As Sri Lanka continues to grapple with the economic crisis, its current government recently proposed an interim budget. On 30 Tuesday, President and Finance Minister Ranil Wickremesinghe presented the Interim Budget 2022. Here are some of the key takeaways.
Electric Vehicles get a mention
As a policy, moving forward purchasing fossil-based vehicles for government use will be suspended. Instead, only electric vehicles will be purchased for the public sector. The purchasing process is to be primarily dependent on the efficiency and prices of the vehicles. The proposal is to be implemented on a step-by-step basis and is scheduled for completion by January 2026.
E-bikes have been all the rage amidst the crisis as a viable transport alternative, particularly in the corporate sector. Against this backdrop, the President stated that manufacturing e-bikes should be encouraged as a local industry as a means of reducing fossil fuel consumption. Thereby, imports for parts and accessories required for e-bike manufacturing will receive tax concessions “with more than 50 percent value addition.” Though, it’s interesting that this announcement comes only days after the import restriction of 367 items.
Taxes anyone?
With regards to taxation, the President proposed to introduce compulsory tax registration for all residents aged above 18 years without considering annual income and tax-free thresholds. Further, all government authorities should have an online revenue collection before the end of 2022, as per the interim budget 2022 reading.
Value Added Tax is getting a bump-up again. Effective 1 September, VAT will be increased from 12% to 15%.
State Owned Enterprises and banks changes
Government-owned business entities are getting restructured, at least on paper. As part of the move, the interim budget 2022 proposed a “State-Owned Enterprise Restructuring Unit” along with an allocation of LKR 200 million. Although what that restructuring will look like in actuality, time will tell.
Further, the Statement of Corporate Intent (SCI) process will be reactivated and is set to be included for 50 key SOEs, with the exception of CEB, CPC, and Sri Lankan Airlines as they fall under different restructuring efforts. Introduced in 2017, the Sri Lankan government signed the SCI in 2019 with 10 SOEs, which at the time included the CEB and the CPC. The idea here is to introduce KPIs to state enterprises with the aim of improving efficiency, business operations, and offering better transparency, among other things.
A committee of three government officials including the Controller General of the General Treasury is to be appointed. This committee will oversee and implement the disposal of scrap materials accumulated in public sector institutions.
State banks Bank of Ceylon and People’s Bank are also getting changes. A proposal states allowing 20% of the shareholding of the banks to depositors and staff members.
A new railway service project
The Sri Lankan government appears to be (finally) paying more attention to public transportation infrastructure needs amidst the crisis. The Ministry of Transport and Highways is already piloting a prepaid card system for the southern highway, with plans of rolling it out to buses and railway routes across the island. Now, the government expects to utilize private sector investments to develop the railway transport service.
Accordingly, the Kelaniweli train service is to be developed as a pilot project. The President further mentioned that the selection of investors will be based on a competitive bidding process.
Social welfare
Roughly 61,000 food insecure families will be given LKR 10,000 for a period of four months as immediate assistance. An amount of LKR 2,500 monthly allowance will be provided for pregnant mothers in addition to the existing LKR 20,000.
The monthly Samurdhi allowance is also getting a nudge by LKR 5,000 – LKR 7,500 to roughly 1.7 million families that are already under the program. Those who were on the waiting list for Samurdhi benefits were temporarily awarded LKR 5,000 which amounts to around 726,000 families.
According to the President, LKR 31 billion has been spent from May to July on an additional monthly allowance for those who have been affected by unemployment, the decline in agriculture output, the inability to carry out cultivation, and other reasons as a result of the crisis. As such, this program is to be continued for another four months.
As per another proposal, a “National Food Security Programme” is to be established to cover the enhancement of production, collection, storage, and distribution of food. It will also cover the provision of food to those who currently do not have the capacity.
Furthermore, the President also stated that small boat owners will be granted a subsidy. This refers to those engaged in the plantation and fishing industry, with limited electricity owing to the rising kerosene prices.
Speaking of agriculture
As mentioned in the interim budget 2022, the Department of Agriculture will be allocated LKR 400 million with the aim of implementing a program to produce necessary seeds and planting material for farmers. Another program was proposed towards growing domestic dairy production. An LKR 200 million has been proposed to utilize underused/low productivity plantation land.
In terms of paddy cultivation, USD 110 million (~LKR 40 billion) has been allocated for the import of urea required for the 2022/2023 “Maha” season. For small-scale paddy farmers (less than 2 hectares) who have obtained loans from state banks up to May 2022, dues will be waived off excluding interest. The Treasury will make the payments
Loans obtained by small-scale paddy farmers (less than 2 hectares) from state banks up to May 2022, and who face difficulties in settling, are to be waived off excluding interest and the Treasury will make payments to the relevant banks. This outstanding loan amount tallies up to LKR 688 million, says the President.
He also proposed furthering the Domestic Agriculture Development (DAD) Value Chain initiative. As of now, DAD is in progress by the CBSL with an LKR 1 billion investment and hopes to expand the program by 2023. It will ideally include growing production to cater to overseas markets.
An amount of LKR 250 million is proposed to be allocated to establish youth agriculture companies and link them with 331 Divisional Federation of Youth Clubs.
New investment and debt management agencies
A national agency for public and private partnerships is proposed to be set up with an LKR 250 million allocation. The idea is to identify and promote investment opportunities via public-private partnerships.
Another agency was also proposed to be established, this time to manage public debt. Accordingly, the proposal states an independent National Debt Management Agency (NDMA) under the General Treasury. As of now, government debt management tasks are undertaken by the CBSL, the External Resources Department, the National Budget Department, as well as the Treasury Operations Department.
New laws and revisions
The interim budget 2022 reading specified several revision proposals for existing laws such as the Agrarian Development Act, Excise Ordinance, Finance Act, and the Foreign Exchange Act. Further, new laws have also been proposed including,
- Food Security Bill
- Public Asset Management Bill
- Economic Stabilisation Bill
- Offshore Economic Management Bill
- Public Service Employment Bill
- Public Finance Management Bill
- The Recovery of Possession of the Premises Given on Lease (Special Provisions) Bill
- Contributory National Pension Fund Bill
- Agency for Overseas Sri Lankans Bill 14
As per the President, a new Central Bank Act is also underway. He stated that this legislation would serve as a framework for addressing inflation more effectively and help prevent monetary financing for budget deficits (money printing).
Crawling our way through to 2023
Speaking on the need for the interim budget 2022, the President states that this was presented “in order to prepare the basic foundation for changing the economic trajectory of our country. This is basic to the formulation of a national economic policy in accordance with the new world order.” He further emphasized, “Based on this foundation, the budget for the year 2023, will initiate the process of creating a new economy. For the process of creating a new economy, I plan to present a comprehensive set of proposals in the Budget 2023.”
The interim budget 2022 proposals come only less than a week after the gazetted import restriction placed on a number of item categories. While some of these import restrictions include many essentials and tech necessities such as servers, optical/magnetic readers, smartphones, microphones, headphones, earbuds, SSDs, smartcards, cards with magnetic stripes, gaming consoles, and 367 other items. Incidentally, the restrictions also extended to bizarre specifics like warships, nuclear reactors, and cruise ships as well. Regardless, it remains to be seen if any amendments will be made to the list. Though organizational bodies like FITIS expect to meet with the President to discuss relaxing the ban on the tech front.
GIPHY App Key not set. Please check settings