The 10 party group led by former Ministers Wimal Weerawansa, Udaya Gammanpiila and Vasudewa Nanayakkara are set to meet with Prime Minister Ranil Wickremesinghe this (16) morning to hold discussions.
The 10 party group has decided to support any decision taken by Wickremesinghe that benefits the country’s economy, according to sources.
They have made this decision during a discussions held yesterday (15) sources further added.
MIAP
Sri Lanka’s deficit in the trade account narrowed to US dollars 762 million in March 2022, compared to the deficit of US dollars 832 million recorded in March 2021 and US dollars 781 million recorded in February 2022, Central Bank announced.
However, the cumulative deficit in the trade account during January to March 2022 widened to US dollars 2,402 million from US dollars 2,059 million recorded over the same period in 2021.
The ratio of the price of exports to the price of imports deteriorated by 16.0 per cent in March 2022, compared to March 2021, as the import prices increased on a y-o-y basis, compared to a corresponding y-o-y decline in export prices.
Earnings from exports exceeded US dollars 1.0 billion for the tenth consecutive month in March 2022, despite a marginal decline compared to year earlier.
Meanwhile, import expenditure recorded a notable decline, year-on-year, for the first time since February 2021. As a result, the trade deficit declined in March 2022 on a year-on-year basis.
: Earnings from merchandise exports in March 2022 declined by 3.4 per cent over March 2021 to reach US dollars 1,057 million.
A decrease in earnings was observed in agricultural exports and mineral exports, while an increase was recorded in industrial exports.
The cumulative export earnings increased by 9.0 per cent during January-March 2022 over the same period of the last year, amounting to US dollars 3,249 million.
: Expenditure on merchandise imports, which has been falling on a month-on-month basis since January 2022, continued the decline recording the first year-on-year decline since February 2021.
Accordingly, import expenditure declined by 5.6 per cent to US dollars 1,819 million in March 2022, compared to US dollars 1,926 million recorded in March 2021.
A decline in expenditure was observed in import of consumer goods and investment goods, while an increase was recorded in import of intermediate goods.
On a cumulative basis, total import expenditure amounted to US dollars 5,651 million during the first quarter of 2022, recording an increase of 12.1 per cent (yo-y).
Considering the continuous pressure on the external sector, the Government imposed several restrictions on selected non-urgent and non-essential consumer items during March 2022, such as import license requirements, while increasing import duty
Tourist arrivals and workers’ remittances showed a notable improvement in March 2022, compared to the previous month. Foreign investment in the Colombo Stock Exchange (CSE) recorded a net inflow during March 2022.
The Central Bank started publishing a middle rate and variation margin of the interbank weighted average spot exchange rate beginning 13 May 2022 in view of curtailing any large volatility in the intraday exchange rate in the domestic foreign exchange market.
Sri Lanka’s Finance Ministry is facing one of its worst-ever cash crunch with no way to raise revenue even to pay salaries of 1.5 million public sector employees’ unless through increasing borrowing limits and printing money, official sources said.
This has become a challenge at the moment due to political instability making it a mission impossible to obtain the necessary approval of the now defunct cabinet and parliament to increase the borrowing limit, a high official of the ministry said.
The prevailing political crisis is exacerbating financial issues and revenue avenues drying up government coffers due to a sudden drop in tax collection.
In addition the Treasury has to provide additional provisions for public sector employees’ salaries amounting to around Rs. 83 billion per month and other expenses immediately.
Under the present economic downturn and meagre revenue, the ministry has no other option other than increasing the credit limit to Rs. 4 trillion from the present Rs.3.3 trillion, a Finance Ministry memorandum revealed.
The Cabinet of Ministers has to approve the relevant memorandum to take necessary action to amend the Appropriation Act of 2022 in parliament with Committee on Public Finance approval, a top official said, adding that all such action should be taken soon to tackle urgent fiscal issues.
However President Gotabaya Rajapaksa has the powers to approve a mini budget similar to which he did in 2020 using his powers under Section 150(3) read in conjunction with 150(4) of the Constitution.
But this constitutional provisional is applicable for the withdrawal of money from the Consolidated Fund and to increase the borrowing limit it is necessary to obtain parliamentary approval to amend the Appropriation Act of 2022 a former Finance Ministry Secretary explained.
He further pointed out the increase in borrowing limit was essential due to an increase in supplementary expenditure.
The current fiscal sector performance is characterised by exceptionally low government revenue, rigid recurrent expenditure, high budget deficits, and accumulated debt which is now unsustainable, a recent Finance Ministry report revealed
The weak fiscal position has manifested in credit rating downgrades, loss of access to international capital markets and foreign financing.
As a result, the Government has increasingly relied on domestic financing of the budget, including monetary financing by the Central Bank, in turn leading to significant macroeconomic imbalances, the report added.
Government revenue declined particularly sharply in the last two years due to various reasons including the economic downturn caused by the COVID-19 pandemic, import restrictions imposed to ease the external sector pressure, but most importantly, due to the ultra-low tax regime introduced in late 2019 and the COVID-19 related easing measures in early 2020.
The new Government will be taking tough measures such as an increase in tax revenue without hitting low-income earners, radical reforms to reduce the size and increase efficiency in public service.
It will expedite necessary action to introduce reforms for state enterprises and end rampant corruption and the power of mafias, improving public welfare and ensuring a safety net for the poor and down trodden, official source said.
The Inland Revenue Department (IRD) has called on large banks, finance companies and private sector companies to pay their first quarter taxes upfront, ahead of the due date, as the Government is facing a cash-flow problem in paying public sector salaries.
The Treasury has requested the IRD to ask these large corporate taxpayers to cough up the money due to the difficulty in finding the funds to pay salaries, Finance Ministry sources said.
Senior IRD Commissioner and IRD Commissioners’ Association President Sarath Abeyratne confirmed the IRD was seeking the support of the large-scale taxpayers to make a “goodwill gesture” towards a Government that was in a financial crisis.
So far the Treasury and the Central Bank have been printing money to the tune of several billions resulting in sharply rising inflation and the cost of living index skyrocketing.
About Rs 59 billion had been collected from several large companies with a turnover of more than Rs. two billion following the then Finance Minister Basil Rajapaksa’s budget proposal.
Mr. Abeyratne said that these companies “promptly complied” with the IRD’s request to pay the surcharge on time, and added that the department hoped to collect about Rs. 100 billion from this once-and-for-all surcharge.
The next date of payment of the surcharge tax would be during June-July this year for the companies which had not responded to IRD’s call, he added.
The private sector has already complained that retrospective taxes, however, undermine the rule of just law and bring in uncertainty to the business environment.
A 2.5 percent ‘social security’ tax will be charged from companies above Rs. 120 million in turnover with effect from April 01. The social security tax is expected to bring in Rs 140 billion.
Meanwhile, the Central Bank is continuing to print rupee notes containing the signatures of Basil Rajapaksa, the former minister, and former Governor Ajith Nivard Cabraal, a request under the Right to Information Act has revealed.
The order has been placed and production is ongoing, the regulator said, adding that the notes (and the signatures on them) are dated September 15, 2021.
The new Sri Lanka administration led by PrimeMinister Ranil Wickremasinghe with 44 years experience in local politics and close relations with friendly countries is making every diplomatic move to bolster the debt-ridden country’s flagging foreign reserves.
The new Sri Lankan Premier is taking urgent measures to seek financial assistance on concessionary terms from donor countries and international financial agencies such as US , India ,China and Japan as well as the World Bank and the ADB etc.
Mr Wickremasinghe will be making use of Sri Lanka’s friendly relations with Japan spanning over 70 years..
Japan- Sri Lanka bilateral relations further strengthened following the then Sri Lankan Finance Minister J.R. Jayewardene’s statement on September 06, 1951, at the San Francisco Peace Conference which brought peace and prosperity for Japan.
Prime Minister Ranil Wickremasinghe has now turned to Japan seeking a fresh financial relief package from Japan amounting to between US$3.5billion to $5 billion similar to Indian assistance to Sri Lanka at a time of economic distress, with the aim of overcoming the current economic crisis.
Japan has historically been a major source of development aid for Sri Lanka, providing the country not just with financial but also technical assistance.
Friendly relations between Japan and Sri Lanka are to get a fresh boost, following the appointment of Ranil Wickremesinghe as the new Prime Minister, sources said.
Japanese Ambassador Mizukoshi Hideaki was among the first diplomats to call on the new Prime Minister after he assumed office yesterday. The duo discussed ways to further strengthen bilateral relations.
Japan has expressed commitment to extend whatever assistance Sri Lanka requires to overcome the current economic crisis.
Sources said the Government of Japan has in principle agreed to grant fresh financial assistance whilst a private Japanese foundation has committed to invest 500 billion yen (approximately $ 4 billion) as well.
This private foundation is ready to purchase from the international markets several urgently needed commodities such as petrol, diesel, fertilisers, essential medicine and equipment, and food currently in severe shortage. The gesture is to help alleviate the burdens the Sri Lankan people are currently going through and solve the foreign currency crisis.
Sources said an order for 120,000 metric tons of diesel and 50,000 metric tons of urea has already been placed to the international suppliers by the Japanese private foundation along with its local partners.
On Thursday, soon after being sworn in as the Prime Minister by President Gotabaya Rajapaksa, Wickremesinghe told the media that reviving the economy and ensuring people enjoy three meals a day and ending shortage of electricity, petrol, diesel, LPG and food was a priority.
Currently, Pakistan’s inflation rate has accelerated to 13.37% – the second-fastest in Asia after Sri Lanka, which recently declared bankruptcy and at present is embroiled in political turmoil. Moreover, as Pakistan repays loans to avoid burgeoning interest rates, the State Bank of Pakistan reserves have decreased by $190 million to $10.308 billion – enough to support approximately two months of imports.
After failing to secure financial grants from its allies and the International Monetary Fund and with the overhanging burden of repayments of loans, Pakistan looks to be on the verge of declaring bankruptcy. While the incumbent government fears losing popularity by administering inflationary policy measures, Pakistan’s economy seems to have no other alternative. On top of that, former Prime Minister Imran Khan, who was ousted on the grounds of the similar claims by the opposition, threatens country-wide protests against the soaring inflation and other policy measures by what he dubs to be an “imported government.”
To avoid insolvency, last month, Finance Minister Miftah Ismail reached an agreement with the International Monetary Fund to extend the long-standing bailout program by one year and increase the loan size by approximately $2 billion. However, the agreement was subject to final modalities, and the IMF instructed Pakistan to administer steep fiscal adjustments, discontinuation of the amnesty scheme, increase fuel prices, increase power tariffs, and restore taxes before the country could expect to secure the loan.
After the meeting with the IMF, the Finance Minister advocated revisiting the prices of petroleum products and reducing the subsidies given on them. However, PM Sharif looked set only to enforce populist measures and refused to raise the fuel prices.
Now, as the second stench of the incumbent government’s meeting with the IMF is expected to begin in Doha next week, the incumbent government would be forced to remove subsidies on petroleum products from May 15, or the IMF is likely to default on extending a fund to support the crumbling economy.
Currently, Pakistan’s inflation rate has accelerated to 13.37% – the second-highest in Asia after Sri Lanka, which recently declared bankruptcy and at present is embroiled in political turmoil. Moreover, as Pakistan repays loans to avoid burgeoning interest rates, the State Bank of Pakistan reserves have decreased by $190 million to $10.308 billion – enough to support approximately two months of imports. In addition, the rupee is trading at its lowest, and the bourse also witnessed one of the steepest drops in its history as it tumbled five percent in just over two months. Finally, commodity prices are also soaring, and the weekly sensitive price index that defines inflation is 15.85% up.
Read more: Shabbar Zaidi claims speech on Pakistan’s bankruptcy is being misreported
Reacting to the policy inaction of the incumbent government Asif Ali Qureshi, chief executive officer at Optimus Capital Management Ltd., said Sharif’s “inaction is taking its toll on the economy.” He added, “Political considerations are weighing heavily on the government’s ability to make tough economic decisions.”
Shabbar Zaidi, former chairman of the federal board of revenue, also tweeted, “When six months ago I said the country is ‘bankrupt’ & ‘not a going concern’ everybody criticised me. Now everything is clear.” He added that he would soon “give a comprehensive political, socio-economic road map for Pakistan.”
A power cut of over 10 hours may likely to occur in the next few days due to the depletion of all diesel power plants amid the shortage of stocks and the fact that one generator at the Norochcholai Power Plant is still inactive, sources disclosed.
The situation has become worse due to diesel stocks not being ordered or processed for the future, sources added.
Nevertheless, like today no power cuts will occur tomorrow (16) due to the Vesak Festival, according to the Public Utilities Commission of Sri Lanka (PUCSL).
MIAP
The Police Special Task Force (STF) has arrested two persons accused of attempting to transfer US$ 47,000 via the Undiyal system, based on a tip-off.
Accordingly, the two were arrested during a raid in Boralesgamuwa.
The suspects are accused of attempting to transfer dollars via the controversial underground money transfer system in order to get more money from the banks.
The two are to be prosecuted for money laundering, reports added.
MIAP
The Sri Lanka Freedom Party (SLFP) has reportedly decided to support the government led by new Prime Minister Ranil Wickremesinghe. Accordingly, a letter has also been forwarded to the Prime Minister in this regard, sources claimed.
There was a split within the SLFP over support for the government, where some members were believed to have ignored the views of the party leadership, signaling that there were ready to support Wickremesinghe. Badulla District MP Chamara Sampath Dasanayake had openly acknowledged this.
In the backdrop, the Party has decided to back the new government and accept posts as one without letting the SLFP being submitted to any divisions, according to sources.
MIAP
The prices of imported milk powder and baby milk powder have been increased as per the decision of companies.
Accordingly, the price of a 400g milk powder packet has been increased by Rs. 230 and will be sold at Rs. 1020.
The price of a 01kg packet has been increased by Rs. 600, to be sold at Rs. 2545.
Meanwhile, reports claimed that the price of a 400g packet of baby milk powder will be increased by about Rs. 1000.
MIAP
