Colombo: Sri Lanka President unveils $1 billion relief package Gotabaya RajapaksaThe U.S. government seeks to ease rising public anger over rising prices of essential food and medical goods in a country that is running out of foreign currency to pay for imports.
The government will raise salaries and pensions for civil servants, remove some taxes on food and medicine and provide cash for its poorest citizens, a move critics say will not help Sri Lanka’s financial situation and rising inflation.
Rajapaksa’s brother and Finance Minister Basil Rajapaksa said at a briefing in Colombo late on Monday that the package is 1.2% of GDP, and will be reallocated from Rs 3.9 trillion to be spent throughout 2022. There is no plan for new taxes, he said.
The relief covers about 2 million people who are on income support and is a clear sign that the government is trying to stem a reaction to rising electricity prices of wheat, sugar and milk. Sri Lanka is struggling to procure these key staples from abroad due to the growing shortage of foreign exchange.
Rising food prices also stemmed from domestic crop losses following the government’s directive to stop the use of chemical fertilisers. The administration has included a plan to buy the crop from the farmers who have been protesting for the past one year at a higher price than the market.
Sri Lanka’s main opposition criticized the relief package, saying it did not address the issue of external liquidity and domestic inflation, which rose to 12.1% in December, the second fastest pace in Asia after Pakistan.
“They are not solving any problem. If they adjust these wage increases by printing money, inflation could rise further,” said Harsh de Silva, a legislator from Samagi Jana Balvegra and former minister for economic reforms.
emergency assistance
Sri Lanka’s financial problems came to the fore with the onset of the pandemic, which has largely shut down the tourism sector, a major source of foreign exchange income. In recent weeks, it has sparked debate among policymakers over whether it should seek a bailout. International Monetary Fund or rely on bilateral emergency assistance from countries including China and India.
The country has $500 million worth of bonds maturing on January 18 and another $1 billion in July. It has foreign exchange reserves of $3.1 billion, which is enough to pay for two months’ worth of imports based on extrapolation of previous government calculations.
Basil Rajapaksa told the briefing on Monday that the government had decided not to go to the IMF for support. Over the past few weeks, Sri Lanka has held discussions with India for a $1.9 billion economic aid and used a $1.5 billion currency swap facility from China to build up its reserves.
Sri Lanka’s sovereign dollar bonds remained mostly stable on Tuesday. Notes due in March 2020 were trading at 51.1 cents per dollar, while notes maturing in July 2022 stood at 70.5 cents.
The government will raise salaries and pensions for civil servants, remove some taxes on food and medicine and provide cash for its poorest citizens, a move critics say will not help Sri Lanka’s financial situation and rising inflation.
Rajapaksa’s brother and Finance Minister Basil Rajapaksa said at a briefing in Colombo late on Monday that the package is 1.2% of GDP, and will be reallocated from Rs 3.9 trillion to be spent throughout 2022. There is no plan for new taxes, he said.
The relief covers about 2 million people who are on income support and is a clear sign that the government is trying to stem a reaction to rising electricity prices of wheat, sugar and milk. Sri Lanka is struggling to procure these key staples from abroad due to the growing shortage of foreign exchange.
Rising food prices also stemmed from domestic crop losses following the government’s directive to stop the use of chemical fertilisers. The administration has included a plan to buy the crop from the farmers who have been protesting for the past one year at a higher price than the market.
Sri Lanka’s main opposition criticized the relief package, saying it did not address the issue of external liquidity and domestic inflation, which rose to 12.1% in December, the second fastest pace in Asia after Pakistan.
“They are not solving any problem. If they adjust these wage increases by printing money, inflation could rise further,” said Harsh de Silva, a legislator from Samagi Jana Balvegra and former minister for economic reforms.
emergency assistance
Sri Lanka’s financial problems came to the fore with the onset of the pandemic, which has largely shut down the tourism sector, a major source of foreign exchange income. In recent weeks, it has sparked debate among policymakers over whether it should seek a bailout. International Monetary Fund or rely on bilateral emergency assistance from countries including China and India.
The country has $500 million worth of bonds maturing on January 18 and another $1 billion in July. It has foreign exchange reserves of $3.1 billion, which is enough to pay for two months’ worth of imports based on extrapolation of previous government calculations.
Basil Rajapaksa told the briefing on Monday that the government had decided not to go to the IMF for support. Over the past few weeks, Sri Lanka has held discussions with India for a $1.9 billion economic aid and used a $1.5 billion currency swap facility from China to build up its reserves.
Sri Lanka’s sovereign dollar bonds remained mostly stable on Tuesday. Notes due in March 2020 were trading at 51.1 cents per dollar, while notes maturing in July 2022 stood at 70.5 cents.
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