Samaraweera said the new taxes would cover the cost of “environment protection” and the “protection of public health.” Indirect taxes constitute a staggering 74 percent of the government’s tax revenue.
Budget highlights:
* Carbon taxes according to engine capacity—motorcycles 0.17 rupees per day, cars 1.78 rupees and passenger buses 2.74 rupees per day
* Polyethene tax on plastic resins, 10 rupees per kilogram
* A tax of 200,000 rupees per month for a cellular phone tower, which will increase mobile call charges
* An excise duty of 0.50 rupees per gram of sugar in beverages
* Debt repayment levies that will be charged at the rate of 0.20 rupees per 1,000-rupee bank transaction
* Advertisements circulated via SMS will be charged at the rate of 0.25 rupees per SMS
* Higher alcohol taxes: 3,300 rupees per litre for spirits; 2,400 rupees per litre for beer and wine
* A 15 percent Value Added Tax on electronic goods, cameras, watches, spectacles and several other items
* Higher taxes on all vehicles, apart from electric-powered cars, which receive a nominal tax reduction
* Train fare, postal and court charges, up by 15 percent.
With these increases the government estimates that its annual income in 2018 will climb to 2,326 billion rupees ($US15 billion), up from this year’s target of 1,997 billion rupees ($13 billion).
Government expenditure next year, however, is expected to be 3,001 billion rupees ($19 billion), mainly due to debt repayments, up from an estimated 2,677 billion rupees ($17 billion) this year. The targeted budget deficit for next year is 4.5 percent of GDP. In order to comply with IMF loan requirements, this has to be reduced to 3.5 percent by 2020.
According to Samaraweera, the accumulated debt repayments for the next three years are 7,000 billion rupees ($45 billion).
Commenting on the budget measures, Fitch ratings agency warned: “High government debt and the large cost of debt servicing weighs heavily on Sri Lanka’s credit profile.”
In October, inflation rose to 7.8 percent, up from 6 percent in August.
The Sri Lanka government plans to establish several new economic zones and industrial parks Milleniya, Bingiriya, and Charlemont Estate and Weligama amongst other places.
The Maitrisena government is promoting “Private Public Partnership” (PPP).
PPPs would enable “investments in infrastructure without compromising our ability to maintain a robust social safety network,” Samaraweera said in his budget speech. “We will pursue PPPs in a wide variety of sectors covering transport and highways, power, ports, water supply, healthcare, education, housing, agri-business, retail and minerals.”
The IMF demanded the privatisation of state-owned enterprises before it would release the next tranche of the $1.5 billion loan approved in mid-2016. The government has already established a PPP Unit in the finance, which is being provided with financial support by the World Bank.
Samaraweera also annoounced the deregulation of the country’s two principal banks: “Our state banks are now mature enough to raise their own capital from the markets. It is in this context that we will allow the Bank of Ceylon and the People’s Bank to raise both debt and equity capital,” he said. Ceylon Chamber of Commerce chairman Rajendra Theagarajah has hailed the proposal.
Parliament will vote on Samaraweera budget on Dec 9, 2017.