Sri Lanka expects economy to grow at 5%, repay all debt: President
* Sri Lanka to maintain low inflation, resume debt repayment from 2028
* Sri Lanka will maintain a primary surplus of 2.3% of GDP, president says
* Sri Lanka will expand free trade agreements to promote exports, he says
* 4% of GDP to be allocated as capital investment to develop local companies
* New tenders will be called to expand Colombo port, Disanayake says
Sri Lanka will focus on transforming its crisis-hit economy and prepare to resume debt repayments from 2028, President Anura Kumara Disanayake said on Monday, unveiling his first entire budget after being elected to the top office last year.
The budget is expected to strengthen the South Asian island nation’s recovery from a debilitating financial crisis in 2022 that led to its first international debt default and align with a $2.9 billion IMF bailout.
The Marxist-leaning Dissanayake said that he expects the economy to grow at 5% in the medium term and aims to maintain low inflation while also taking steps to keep exchange rates stable.
Sri Lanka will maintain a primary surplus of 2.3% of GDP, and the budget has been formulated to meet that target, Dissanayake, the finance minister, told parliament.
He said the government will ensure that Colombo repays all its debt, foreseeing a steady reduction in poverty levels.
A severe drain in dollar reserves plunged the island nation into turmoil three years ago, sending inflation soaring, tanking its currency, and forcing a $25 billion foreign debt default.
Since locking down $2.9 billion in emergency funding from the International Monetary Fund in March 2023, Sri Lanka has posted a faster-than-expected recovery. Inflation has eased, the central bank has slashed interest rates to pre-crisis levels, and debt restructuring was completed in December.
Meeting the IMF targets is crucial for Sri Lanka to improve its credit rating after exiting from default status so the country can eventually return to international financial markets to borrow and repay its debts from 2028 onwards.
The parameters set out by IMF include an ambitious deficit target of 5.2% of GDP and raising revenue to 15.1% in 2025 to secure the next tranche of about $333 million under the bailout.
The latest central bank data showed that Sri Lanka’s current reserves are at $6 billion, enough to cover four months of imports. In the depths of the crisis, reserves had shrunk to just $1.9 billion at the end of 2022.
According to the latest central bank data, Sri Lanka’s economy is expected to grow by 5% in 2024 after contracting 2.3% in 2023. The World Bank estimates Sri Lanka will grow 3.5% this year.
Disanayake said Sri Lanka would expand free trade agreements to promote exports and prioritize investments to foster export growth.
He said a new bankruptcy law will be presented to parliament soon, along with new customs legislation to promote trade, adding that 4% of GDP would be allocated as capital investment to develop local companies.
Disanayake said that tenders would be called to expand the Colombo port in one month, and the government is working to establish a development bank to support entrepreneurship.