Ranil Wickremesinghe, President of Sri Lanka, has directed his Ministries to trim 5% from their estimates of expenditure in the Budget for this year. The Treasury of Sri Lanka was facing an acute lack of funds. This raises fears that the cash strapped country’s financial crisis might be worse than anticipated.
Sri Lanka is experiencing its worst economic crisis in decades since independence from Great Britain in 1948. Its situation has been triggered by a severe dearth of foreign reserves. Sri Lanka declared default on its international debt in April 2013 due to the forex crisis.
Bandula Gunawardena (Cabinet spokesperson) stated that President Wickremesinghe informed the Cabinet that there was an acute shortage of funds.
According to Mr. Gunawardena, the income that could have been earned from taxes within the first few month of 2023 was significantly reduced due to the ongoing economic crises since last year. He said “The economic crisis IS worse than we expected.”
He stated that “On Monday, President instructed Cabinet to reduce 5% from all proposed Ministries allocations in the 2023 Budget.”
Mr. Gunawarde indicated that issues have arisen concerning the payment of government employees’ salaries in January and February. He added that disbursement for this month’s Samurdhi allocation would also be delayed by a couple weeks.
President Wickremesinghe (also Sri Lanka’s Financial Minister) stated last year, that the febrile economy needed a new approach.
Sri Lanka, which seeks to secure a $2.9B bridge loan from International Monetary Fund, has been trying hard to obtain financial assurances from its main creditors — China Japan India — which are necessary for Colombo’s bailout package.
Last week Mr. Wickremesinghe expressed optimism about obtaining the IMF bailout program in the first quarter. Sri Lanka began debt restructuring negotiations with its creditors in September last year, as required by its agreement to the IMF.
Mr. Wickremesinghe said earlier that India, Sri Lanka and debt restructuring talks were “successful”. The country will also be starting discussions with China.
In May 2012, the Sri Lankan government appointed international legal and financial advisors to assist with debt restructuring. This was after the country declared international default for the first-ever time in its history. Because of the forex shortage, Sri Lanka could not afford essential imports such as fuel, fertilizers, or medicines. The result was serpentine queues.