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Govt and Central Bank in a mood for fiscal consolidation

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by Sanath Nanayakkare

A recap of remarks at a recent webinar hosted by the Central Bank of Sri Lanka made it evident that both fiscal and monetary authorities are in a mood for increased tax collection and reduced public spending in the medium term in order to reduce the burgeoning budget deficit in 2021.

Responding to a question from the audience whether the policymakers would take a path of revenue based consolidation in this backdrop, Mahinda Siriwardana, Deputy Governor of the Central Bank said,” You can see that as per the medium term policy framework presented by the Central Bank, revenue is expected to increase gradually and at the same time overall expenditure is expected to go down. It will be a kind of combination of revenue enhancing and expenditure reduction measures as has been announced by the government.”

“As a result, the expectation is to have improvements in both the Current Account and the Primary Account going forward. So these could be the main driving forces in the future in order to reduce the budget deficit, So I’d say the mechanism will be a combination of these two metrics.”

“There was an increase in the budget deficit in 2020. It reflected two things. There was a decline in revenue and at the same time there was an unexpected increase in the recurrent expenditure due to the ongoing pandemic. You know that the government introduced significant changes to the country’s tax policy in 2019 – the idea behind that was to encourage the economic activity. By maintaining a low tax regime in the country. However, the expectations were not entirely met given the subsequent developments, particularly due to Covid-19 and related developments. There was a 3.6% contraction in the economy. That had an impact on the expected revenue generation. At the same time there was an overrun in the recurrent expenditure as well. So the response to your question is in the Central Bank’s medium term framework,” the Deputy Governor said.

According to the Annual Report of the Central Bank, due to the economic fallout from the COVID-19 pandemic, the fiscal outcome deviated from expectations as reflected in the decline of the government revenue and a rise in government recurrent expenditure, thereby widening the budget deficit and raising the outstanding central government debt. Heavy reliance on domestic sources in financing the budget deficit in 2020 reflected the impact of extremely challenging global market conditions that limited access to foreign financing, and the expressed preference of the government to reduce the reliance on foreign financing.

Despite the limited fiscal space in 2020, the government, under extremely challenging circumstances, continued to support the businesses and individuals affected by the pandemic. Going forward, near term risks to the fiscal sector could remain elevated due to low revenue mobilisation and the large foreign currency debt service requirements. Persistent deviations of the budget deficit and the elevated level of outstanding central government debt warrant a firm commitment towards fiscal consolidation as envisaged in the National Policy Framework of the government, the CBSL Annual Report states.



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U.S. confident SL would ensure required facilitation for U.S. investors

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Sri Lankan government has pledged to address the pending policy issues and I am confident that once the pandemic subsides, concrete efforts will begin to improve ease of doing business and ensure the required facilitation for US investors, Martin Kelly, Charge d’ Affairs of the Embassy of the United States of America in Sri Lanka said recently speaking at the Sri Lanka Invest Forum 2021 held virtually through June 7-9, 2021

“Sri Lanka was among the first countries in the region to open its economy and offers the highest standards of living among other advanced indicators in South Asia. Over the last seventeen years, the country continued to transition from an agriculture commodity based economy to become world leader in textile and apparel, a major exporter of IT and communication related services and of course a world class destination for international tourists,” he said.

“Promoting trade and investment opportunities is one of the embassy’s top priorities, and a vital component of our efforts to encourage private sector led development and toward stronger ties between the two countries,” he said.

Kelly said that the government of Sri Lanka has promoted pro-business policies including tax benefits, to attract the U.S. and other foreign direct investments.

 

 

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ComBank donates ICU beds to Kegalle Teaching Hospital

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Commercial Bank Chairman Justice K. Sripavan and Managing Director S. Renganathan with representatives of the Bank and the Kegalle Hospital

The Commercial Bank of Ceylon has donated three Intensive Care Unit (ICU) beds to the Teaching Hospital Kegalle, which receives over 80,000 admissions and 350,000 clinic visits, annually. The donation was made following a request from the hospital and will help it to provide seamless healthcare services to prevent non-pandemic related morbidities and mortalities while also treating patients who are COVID-19 positive.

The CSR Trust of the Bank has already gifted medical equipment and gear including Personal Protection Equipment (PPE) kits, face masks, surgical masks, hand sanitisers, Slit lamps, pulse oximeters, multipara monitors and oxygen concentrators to over 16 government hospitals. Commercial Bank also made a monetary donation to the National COVID-19 Healthcare and Social Security Fund set up by the government last year.

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Trading activity gets slower among retail investors

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Lankem Ceylon Rights Issue undersubscribed.

By Hiran H.Senewiratne 

Stock trading at the Colombo Stock Exchange (CSE) was marginally positive yesterday and the number of retail investor participation was lower compared to previous trading days. Index heavy LOLC group which accounted for more than 30 percent of the turnover, contributed 20 points to the All Share Price Index, stock market analysts said.

Both indices moved upwards. All Share Price Index was up by 35.75 points and S&P SL20 up by 2.01 points. Turnover stood at Rs 1.74 billion sans a single crossing. In the retail market top six companies that mainly contributed to the turnover were LOLC Rs 510 million (1.28 million shares traded), Expolanka Holdings Rs 197 million (4.1 million shares traded), Melstacorp Rs 137 million (2.6 million shares traded), Browns Investments Rs 71.5 million (11.3 million shares traded), Windforce Rs 68.2 million (3.5 million shares traded) and Hayleys Holdings Rs 54.8 million (730,000 shares traded).

Index heavy LOLC, which contributed 20 points to the All Share Price Index, appreciated its share price by Rs 18.75 or 4.85 percent. Its share price started trading at Rs 386.25 and at the end of the day it moved up to Rs 405.

A pioneer in renewable energy, Vidullanka PLC has successfully completed raising additional capital of Rs. 253 million to fuel its expansion drive in the solar power sphere.

Lankem Ceylon Plc, Rs. 677 million worth Rights Issue has been undersubscribed. When the issue closed the Company managed to draw only subscriptions for 17.6 million shares worth Rs. 352.3 million. The original plan was to issue 33.85 million shares at Rs. 20 each aiming at raising Rs. 677 million. The basis was one new ordinary share for every one share held. Funds were to be raised to augment working capital requirements.

During the day 67.9 million share volumes changed hands in 17564 share transactions.

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