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As talks with the International Monetary Fund on a rescue package continue, the president of crisis-ridden Sri Lanka plans to reduce spending when he delivers an interim budget on Tuesday.
The 22 million-strong, heavily dependent-on-tourism country is experiencing its worst economic crisis since gaining independence in 1948, with its foreign exchange reserves collapsing, its governmental finances in disarray, and the prices of essential products skyrocketing.
Ranil Wickremesinghe, who took office after his predecessor was overthrown in a popular uprising in July, said earlier in the month that the interim budget would be centred on deficit reduction measures agreed upon with the IMF.
He declared that spending would be reduced by “a few hundred billion” rupees, including on defence, in order to direct money toward welfare and pay off loan interest. In its most recent budget, which was unveiled in November, Sri Lanka set an expenditure goal of 3.9 trillion rupees ($10.99 billion).
In addition to announcing new levies to reduce a double-digit deficit, Wickremesinghe, who doubles as the finance minister, is anticipated to unveil plans to assist low-income communities that have been affected the hardest by the financial crisis.
A more comprehensive recovery plan will be provided in November along with the full-year budget for 2023.
The interim budget is likely to aim for a 9.9% deficit in 2022, down from the previous 12%, according to macroeconomist Lakshini Fernando of the asset manager Asia Securities.
However, given the weakening economy and welfare demands, it will be challenging to meet the expenditure and revenue targets.
According to rating agency S&P Global, the island nation skipped principal payments due on July 25 as well as interest payments due on June 3, June 28, and July 18.
Officials from Sri Lanka said they aim to have a staff-level agreement in place to advance discussions for an emergency loan of about $3 billion by the time an IMF delegation leaves the country on Wednesday.
The approximately $29 billion in debt owed by Sri Lanka has also been reviewed by the IMF delegation.
