Sri Lanka hopes to complete debt restructuring talks by 2023-end
Business
Sets ambitious deficit and revenue in next year’s budget
COLOMBO (Reuters/Web Desk) – Sri Lanka hopes to complete debt restructuring talks with a range of bilateral creditors by the end of the year, the country's junior finance minister said on Tuesday.
The island nation of 22 million people has to secure assurances of debt restructuring from bondholders and key bilateral lenders as part of the terms of its $2.9 billion International Monetary Fund bailout.
It was reported earlier in September that some members on the committee of Sri Lanka's official creditors are pushing to reach a deal to restructure the nation's debt without the participation of China.
BUDGET 2024
Sri Lanka's government projected a lower-than-anticipated budget deficit for 2024 on Monday on the back of a significant jump in revenues which are crucial to keep its bailout programme from the International Monetary Fund afloat.
The government set a fiscal deficit target of 2.85 trillion Sri Lankan rupees ($8.73b) in 2024, or 9.1 per cent of GDP, higher than the revised 8.5pc of GDP in the current year. The original target for this year was 7.9pc.
Next year's deficit target, however, is smaller than the 12pc backed by the IMF, after the fund warned of revenue shortfalls when reviewing the country's finances as part of the $2.9bn bailout package.
The government also projected total tax revenue at 4.1tr rupees for 2024, sharply higher than 2.85 trillion rupees in the current year, with the biggest jump coming from the goods and services tax receipts, the budget document showed.
"This is a budget to build the foundation of Sri Lanka's recovery. We cannot continue as a people who depends on others," President Ranil Wickremesinghe, who is also the island nation's finance minister, told the parliament.
"To ensure that Sri Lanka does not collapse again we have to renew and recreate our economic and political systems."
Sri Lanka's economy contracted 7.8pc in 2022, forcing it to default on its foreign debt in its worst financial crisis since Independence in 1948.
Budget expenditure has been set at a record 6.98tr rupees in 2024, an increase of nearly 33pc compared to 2023, with capital expenditure more than doubling and 450bn rupees reserved for bank recapitalisation.
"The budget deficit is lower than anticipated but if we add the allocation for bank recapitalisation the deficit increases," said Dimantha Mathew, head of research, First Capital Research.
The island will allocate 3tr rupees to repay international sovereign bonds in 2024 after ongoing debt restructuring talks with bondholders are finalised, Wickremesinghe said, proposing to raise Sri Lanka's debt ceiling by 3.45tr rupees to 7.35tr rupees.
The central bank expects growth of 3.3pc in 2024, when the country will hold presidential elections.
The cabinet had already approved raising Value Added Tax (VAT) by 3pc from Jan 1 and broadening collection.
The government has projected a primary account deficit of 0.6pc of GDP, slightly smaller than 0.7% in 2023, with the IMF requiring the nation to reach a primary surplus of 2.3pc by 2025 and reduce its debt to GDP to 95pc by 2032.
The debt to GDP ratio stood at 113.8pc as December-end.
