Sri Lanka: President to cut spending in interim budget

Sri Lanka's president is set to slash expenditure when he presents an interim budget on Tuesday to see the crisis-ridden country through the rest of the year, amid discussions with the International Monetary Fund (IMF) on a bailout package.

The tourism-dependent nation of 22 million is facing its worst economic crisis since its independence in 1948, with foreign exchange reserves crashing, public finances in a mess and the costs of basic goods rocketing.

Having become president after his predecessor was ousted in a popular uprising in July, Ranil Wickremesinghe told Reuters earlier this month that the interim budget would focus on fiscal consolidation measures agreed with the IMF.

He said that expenditure would be slashed by a "few hundred billion" rupees — including on defence — to channel funds for welfare and to repay interest on loans. Sri Lanka aimed for a Rs3.9 trillion ($10.99 billion) expenditure in its last budget, presented in November.

Wickremesinghe, who is also the finance minister, is expected to outline measures to support low-income communities worst hit by the financial crisis, and announce fresh taxes to shrink a double digit deficit.

A full-year budget for 2023 is likely to be presented in November, where a broader recovery plan will be outlined.

"The interim budget will likely aim for a 9.9 per cent deficit for 2022, which is lower than the earlier 12 per cent," said Lakshini Fernando, macroeconomist at investment firm Asia Securities.

"But expenditure and revenue targets will be difficult to achieve given the cooling economy and welfare demands."

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