Author: TELO Admin

The targets laid out in Sri Lanka’s budget for 2024 will be challenging to meet, even with the economic recovery that we expect to continue next year, says Fitch Ratings.

The fiscal deficit is set to be wider than our current forecast of 7.1% of GDP in 2024 in light of the new data, even after excluding bank recapitalisation costs, and the revenue/GDP ratio will be lower than we had assumed.

The government is targeting a budget deficit of 9.1% of GDP in 2024, wider than a revised estimate of 8.5% in 2023. However, without bank recapitalisation costs, the deficit in 2024 would be a narrower 7.6% of GDP. Excluding recapitalisation costs, the budget targets a primary surplus of 0.8% of GDP in 2024, against a deficit of 0.7% in 2023. However, including recapitalisation costs pushes the 2024 primary deficit target to 0.6% of GDP.

The primary surplus goal for 2024, excluding bank recapitalisation, is broadly in line with the 0.8% of GDP projected by the IMF in March when it approved Sri Lanka’s USD3 billion Extended Fund Facility (EFF). We also see the revenue target as relatively aligned. However, the government’s expenditure target for 2024, at 22.2% of GDP, is somewhat higher than the 19.7% the IMF had envisioned and well above the revised budget estimate of 18.7% for 2023.

The release of the next tranche of EFF financing, worth around USD330 million, will depend partly on the IMF’s assessment of Sri Lanka’s progress in securing financing assurances from official creditors. Fitch believes there has been some progress since March, but the timeline for a restructuring deal with official creditors remains unclear.

Fitch believes there are significant risks to the government’s revenue goal for 2024. Sri Lanka has a record of fiscal slippage, and revenue collection fell 29% short of target over 9M23. The authorities aim to raise revenue by almost 45% in 2024. This will be aided by a planned 3pp increase in the value-added tax to 18%, but the boost to revenue from inflation is set to weaken in 2024. We project consumer prices will rise by 8.7% on average in 2024, compared with 22.1% in 2023. The lift from economic growth, which Fitch projects at 3.3% in 2024, will also be modest.

Downside risks to revenue could be offset by lower-than-budgeted spending. We think the presidential election in late 2024 will incentivise the government to keep to its spending plans, which include a 14% increase in spending on salaries and wages. Nevertheless, if revenue falls short, there may be some room to trim capital expenditure, which amounts to almost 20% of total planned spending and is budgeted to rise 55% in 2024, excluding bank recapitalisation.

The government’s efforts to implement governance reform after a recent diagnostic study by the IMF may also support revenue collection. The budget proposes to establish a new revenue authority under the Ministry of Finance to improve tax collection, and a new investment law will look to establish a National Economic Commission to promote investment. However, it will take time to assess these bodies’ effectiveness.

Fitch rates Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘RD’ (Restricted Default). We may move the IDR out of ‘RD’ upon the sovereign’s completion of a commercial debt restructuring that we judge to have normalised the relationship with the international financial community. Sri Lanka’s post-default rating would depend upon our assessment of its credit profile. Fitch upgraded Sri Lanka’s Long-Term Local-Currency IDR to ‘CCC-’ in September, reflecting the completion of the local-currency portion of Sri Lanka’s domestic debt optimisation plan.

Source – Fitch Ratings

Batticaloa, November 15, 2023: Today in Batticaloa, U.S. Ambassador to Sri Lanka Julie Chung inaugurated a new American Innovation Hub (iHub) and welcomed the Governor of the Eastern Province Senthil Thondaman to join as a special guest. A joint initiative between the U.S. Embassy and Dream Space Academy, the iHub in Batticaloa aims to empower the youth of the Eastern Province, foster knowledge exchange, and promote people-to-people ties between the United States and Sri Lanka. In addition to the American iHub in Batticaloa, the U.S. Embassy has interactive American Spaces in Colombo, Kandy, Jaffna, and Matara.

“The Batticaloa iHub, our fifth American Space in Sri Lanka, will be a key link to connect the Eastern Province with the United States, as well as to cultivate connections between young people across the entire island,” said U.S. Ambassador Julie Chung. “As we celebrate 75 years of bilateral relations this year, this space holds great promise for the youth and academic institutions in the region, fostering innovation, leadership, education, and collaboration. This will be a space where all people feel comfortable and inspired, underlining the enduring and robust partnership between the United States and Sri Lanka.”

The Batticaloa iHub is designed to be a hub of intellectual engagement, providing access to a wide range of free-of-charge resources, including books, digital materials, multimedia content, and online databases. It serves as a space where students, researchers, and enthusiasts can gather to expand their horizons, engage in discussions, and collaborate on projects that contribute to educational and social development. The iHub also hosts a variety of free programs, workshops, and events focused on areas such as English language learning, entrepreneurship, STEM (Science, Technology, Engineering, and Mathematics), and American literature and history. These activities not only enhance participants’ skills but also foster a deeper appreciation for the diversity of thought and ideas.

Located at 7A Saravana Road, Kallady, Batticaloa, the Batticaloa iHub will be open to the public from Monday to Friday, 9:00 a.m. to 5:00 p.m. and Saturday, 9:00 a.m. to 12 noon. All skills development programs and activities at the iHub will be conducted free of charge.

Visit the U.S. Embassy’s American Spaces website for more information: https://lk.usembassy.gov/education-culture/american-spaces/

By U.S. Embassy Colombo | 15 November, 2023 | Topics: News, Press Releases

In conjunction of the tenth anniversary of the Belt and Road Initiative (BRI), the Communist Party of China (CPC) enhanced its engagement with political parties, including those in Sri Lanka, in pursuit of further success of the project in the next decade.

The CPC concluded its BRI Dialogue with the representatives of political parties from South Asia and Southeast Asia in Kunming on November 10, the capital of China’s Yunnan Province considered the gateway to connectivity to these regions.

Representing Sri Lanka, General Secretary of the ruling Sri Lanka Podujana Peramuna (SLPP) MP Sagara Kariyawasam, General Secretary of the United National Party (UNP) Palitha Range Bandara and Foreign Affairs Secretary of Pivithuru Hela Urumaya Thilina Peiris attended the function in which the CPC shared its insights on the success story of the BRI during the first decade of its implementation and the way forward for the next decade.

The CPC has already tied up with the political parties in Sri Lanka cutting across the divide with regular exchanges. Most of the key politicians from both sides of the divide have already visited China on programmes, while new programmes are also on the cards.

Sri Lanka is one of the countries that recognized the BRI at its inception. It is also a country that matters most for China given its strategic positioning in the Indian Ocean with easy access to key markets in the region. The political goodwill in the host country concerned is key for the successful implementation of the BRI.

At the Kunming BRI Dialogue, Minister of the International Department of the CPC Central Committee Liu Jianchao delivered the keynote speech. The political leaders of the countries such as Pakistan, Thailand, Indonesia and Nepal attended the function.

With a Presidential election scheduled for next year, President Ranil Wickremesinghe said he had still not made a decision if he would re contest the presidency as his focus presently was to terminate Sri Lanka from bankruptcy.

Responding to a question by the Daily Mirror at a meeting with the Editors at the Presidential Secretariat last evening, Wickremesinghe did not confirm nor deny his plans of a possible re-contest of the presidency but said he would wait and see.

“My primary focus right now is to terminate Sri Lanka from bankruptcy and then I will decide,” the President said.

When questioned on the future of his political party, the United National Party, Wickremesinghe said that UNP MPs were defeated at the last General Election as they were the only lot that spoke for the truth about the economy.’

Therefore he said the UNP will look at re-grouping and making a comeback before the elections next year.

Explaining how the country planned to exit from bankruptcy, Wickremesinghe said the aim of the government was to limit expenditure, increase efficiency and live within means. He said this was the intention of the budget that was presented on Monday.

The President indicated that the budget was presented with a view of economic recovery and in line with the IMF expectations and the confidence in the country’s economic recovery was apparent with the recent investment made by the US International Development Finance Corporation and Adani Group of India in the Colombo Port West terminal. The President pointed out that such investments would not come if they did not have confidence in the country’s economy.

The President also said that the country should aim at being competitive in international trade as they intend to increase trade opportunities with the RCEP block, India, Bangladesh and the EU.

When asked as to how optimistic he was about the revenue target and projections of the government as there were no new tax proposals included in the Budget, President Wickremesinghe noted that tax collection had increased by 55 percent over the last year and that tax administration and collection would be made more efficient with the establishment of a Revenue Authority.

The ruling Sri Lanka Podujana Peramuna (SLPP) Party claimed that most of the committees including Parliamentary committees appointed under the direction of President and Finance, Economic Stabilisation and National Policies Minister Ranil Wickremesinghe do not benefit the people or the country’s economy in any way.

Speaking to The Daily Morning, the SLPP General Secretary and Government Parliamentarian, attorney Sagara Kariyawasam said: “President Wickremesinghe keeps appointing committees, but they don’t deliver any positive outcome to the people and the country’s economy. What we feel is that those committees are aimed at deceiving the people.”

Following the resignation of former President Gotabaya Rajapaksa in the midst of the massive public protests that demanded the same, the SLPP endorsed Wickremesinghe as their candidate for the Parliamentary vote to elect the President. Although the SLPP fully supported Wickremesinghe in his programmes in the beginning, there have been recent instances of SLPPers criticising him over various matters, particularly the granting of more Ministerial posts to non-SLPPers.

Meanwhile, claiming that there were nearly 80 committees operating in the Parliament, Kariyawasam recently said that there were only six committee rooms for those committees to meet. He, being a member of several such committees, said that the lack of committee rooms has hindered the functions of the Parliamentary committees to a greater extent.