REPEAT: Crisis-hit Sri Lanka's 2023 budget aims to target subsidies, private-sector driven economy | EconomyNext – EconomyNext

Monday November 14, 2022 9:01 am
Monday November 14, 2022 9:01 am
(repeats with no changes to the text)
ECONOMYNEXT – Sri Lanka’ 2023 budget will target subsidies and policies that promote a private-sector-led economy to help recover from the current unprecedented economic crisis, sources say.
President Ranil Wickremesinghe in his capacity as the finance minister  will present his budget in the parliament later on Monday as the island nation is yet to see some strong policies to sustain its debts, control the economic crisis, and prevent all possibilities of a possible youth-led unrest through creating new job opportunities.
Wickremesinghe’s budget will mostly include policies that will make the International Monetary Fund (IMF) content mainly on fiscal tightening policies.
Those policies will include measures to increase government revenue and reduce state expenditure – to qualify for a $2.9 billion, 4-year IMF loan crucial to boost investor confidence and seek more global financial help to come out of the economic crisis.
The president’s office said the 2023 budget is aimed at long-term and stable economic growth.
“The 2023 budget has given special attention to the sectors of the  capital market, export market, labour market, and digital economy and it is expected to achieve the budget targets through the social market
economy,” Wickremesinghe’s office said in a statement.
“This year’s budget will focus more on providing social welfare benefits to the people who need them most and creating a policy environment to build the private sector as the driving force of the
country’s economy.”
“Through the 2023 budget, the process of building a new economy tailored for the new world has been initiated aimed at creating a program to ensure a decent country for the youth.”
Shattered hopes
Millions of Sri Lankans will cautiously welcome Wickremesinghe’s budget with shattered hopes because most of the 22 million population is now forced to skip a meal or do an extra job to meet ends.
Wrong economic policies including politically-driven tax cuts and fertilizer ban by former president Gotanaya Rajapaksa have led the island nation to suffer from the economic crisis sooner than later.
White elephant infrastructure projects under previous president Mahinda Rajapaksa mostly funded by China, a bloated government sector that scoffs out 86 cents form each rupee of tax revenue, and unlimited money printing by the central bank had led the country to the current crisis.
Wickremesinghe, the leader of center-right United National Party (UNP) has repeatedly attempted to go for a private sector-led economy, but he lacked public support.
He has already reversed most of the tax cuts made by Gotabaya Rajapaksa who fled the country after tens of thousands of people stormed into his official residence on July 9 demanding him to resign. Rajapaksa, later resigned from Singapore.
“The budget should not promote much of the capital expenditure because we don’t have room for capex
anymore,” Umesh Morumudali, an economic analyst at Colombo University, told Economy Next.
Raj Prabu Rajakulendran, a senior research analyst at Verite Research said he expects the budget to have taxation policies that have better targeting.
Sources said Wickremesinghe may consider taxing mansions and properties as well as wealth to boost the revenue in addition to personal income tax despite them being unpopular.
Difficult process 
Wickremesinghe will be forced to reduce the public sector as the government will not be in a position to fund their salaries from the tax revenue after the IMF loan programme demands to stop money printing, sources say.
“He will not only have to reduce the government sector, but also he will have to stop the waste and corruption within the state sector enterprises,” a Colombo-based economic analyst said.
“People do not want to pay taxes because they see their tax money is largely wasted in state owned enterprises. Unless the president can reverse this trend, he will never succeed in increasing the tax  revenue.”
The president’s budget also comes after Sri Lanka defaulted on its sovereign debts in May this year and market interest rates are at a record over 30 percent, making borrowing and investments more expensive.
Wickremesinghe’s government is also facing it tough with record inflation of around 70 percent which has eroded investor confidence and reduced the rupee currency’s value by around 50 percent.
Analysts have said though he has promised to deliver most needed reforms through the current budget, his drive would be limited because he does not have his own party legislators to back him at the parliament. He only has only one lawmaker in the 225-member parliament.
His budget also comes at a time when people are on daily street protests demanding better governance, to eliminate corruption, and new faces at the policy making level.
Wickremesinghe’s budget also will have to manage geopolitics and an emerging cold war between India and China in and surrounding Sri Lanka. (Additional reporting by Melkishiya Andrew) (Colombo/Nov14/2022)
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Monday November 14, 2022 9:39 pm
Monday November 14, 2022 9:39 pm
ECONOMYNEXT – Sri Lanka shares slipped on Monday for the first time in four sessions and the turnover was thin on muted sentiments ahead of the 2023 budget, brokers said.
The main All Share Price Index (ASPI) closed 0.66 percent or 55.77 points lower at 8,363.29.
“After three consecutive days in green, ASPI closed the day in red as retailers chose to remain sidelined awaiting direction from the budget 2023 which was scheduled for today,” First Capital Market Research said in it’s daily note.
The market saw a turnover of 941 million rupees, less than a third of this year’s daily average turnover of 3.0 billion rupees.
The market saw a foreign outflow of 23 million rupees. But the market has seen a total net foreign inflow of 17.7 billion rupees so far for this year.
Analysts expect a bearish sentiment on banking sector to continue until the government decide on local debt restructuring.
The market has been on a falling trend as investors awaited for cues on policies from the 2023 budget.
Investors are also concerned over the impact of local debt restructuring on risky assets, analysts have said, as the market is waiting for a debt restructuring decision between the government and its creditors ahead of an IMF loan approval.
The more liquid index S&P SL20 closed 0.53 percent or 13.57 points lower at 2,566.61.
The ASPI has fallen 2.7 percent so far in November after losing 13.4 percent in October. It has lost 31.5 percent year-to-date after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.
The listed companies have shown reasonable profits in their third quarter of the year, however, analysts say the disposable income of the general public due to proposed tax hikes is the main reason for the negative expectations over the December earnings.
Expolanka, dragging the index down most, ended 3.4 percent lower at 148 rupees a share.
LOLC fell 3.6 percent to 383 rupees and Aitken Spence closed 2.9 percent weaker at 130.7 rupees a share. (Colombo/Nov14/2022)
Monday November 14, 2022 9:05 pm
Monday November 14, 2022 9:05 pm
ECONOMYNEXT – Yields in Sri Lanka government securities in the secondary market closed steady in dull trade and rupee peg also ended unchanged on Monday as President Ranil Wickremesinghe in his capacity as the finance minister presented the 2023 budget, dealers said.
Dealers said the secondary market was neutral on the 2023 budget, as Wickremesinghe presented the budget in a move to signal policies as a way out of the ongoing economic crisis.
“Investors in primary and secondary markets were waiting to see the new policies and their impacts on the fixed assets and the rupee currency,” a dealer said.
“Since no new direction was given and nothing major was discussed regarding the tax implementation and restructuring, we can expect the market to react positively for that”.
A bond maturing on 01.07.2025 closed at 32.75/33.25 percent on Monday, steady from 32.75/33.00 percent from the previous close.
A bond maturing on 01.07.2032 closed at 30.30/30.90 percent on Monday, hardly changed from Friday’s close of 30.30/80 percent.
The three-month T-bills closed at 32.75/33.25 percent on Monday almost steady from the previous close of 33.00/25 percent.
The Central Bank’s guidance peg for interbank transactions remained unchanged at 363.50 rupees against the US dollar.
Commercial banks offered dollars for telegraphic transfers between 372.00 and 372.10 for small transactions, data showed.
Buying rates are between 362.00 – 362.10 rupees.  (Colombo/Nov 14/2022)
Monday November 14, 2022 7:32 pm
Monday November 14, 2022 7:32 pm
Danushka Samarasinghe,  Chief Executive Officer/Director at Nation Lanka Equities (Pvt) Ltd
“Fears of additional taxes such as wealth tax, increase in VAT (value added tax), additional taxes on revenue etc. came to rest with the announcement of the 2023 budget proposals. Ending of uncertainty and speculation is a positive.”
“But it would have been better if there was time bounded targets for increasing government revenue from measures such as divesting state owned assets and SOEs. Just a mere mention of the intention of divestiture may not hold water. Also any significant reforms to reduce the public sector headcount was the need of the hour and seems to be omitted.”
Naveed Majeed, Senior Vice President, Asia Securities
“Investors were on the sidelines for the past couple of weeks in the anticipation of a capital gains tax on the stock market. But the absence of such a tax on the equity market will be viewed positively by the investors. But having said that, taxes that were introduced in the interim budget will go on to impact corporate performance broadly because now it’s a flat 30 percent corporate tax without any concessionary rate.”
“From a tax impact, we are going to see the disposable income being squeezed and then you are going to see an impact on demand which will impact corporate and finally the high-interest rates. While this might be one of the investment areas not being taxed, on the other hand, we are going to see corporate earnings being at risk.
Finally, it’s not going to be an entire index run but specific rather its going to be specific companies that are resilient that investors need to position for.
Dimantha Mathew, Head of Research at First Capital
“In terms of investor sentiments, there was nothing related to securities…There was only a mention of reducing para-tariffs in the long term…Which is a good thing,”
“I don’t think there would be a major reaction in the market because the budget that was presented today did not have any direct.”
Professor W. Wimalaratana, President of Sri Lanka Economic Association
“As a document, the budget is good and this is not an exceptional budget. Even in the past, when you are looking at budget speeches, budget documents all those were really attractive. When you are going to deliver, there will be a lot of issues. Supplementary budgets will be presented to the parliament because of allocated money is not sufficient.”
“When we look at the current economic crisis situation, this should be an exceptional budget. The main focus should be to expand the revenue of the government while reducing expenses. When we look at the budget there are no sufficient concrete strategies to increase the government revenue. Also privatization has been included.”
Sujata Gamage, Senior Research Fellow, LIRNEasia 
“They are opening another few medical colleges. It is amazing I mean we keep producing these doctors for the foreign market. We need a higher education responsibility act. The relative amounts for higher education and school education has changed over the years the relative percentage for higher education has increased.”
“We need quality education. But right now we are paying for paper qualifications. I remember in 2003 World Bank noted that we spent more on higher education as percentage of education budget than the normal.” (Colombo/Nov14/2022)
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