COLOMBO, Sri Lanka (AP) — Sri Lanka's government said Tuesday it was cutting down expenses in the latest austerity drive to help it recover from its worst economic crisis.
Government spokesman and Media Minister Bandula Gunawardena said each ministry's annual budget will be cut 5%. He said that the government was “trying its best to curtail other expenses too.”
Sri Lanka’s Parliament last month approved a 5.82 trillion rupee ($15 billion) budget, which provides for the restructuring of state-owned enterprises, reduces subsidies for electricity, and increases taxes to boost revenues based on proposals by the International Monetary Fund under a preliminary $2.9 billion bailout plan.
Unsustainable government debt, a severe balance of payments crisis and the impact of the COVID-19 pandemic led to a shortage of essentials such as fuel, medicine and food. Soaring prices have caused severe hardships for Sri Lankans, leading to a political upheaval that forced the resignation of then-President Gotabaya Rajapaksa.
His successor, Ranil Wickremesinghe, has somewhat reduced the shortages of fuel and cooking gas, but power outages continue, along with shortages of imported medicines.
Gunawardena told reporters on Tuesday the country’s economy suffered a 7% negative growth rate in 2022. “As a result, we expect that the government’s income from the taxes would drastically decline within the first three months of this year. We think this income loss would prevail throughout this year.”
“The treasury is facing its worst economic crisis,“ he said, adding that the government was struggling to raise the money needed to pay salaries of public servants.
The government is under pressure to reduce its massive bureaucracy of 1.6 million civil servants and is facing severe criticism over hiking taxes and the electricity bill.
Last year, Sri Lanka suspended repayment of nearly $7 billion in foreign debt due this year. It has since entered into a preliminary agreement with the IMF, which has agreed to provide $2.9 billion over four years depending on the willingness of Sri Lanka’s creditors to restructure their loans.
Sri Lanka’s total foreign debt exceeds $51 billion, of which $28 billion has to be repaid by 2027.