SRI LANKA UPDATE | 27 OCTOBER – 02 NOVEMBER 2023

The Economy:

India’s Finance Minister gives further impetus to economic ties with Sri Lanka – India’s Finance Minister Nirmala Sitharaman who was on a three-day visit to Sri Lanka is expected to strengthen already robust and expanding economic ties with Sri Lanka. She is in Sri Lanka on the invitation of the Sri Lankan Government for the Colombo “Naam 200” ceremony. The five-year break in bilateral negotiations to upgrade the current Free Trade Agreement (FTA) into an extensive Economic and Technology Cooperation Agreement (ECTA), a significant milestone was discussed during this visit.

World Bank (WB) concludes visit to Sri Lanka; stresses need to pursue reforms – World Bank Managing Director for Operations Anna Bjerde who was on a four-day visit to Sri Lanka, urged the Government to continue with the necessary reforms for recovery and long-term growth. She also emphasized the World Bank’s ongoing dedication to boost human capital, generate employment and invest in people. She participated in a roundtable discussion arranged by President Ranil Wickremesinghe, which was attended by Ministers, representatives of the private sector and development partners, including bilateral development partners from the Multilateral Development Bank (MDB). The roundtable discussion centred on Sri Lanka’s advancements in structural reforms, attracting private investment for growth, fostering the creation of jobs, developing human capital and fostering regional collaboration.

Colombo Consumer Price Index (CCPI) based headline inflation edges up slightly in October –

According to the year-over-year (Y-o-Y) change in the Colombo Consumer Price Index, the headline inflation increased from 1.3 per cent in September 2023 to 1.5 per cent in October 2023. According to the Central Bank of Sri Lanka (CBSL), this marginal increase in headline inflation is consistent with anticipated outcomes. For the fourth consecutive month, the Food deflation (Y-o-Y) stayed constant at 5.2 per cent in October 2023 compared to the previous month. From 4.7 per cent in September 2023 to 4.9 per cent in October 2023, the Non-Food inflation (Y-o-Y) increased.

Government hikes VAT to 18 per cent to meet revenue targets set by International Monetary Fund (IMF) – In order to reach revenue targets set by the IMF, the Government decided to increase the Value Added Tax (VAT) rate from 15 per cent to 18 per cent, with effect from January 1, 2024. At the media briefing following the Cabinet meeting, the Cabinet Co-Spokesman stated, that the Government’s revenue collection did not meet the IMF agreed revenue expectations, despite a remarkable 51 per cent increase in tax receipts in the first nine months. Hence, the Government would impose new taxes on a number of items and services that are not currently subject to the VAT. The action, according to a Cabinet co-spokesman, is intended to satisfy the primary balance and tax revenue targets agreed upon with the IMF.

Politics & Policy:

Government sets goal to allocate 1 per cent of overall land area for industrial use – The Minister of Industry and Health announced demarcating 1 per cent of Sri Lanka’s total land area for industrial use, given the country’s restricted supply of land for industrial usage. He was speaking at a media conference themed “Collective Path to a Stable Country” at the Presidential Media Center. A comprehensive five-year strategic plan related to industrial policy has been developed and its implementation is already underway within the Ministry.

Cabinet nod to revise electricity tariffs every three months – The frequency of power tariff modifications will now occur every three months instead of every six, as decided by the Cabinet of Ministers. This decision is the result of a joint Cabinet paper that Ministers of Power and Energy and President Wickremesinghe proposed. Cabinet Co-Spokesman stated that the decision was made considering the inconveniences the public has to deal with due to the current biannual tariff revisions by the Ceylon Electricity Board (CEB). He further provided justification for the action by pointing out that the three-month review will be easier on the budget than the biannual change which would result in a higher percentage of tariff difference.

Proposed property tax to boost Govt. income from 2025 onwards – A new property tax is to be implemented from 2025. The State Minister of Finance assured that the new tax would not impact the general public because it would only be applied to those who possess numerous properties. He mentioned that IMFs recommendations are being taken into account when preparing the tax structure. The IMF stated previously that a wealth transfer tax plan is necessary in order to increase Government revenue.

Sri Lankan apparel firm hits green energy milestone – One of the biggest producers of knitted fabrics and apparel in Sri Lanka, MAS Holdings announced the completion of the second phase of “Project Photon,” a roof-mounted photovoltaic (PV) solar power project. According to the Company, this solidifies its position as the largest supplier and generator of roof-mounted solar energy in Sri Lanka. Before the 2017 launch of Project Photon, MAS Holdings had 1.7MW of solar power dispersed over different locations. The Company speedily installed 16MW of solar power across 18 locations over two years thereafter, as part of its commitment to expediting the move to renewable energy.

Disclaimer – This advisory is intended for circulation among JAAF stakeholders only. Please do not circulate or share on social media.

This Advisory, written for our partners interested in developments in Sri Lanka against the backdrop of the current crisis, is an update on the one issued last week. This document summaries developments covering significant political and economic events. The Advisory includes economic, political, social and governance perspectives. It draws on news reports, analyses, Government announcements and documents, and from other sources that we may be in contact with or have access to.

This Advisory was prepared by the Strategic Communications Unit of Adfactors PR Lanka. For inquiries, contact pumudika.amarasekara@adfactorspr.com