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Amid discussions with the International Monetary Fund on a rescue package, Sri Lanka’s president will submit an interim budget on Tuesday to deal with spending cuts as the crisis-ridden country spends the rest of the year.
The country of 22 million is facing its worst economic crisis since independence in 1948, with foreign reserves plunging, public finances in a mess and the cost of basic goods soaring.
Ranil Wickremesinghe, who became president after his predecessor was ousted in a popular uprising in July, told Reuters earlier this month that the interim budget would focus on fiscal consolidation measures agreed with the International Monetary Fund.
Spending, including defense, will be cut by “hundreds of billions” of rupees to channel welfare funds and repay loan interest, he said. Sri Lanka had targeted spending of 3.9 trillion rupees ($10.99 billion) in its last budget submitted in November.
Wickremesinghe, who is also finance minister, is expected to outline measures to support low-income communities hardest hit by the financial crisis and announce new taxes to shrink the double-digit deficit.
The full-year 2023 budget is likely to be presented in November, when a broader recovery plan will be outlined.
“The medium-term budget is likely to target a deficit of 9.9 percent in 2022, down from 12 percent previously,” said Lakshini Fernando, macro economist at investment firm Asia Securities.
“But given the cooling economy and welfare needs, spending and income targets will be difficult to achieve.”
The island nation has failed to pay interest due on June 3, June 28 and July 18, and principal due on July 25, according to ratings agency S&P Global.
The IMF team that arrived in the country last week concluded its visit on Wednesday, and Sri Lankan officials said they expected to reach an employee-level agreement to advance talks on an emergency loan of about $3 billion.
The IMF team also discussed restructuring Sri Lanka’s debt of about $29 billion.
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