Monitoring Desk
COLOMBO: Bankrupt Sri Lanka announced sharp government spending cuts on Tuesday and warned it had barely enough revenue to pay public salaries and pensions despite substantial tax hikes.
Sri Lanka has defaulted on its $46 billion public debt and is negotiating an International Monetary Fund (IMF) bailout following an unprecedented economic crisis that brought colossal misery last year.
President Ranil Wickremesinghe ordered a five percent cut in state spending this week. His administration warned on Tuesday that payments for 1.8 million families below the poverty line might be delayed this month.
“Yesterday, the president informed the cabinet that the economic crisis this year is going to be worse than we expected,” government spokesman Bandula Gunawardana told media.
Sri Lanka looking for IMF loan to power economy
Gunawardana said the government estimated the economy to contract further this year following shrinking an estimated 8.7 percent during the previous year.
“We will not get the expected tax revenue because this year, too, the economy will shrink,” the spokesman said.
To secure a $2.9 billion IMF loan, Sri Lanka must achieve debt sustainability.
IMF has also asked Colombo to trim its 1.5 million-strong public service, sharply increase taxes and sell off loss-making state enterprises.
Key creditors such as India and China are yet to agree upon a “haircut” on their loans to Sri Lanka, which has stalled the South Asian nation’s efforts to restructure its debt.
Doubled corporate and personal income taxes kicked in on New Year’s Day to shore up state revenue.
Electricity prices are also rising another 65 percent after a 75 percent tariff increase in August 2022.
Sri Lanka’s 22 million population endured months of food and fuel shortages, chronic blackouts, and runaway inflation in 2022.
Wickremesinghe came to power in July at the peak of the crisis after his predecessor fled the country when protesters stormed his residence.
