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Finance Minister rules out defaulting on debt repayment



… the bloated public service can no longer be sustained

By Shyam Nuwan Ganewatte

Finance Minister Basil Rajapaksa said on Saturday that the government would not be defaulting on the country’s debt repayment.

Addressing the media at the Ministry of Finance, the Minister said that various solutions including the halt of vehicle imports had been resorted to, but those had failed to yield a clear solution with regard to the country’s foreign reserves crisis and debt servicing. “We think that this issue will persist next year as well, but we expect to resolve it without obtaining loans,” the minister said.

Sri Lanka has to pay 500 million US dollars in debt repayment in January and one billion US dollars in July next year, said the minister, adding that the country would definitely make both payments.

“The country expects to have foreign reserves of 10 billion US dollars of its own money by 2027. From next year, we expect to contribute one billion US dollars of our own money annually towards forex reserves. So, for the first time by 2024, we will be able to take the external budget into positive territory after many years.”

Minister Rajapaksa said the state sector had become bloated to the point that the country could no longer sustain it anymore.

“I think we don’t need to appease them (public servants) with sweets any further,” the finance minister said, adding that the government was not in a position to allocate more public funds for the state service for another year.

Responding to a query on an allegation by the opposition parties that there was a lack of price reduction of goods via Budget 2022, the minister said: “There are no short-term solutions. This government and its counterparts in other countries have got into difficulty by attempting to do so. The only solution is to increase production. Amid the existing COVID pandemic, I don’t think the price of imported goods will come down within the next year.”

When asked of the relief measures for the tourism sector, the Finance Minister said: “More than enough relief measures have been given to the people in this sector. The biggest relief the tourism sector can be given is making the country safe by vaccination so that tourists can visit without fear.”

Minister Rajapaksa said that the government was doing everything in its power to ensure the revival of the tourism sector. “As the finance minister, I say that the tax from the tourism sector goes to the tourist board and not to the government. The government gets income tax from all other sectors, but they independently collect the revenue and spend it.”

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Heat Index at Caution level in Northern, North-Central, North-western and Eastern provinces and Monaragala and Hambanthota districts




Heat index Advisory Issued by the Natural Hazards Early Warning Centre At 07.30 a.m. 28 May 2023, valid for 28 May 2023

Heat index, the temperature felt on the human body is expected to increase up to ‘Caution’ level at some places in Northern, North-Central, North-western and Eastern provinces and Monaragala and Hambanthota districts.

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GCE Ordinary Level examination commences on Monday (29)




The General Certificate of Education (Ordinary Level) examination 2022 (2023) will commence on Monday (29).

472,553 candidates have applied to to sit this years examination which will be held at 3568 examination centers

The examination will conclude on 8th June 2023

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Personal income tax shock dims economic activities



ECONOMYNEXTSri Lanka’s personal income tax hikes have hit economic activity in the first quarter though despite currency stability helped businesses cut prices, Hemas Holdings, a top consumer goods group has said.As the currency stabilized, as central bank ended contradictory money and exchange policy conflicts, businesses had cut prices. Mainstream economists generally claim that price falls lead to delayed transactions and try to generate positive inflation through money printing, though businesses believe otherwise.

“The market witnessed price reductions and promotional trade schemes to stimulate consumption,” Hemas Holding told shareholders in the March quarterly statement.

“However, changes made to the personal income tax structure severely impacted modern trade sales volumes as consumers rationalised their purchases under reduced disposable income levels.”

Sri Lanka hiked personal income tax rates in 2023. Value added taxes were raised to 15 percent from 8 percent last year. Another 2.5 percent cascading tax was imposed on top of VAT, the effect of which was estimated to be around 4.5 or more through the cascading effect.

While value added tax allows the government to get tax revenues after citizens make transactions and getting the economy to work, based on best decisions needed to drive the economy to satisfy real needs, income tax kills economic decisions and transfers money to state actors, analysts say.

Net gains on income tax therefore comes at a cost of lost value added tax as well as killed real economic activities which would otherwise have been based on decisions of those who earned the money.

UK also almost doubled VAT in 1979, also to 15 percent, cut the base income tax rate and widened thresholds above inflation to give choice to individuals, amid criticism from Keynesian style or mainstream economists to recover the economy, after two back-to-back IMF programs failed to deliver concrete results, analysts point out.At Hemas Holdings, group revenues went up 52.6 percent to 32 billion rupees in the March 2023 quarter from year earlier amid price inflation as the rupee fell, and cost of sales went up 45.1 percent to 22.2 billion rupees, allowing the group to boost gross profits 72 percent to 9.8 billion rupees, interim accounts showed.

However, administration costs went up 54 percent, selling and distribution costs went up 36 percent, and finance costs went up to 1.3 billion rupees. Profit after tax was flat at 1.06 billion rupees.Sri Lanka’s central bank stabilized the rupee in the second half of 2022 after the rupee collapsed from 200 to 360 to from two years of money printing and also removed a surrender rule in March allowing the exchange rate appreciate.

The US Fed also tightened policy from March 2022 helping bring down global commodity prices after triggering inflation not seen for 40 years through Coronavirus linked money printing or accommodating a real shock through monetary expansion.

“While the modern trade channels witnessed a slow down due to the adverse impact of the tax reforms and high cost of credit on the middle-class urban population, the general trade channels experienced significant growth and increased foot fall,” Hemas told shareholders.

“The decline in global commodity prices in the second half of the year, enabled the business to make price reductions across the portfolio.

“However, the benefit of appreciation of the Sri Lankan Rupee in March 2023 was not seen during the quarter due to the lag effect but is expected to realise in the quarters to come, provided the current economic conditions prevail.”

Hemas is also has operations in Bangladesh where the central bank is also buying up government securities with tenors as long at 20 years to mis-target the interest rate, triggering forex shortages and depreciating the Taka, according to analysts who study the country.

Inflation had hit 9.3 percent in Bangladesh by March.

“In the face of numerous challenges including slowdown in the global economy, depreciation in Taka, heightened inflation and depleting foreign currency reserves, the country entered an IMF programme in January 2023,” the firm said.

“The value-added hair oil market witnessed a degrowth, as consumers curbed consumption in many non-essential items and switched to value-for-money alternatives.”

Mainstream economists mis-target rates to boost growth known as either monetary stimulus or bridging an output gap, though the effort result in instability and economic contractions.

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