ECONOMYNEXT – Sri Lanka’s central bank has asked the government to delay capital projects, raise taxes and sell off state assets to reduce the deficit and help bring a currency crisis brought about by money printed to keep rates as deficits expanded, under control.

The central also raised its policy rate at which new money is printed 100 basis points to 7.50 percent, through inflation at 15.1 percent is still more than double the rate.

The central bank has proposed “increasing government revenue through suitable tax increases on a sustained basis,” and “monetising the non-strategic and underutilised assets” which will raise revenues.

At the same time central bank called to delay capital projects which will reduce the import of building materials and machinery.

In 2021 building materials imports were 1.24 billion rupees, and machinery and equipment were 2.8 billion dollars.

The central bank had earlier decreed housing loans at 7.0 percent while printing money.

Analysts have called for value added tax to be raised to 20 percent to boost revenues and prevent a steep depreciation of the currency and possible loss of control of reserve money which may end up in dollarization.

The following measures were proposed.

a) introducing measures to discourage non-essential and non-urgent imports urgently based on the previous recommendation made by the Central Bank

b) increasing fuel prices and electricity tariffs immediately, to reflect the cost

c) incentivising foreign remittances and investments further

d) implementing energy conservation measures, while accelerating the move towards renewable energy

e) increasing government revenue through suitable tax increases on a sustained basis

f) mobilising foreign financing and non-debt forex inflows on an urgent basis

g) monetising the non-strategic and underutilised assets, and

h) postponing non-essential and non-urgent capital projects.