Image: Reuters Berita 24 English - Sri Lanka's president said on Tuesday that talks with the International Monetary Fund (IMF) about a...
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| Image: Reuters |
In a speech to parliament, President Ranil Wickremesinghe also said that the government would try to control inflation and pass laws to strengthen the independence of the central bank.
The 22 million-person island nation is going through its worst economic crisis since it got rid of Britain in 1948. Wickremesinghe, who became president last month, is working hard to put into place the budget cuts that were agreed upon with the IMF.
Wickremesinghe, who is also Sri Lanka's finance minister, said that talks with an IMF team that is in the country right now had gone well.
"Many people still don't realise how bad this financial crisis is, but we must take this chance to fix past mistakes and put in place long-term policies that will stabilise the economy and help us get out of the problems we're facing now," he said.
"Talks with the IMF have reached a good point, and we will also meet with creditors to talk about how to make Sri Lanka's debt more manageable."
Officials in Sri Lanka hope that after the budget is passed, they will reach a preliminary agreement with the IMF at the staff level for a loan package worth between $2 billion and $3 billion.
After Wickremesinghe's speech, Sri Lanka's sovereign bonds went up by 1.9 cents on the dollar. However, they were still worth less than 33 cents, or less than a third of their face value.
Wickremesinghe said that he wanted to bring annual inflation down from over 66% to the mid-single digits by taking a number of steps to fix the economy.
In the next full-year budget, new taxes will be added, but the value-added tax will go up from 12% to 15% starting next month.
Sri Lanka will try to get its debt-to-GDP ratio below 100% in the middle term, down from around 120% right now. This will happen along with economic growth of 5%.
The central bank said earlier that the economy is likely to shrink by 8% this year and that growth is not likely until the second half of 2023.
Wickremesinghe said that the government will pass laws to stop the Central Bank of Sri Lanka from being used for political purposes and to stop printing money.
Separate new laws would also be passed to improve the way money is managed, restructure companies with too much debt, and fight corruption.
COVID-19 shook up Sri Lanka's economy, which was based on tourism, and cut the money that workers sent home from abroad. The damage was made worse by rising oil prices, tax cuts pushed by populists, and a ban on importing chemical fertilisers for seven months last year, which killed agriculture.
Because of this, basic goods are always in short supply, inflation is out of control, and there were so many protests that the president at the time, Gotabaya Rajapaksa, had to leave the country. His successor, Ranil Wickremesinghe, now has to deal with restructuring billions of dollars in debt to China and other countries.
