GDP expands by 1.6% in the 3rd Quarter of 2023, on the back of the massive contraction of 11.8% in the 3rd Quarter of 2022: massive job and livelihood losses continue unabated.
UNDP study shows SL among the top 5 “most un-equal countries” in Asia Pacific: study also reveals the top 1% owns 31% of total personal wealth, while the bottom 50% owns less than 4%: UN’s Food & Agriculture Organisation says nearly one-third of SL’s 22 mn population is “food insecure”: also says 66,022 families in Colombo live in 1,506 shanty dwellings, without proper sanitary facilities: further says most workers in the tea & rubber estates do not receive even Rs.1000 a day.
Professor of Economics at the Paradeniya University Wasantha Athukorala says a study carried out by the University shows a 3-fold increase in poverty over the past 3 years: in 2019, nearly 3 mn people lived below the poverty line, but had increased to 9.6 mn by Oct’22: adds that 42% of people are currently living in poverty.
SLPP led by the Rajapaksa family vows to secure victory in all upcoming elections & return to power, forming a stronger Govt to rebuild Sri Lanka: holds its 2nd National Convention at which former President and MP Mahinda Rajapaksa was re-elected as its Leader.
Opposition SJB MP Field Marshal Sarath Fonseka says it’s not possible to change Govts by carrying out struggles: asserts he is ready to accept an invitation from the people to run for the upcoming Presidential Election.
State Finance Minister Shehan Semasinghe says work on over 200 foreign funded development projects, halted midway, will recommence in 1st Quarter of 2024: analysts say that since the “default announcement” on 12th April’22, SL is in arrears of over USD 6,000 mn to Bilateral and Private Creditors, and hence it’s very unlikely that any further bilateral project loans would be forthcoming next year.
Supreme Court holds that the former IGP Chandana Wickremaratne had violated the Fundamental Rights of the former OIC of Thelikada Police station in the Galle District by unreasonably transferring him to the Tangalle Police Division at the behest of persons involved in alleged illegal activities in Gin Ganga and forests in Thelikada.
Authorized mobile phone importers express deep concern over the Govt’s decision to remove mobile phones from the VAT exemptions list, leading to the VAT of 18% being imposed on their products from 1st Jan’24: lament that the dual impact will pose substantial challenges for the industry.
Cabinet approves the appointment of an authorised agent for online submissions of visas from those seeking Sri Lankan visas.
Prasad Silva and Bimandee Bandara named as the Top seeds of the Men’s Open and Women’s Open singles at the National Table Tennis Championship to be played this weekend, in Kandy.
Colombo (LNW): The International Monetary Fund is encouraging the authorities to continue to build on hard-won gains in respect of sustaining the reform momentum and further advance revenue mobilization.
The revenue mobilization measures such as energy pricing with costs, strengthen social safety nets, rebuild external buffers, safeguard financial stability, combat corruption and enhance governance are now in progress in the country. Senior IMF Mission Chief for Sri Lanka Peter Breuer disclosed.
Reenforcing the revenue-based fiscal consolidation with revenue administration reforms is critical to recover from program slippages and to fund the provision of essential government services.
The Central Bank of Sri Lanka continues to focus on the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime.
Accumulating reserves, supported by exchange rate flexibility, remains an important priority under the EFF. Implementing the bank recapitalization plan and strengthening the financial supervision and crisis management frameworks are crucial to safeguarding financial sector stability, he emphasised.
He noted that the IMF encourages the government authorities to remain steadfast on their reform commitments.
IMF financing is provided as budget support and it’s up to the government of how they allocate those funds and where they go to.
In principle,it helps the government in terms of bringing in foreign exchange in to Sri Lanka. The IMF has allocated about 6% of GDP in terms of bank recapitalization and the size of the current tranche that’s provided following the board meeting today is about .5% of GDP.
Sri Lanka’s exchange rate appreciated by about 25% from March until end May this year. Since then, it has seen some depreciation of the scale of 10% over the summer
As a counterpart the central bank has built up foreign exchange reserve quite strongly in the first half of the year.
Since then, reserve accumulation slowed over the summer and now it’s picking up again. Going forward, there’s a need to continue to build in reserve. But the central bank and to allow the exchange rate to be fairly slow down, limiting interventions only to disorderly market conditions.
IMF representatives noted that putting public finances on a sustainable footing is a very important part of the IMF program.
And therefore, at the very beginning of the program, we had to look into cost reflective pricing on electricity and fuel. And this continues to be a continuous structural benchmark under the program.
Also, in the spirit of putting a series on a sustainable footing, one of our structural benchmarks was for the authorities to come up with a strategy of the rebalancing of the city’s balance sheet.
Sri Lankan Airlines, Ceylon Petroleum Corporation, Ceylon Electricity Board and the Road Development Authority are now under the process of rebalancing of balance sheets.
During a meeting with Prime Minister Dinesh Gunawardena at Temple Trees, Cuban Ambassador Andres Marcelo Gonzalez Garrido affirmed Cuba’s willingness to share its expertise in mosquito control activities with Sri Lanka’s health authorities.
Expressing gratitude for Cuba’s consistent support at global forums like the United Nations, Prime Minister Gunawardena highlighted the assistance provided by Cuba during Sri Lanka’s Dengue epidemic. He emphasized the importance of ongoing collaboration in the medical field.
In response, the Ambassador reaffirmed the commitment to assist Sri Lanka by sharing Cuban knowledge and strategies in mosquito eradication, underlining the shared goal of combatting health challenges.
Colombo (LNW): The government’s unprecedented VAT hike is noy only challenging for authorized mobile phone importers but also encouraging parallel imports, or grey market in the country.
Thse illicit racketeers involve the import and sale of branded products in a market without the trademark owner’s consent.
This issue has already caused a tax revenue loss of Rs 3.1 billion (USD 9.4 million) and a Forex outflow of Rs 31.6 billion (USD 96 million) via illegal channels in Sri Lanka.
With the sudden VAT increase, this loss is estimated to rise to Rs.11.9 billion marking a substantial increase in tax revenue loss from illegal imports, mobile hand set importers disclosed.
Additionally, there is a projected further tax revenue loss to the government, amounting to a Rs 2.5 billion decline from legitimate imports. This decline is anticipated due to increased parallel import products driven by the rising prices of genuine products, they added.
Under this critical set up a group of authorized mobile phone importers in Sri Lanka express their deep concern over the Sri Lankan government’s decision to remove mobile phones from the Value Added Tax (VAT) exemptions list, coupled with a simultaneous increase in VAT from 15% to 18%, effective January 1st, 2024.
This dual impact, wherein devices now not only face a sudden VAT imposition, but also at a significant rate of 18%, pose substantial challenges for the industry and the country. The importers urgently call for a critical reassessment by the authorities in light of these compounded challenges.
Moreover, the ramifications extend beyond the economic landscape. Over 10,000 direct job opportunities are now at risk, leaving families dependent on the industry—more than 15,000, including those involved in logistics, printing, branding, advertising, etc.—facing uncertainty.
The policy change also jeopardizes direct Forex investment for market development by principals (ATL/BTL), putting this crucial financial support at risk.
Furthermore, the spectre of a national security threat looms as parallel imports introduce unknown devices to the country, creating challenges in tracking these products.
Authorized mobile importers emphasize the unfortunate timing of removing cellular and electronic devices from the VAT-exempted list and the hike in VAT given the ongoing efforts by legal importers to find solutions for the persistent Parallel Imports (PI) issue.
Accordingly, the industry has put forward practical suggestions and is actively engaged in collaboration with the TRCSL to explore viable solutions .
These solutions include proposing an option for registering already in-use PI devices at a nominal fee, introducing a Tourist SIM for the duration of the incoming visitor’s VISA period, and implementing whitelisting of non-registered IMEI from mobile networks.
These initiatives aim to holistically address the challenges posed by parallel imports, foster regulatory compliance, and contribute to the development of effective policies that strike a balance between industry interests and regulatory requirements.
Trade Minister Nalin Fernando has disclosed that the State Trading Corporation has approved the importation of eggs until April 2024.
This decision follows discussions with egg producers who asserted that the price of eggs cannot be feasibly set below Rs. 55 each leading up to the conclusion of the Christmas period.
Showers will occur at times in Northern, North-central, Eastern, Southern, Central and Uva provinces.
Showers or thundershowers will occur at several places in other areas of the island after 1.00 p.m.
Several spells of showers will occur in North-Western province during the morning too.
Heavy showers about 100 mm are likely at some places in Western, Sabaragamuwa, Southern, North-western and Eastern provinces.
The public is kindly requested to take adequate precautions to minimize damages caused by temporary localized strong winds and lightning during thundershowers.
As part of the 2024 budget allocation of Rs.3 billion to the Department of Agricultural Development, Agriculture and Plantation Industry Minister Mahinda Amaraweera has directed the allocation of Rs.1 billion toward initiatives aimed at enticing the youth into agricultural pursuits.
The designated sum will target programs intended to lure young individuals toward agriculture and farming activities, with a specific focus on export-oriented farming endeavors. Approximately a thousand youths are slated to benefit from this initiative, each receiving one million rupees to support their engagement in agriculture.
The Minister emphasized the prioritization of four major crops—paddy, maize, chilli, and potatoes—for cultivation in the upcoming year. This strategic focus aims to align with both local agricultural needs and international market demands.
Amaraweera underscored the significance of this step in instilling confidence among the youth in agriculture. By encouraging the cultivation of crops in high demand internationally, the initiative aims to not only support the domestic agricultural sector but also foster a sense of trust and enthusiasm among the younger generation for agricultural pursuits.
Colombo (LNW): After Chinese Research Survey Vessel Shi Yan 6 completed its survey off the coast of Sri Lanka and reached Singapore on December 2, Beijing asked permission from Colombo and Male to allow another Research Survey Vessel to dock at their ports and conduct a deep water exploration of South Indian Ocean from January 5 till late May 2024m Hindustan Times reported.
While India has already raised objections with both Sri Lanka and Maldives and asked them not to allow the Chinese vessel to conduct exploration of the Indian Ocean for future military operations, the vessel Xiang Yang Hong 03 is currently off the coast of Xiamen in the South China Sea and will travel via Malacca to these countries after securing permission.
Made in 2016, Xiang Yang Hong 03 is a 4813-ton vessel equipped with the latest survey and surveillance equipment and is registered at the port of Xiamen.
The previous survey vessel, Shi Yan 6, which was allowed permission by the Ranil Wickremesinghe government despite India’s strong objections exited the Malacca Straits on November 20- after conducting an exploration of the Sri Lankan EEZ and South Indian Ocean.
The ship was also seen 500 nautical miles off Chennai before it entered Colombo port on October 25, 2023.
The Indian concerns over Chinese ballistic missile trackers and Research Surveillance Ships being allowed by Sri Lanka and now with a pro-China government in Maldives are over Beijing using these vessels to spy on India in the name of marine exploration.
Last year, Prime Minister Narendra Modi raised the issue with visiting President Ranil Wickremesinghe on July 21, 2023, that Sri Lanka should respect the strategic concerns of India.
With the PLA Navy rapidly acquiring maritime assets including three aircraft carriers, nuclear submarines and guided missile destroyers, China is expanding its footprint all over the Indian Ocean with a string of naval bases from Cambodia to Djibouti on the mouth of the Red Sea. China has already acquired/invested in ports in Cambodia, Myanmar, Sri Lanka, Pakistan, Iran, and in UAE with an eye towards future naval operations.
In the name of marine exploration, Beijing is actually mapping the Indian Ocean bed from the ninety-degree ridge south of Andamans and Nicobar Islands to the deep South Indian Ocean. Detailed ocean bed maps are prepared for future submarine operations all the way up to the coast of Africa.
With the PLA already operating off the coast of Africa and the Gulf of Aden in the name of anti-piracy operations, it is only a matter of time before Chinese carrier strike forces will be patrolling in international waters of the Indian Ocean. Last month, the Chinese Navy conducted an exercise with the Pakistan Navy off the Makran Coast with a PLA Song class diesel hunter-killer submarine participating in specialized “sea bottoming” operations along with client state Pakistan
The IMF Executive Board after much speculation completed the first review under the 48-month Extended Fund Facility with Sri Lanka, providing the country with access to SDR 254 million (about $ 337 million). This brings the total IMF financial support disbursed so far to SDR 508 million (about $ 670 million) out of the total amount of SDR 2.286 billion (about $ 3 billion). The IMF program according to an IMF statement will continue to support Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability, safeguard financial stability, and enhance growth-oriented structural reforms. This is certainly an endorsement of the President’s firm resolve and commitment to the reform agenda despite being politically very unpopular and gives a huge advantage to the opposition.
Unfortunately for the public many of the reforms are a bitter pill to swallow. The Government on the other hand needs to up their game and walk the talk when selling these austerity measures to the public. In fact, the IMF statement highlights the difficulty of implementing some of the reforms. The statement noted, “Today’s Board approval recognizes the challenging policy actions implemented by the Sri Lankan people to put the crisis behind them. Sri Lanka’s performance under the program was satisfactory. All quantitative performance criteria for end-June were met, except the one on expenditure arrears. All indicative targets were met, except the one on tax revenues. Most structural benchmarks were either met or implemented with delay by end-October 2023. These macroeconomic policy reforms are starting to bear fruit and the economy is showing signs of stabilization, with rapid disinflation, significant revenue-based fiscal adjustment, and reserves build-up.”
Cost of reforms
The IMF has said repeatedly that the key to transitioning from stabilisation to a full and swift recovery is sustaining the reform momentum amid strong ownership by the authorities and more broadly, the Sri Lankan people. The IMF has urged the authorities to continue to build on these hard-won gains and further advance revenue mobilisation, align energy pricing with costs, strengthen social safety nets, rebuild external buffers, safeguard financial stability, combat corruption and enhance governance.
Fiscal consolidation
As the IMF highlights in their latest statement very clearly, strengthening the revenue-based fiscal consolidation with revenue administration reforms is critical to recover from program slippages and to fund the provision of essential Government services. The IMF also points out that accumulating reserves, supported by exchange rate flexibility, remains an important priority under the EFF. They further highlight that implementing the bank recapitalisation plan and strengthening the financial supervision and crisis management frameworks are crucial to safeguarding financial sector stability to remain steadfast on the reform commitments.
Leadership
Despite all the negativity, Sri Lanka has reached several important milestones in putting debt on the path towards sustainability. Timely resolution with external private creditors is now a must, this should help restore Sri Lanka’s debt sustainability over the medium term. However, the imposition of high income and direct taxes to meet revenue targets causes havoc that overshadows its intended economic benefits to a country. Therefore getting the right mix of indirect taxes and direct taxes can prove potent in driving domestic economic growth, capital formation, and attracting foreign investment and domestic investment.
Excessive taxation
The President has said increased tax revenue was essential for improving the country’s financial situation and addressing the debt crisis. Unfortunately excessive direct and indirect taxes can in many instances place a heavy burden on both individuals and businesses. While these taxes are meant to support governments to deliver on its mandate, it can have unintended consequences. Often excessive tax reduces the disposable income for individuals, reducing their ability to spend and invest. For businesses, high taxes can hamper growth, reducing capital for expansions that then create jobs. Numerous examples exist where third-world economies have been forced to raise taxes to demonstrate fiscal responsibility to multilateral agencies. However, this approach often leads to a vicious cycle. Increasing taxes can stifle economic growth, resulting in less revenue collection than expected, ultimately undermining the very goal it aims to achieve – economic growth and poverty reduction.
Way forward
While fiscal responsibility is crucial, it must be balanced with the need to promote economic growth and not hit the poor hard. We need to look at tax reduction strategies, simplification of tax systems, and increased efforts to combat tax evasion (many people don’t pay any taxes, just a few hundred thousand people pay taxes) and increase the pool of taxpayers. The Government by promoting a favourable tax environment, can prevent economic stagnation, encourage savings and attract new foreign investment. We need to improve revenue collection rather than continue to increase tax rates and squeezing the existing tax payers dry. Otherwise the typical middle-class family that is struggling due to the taxes reducing their overall buying power, will continue to negatively affect businesses and retailers across the country.
Sri Lanka has the lowest Government revenue among South Asian countries, amounting to only 9.1% of its GDP. Therefore in the final analysis heaping taxes on the people who actually pay is certainly not an option anymore. There are several other options that can be pursued with a little bit of common sense with in the Government service that can raise serious revenue for the Government and also strengthen the social safety net and thereby safeguarding the poor and the vulnerable of our country.
Colombo (LNW): The Chamber of Young Lankan Entrepreneurs (COYLE) and The National Chamber of Exporters, partnered with the Busan Economic Promotion Agency of South Koreas to bolster inward industrial investment in Sri Lanka.
They held discussions recently to find ways and means to broaden operational opportunities for Sri Lankan businesses in Busan to stimulate positive returns.
Mr. Jin Yang Hyun, President and CEO of The Busan Economic Promotion Agency who joined the discussion online, acknowledged Sri Lanka’s potential with financial incentives, strategic presence and access to raw materials.
However, concerns were raised about the barriers to entry, particularly with regard to inefficiencies on the part of local authorities, impacting investment timelines.
It was pointed out that addressing these concerns requires a comprehensive examination of Sri Lanka’s investment processes.
The Board of Investment (BOI) plays a crucial role and its efficiency is key to facilitating foreign investment into the country.
Accordingly, Sri Lanka needs to streamline its processes, as the bureaucratic complexities are adverse oppose to countries like Vietnam and Thailand who are dominating the region.
Furthermore, initiating operations within an Export Processing Zone (EPZ) in Sri Lanka demands a closer look, and the Island needs to match other competitive nations whilst also exhibiting economic and political stability.
The discussion also touched on Busan’s economy, and the advantages it presents for Sri Lankan businesses.
For example, setting up operations in Busan provides an opportunity for Sri Lankan companies to tap into the significant buying power of the South Korean market, enhancing their export potential.
Companies establishing operations in Busan can also contribute to inward remittances for Sri Lanka, strengthening the economic ties between the two nations.
It was revealed that identifying sectors currently exporting to South Korea and encouraging them to set up operations in Busan could further augment the bottom line for Sri Lankan businesses.
Overall, the dialogue ended on a strongly positive note, with COYLE, empowered by speaker Mahinda Yapa Abeywardana and MP Dayasiri Jayasekara, who is also the President of the Sri Lanka Korea Association, pledging assistance to companies from Busan interested in exploring industrial and commercial operations in Sri Lanka.
Ultimately, the discussion made clear the need for Sri Lanka to quickly enhance its accessibility, efficiency, and ease of doing business in order to compete on a global scale and benefit from foreign investment on a larger scale.
