COLOMBO, Nov 9 (Reuters) – Sri Lanka imposed new taxes on motor vehicles, telecoms, banks and liquor in a bid to boost revenues in its 2018 budget outlined on Thursday, as the budget deficit for the current year slipped to 5.2 percent of the gross domestic product.
The government has struggled to strike a balance between populist policies and fiscal consolidation but the latest deviation from the target of 4.6 percent raises questions about its ability to meet conditions tied to a $1.5 billion IMF loan.
Finance Minister Mangala Samaraweera, presenting the budget to parliament, said the poor weather had dented crop production and is estimated to have clipped 1 percent off GDP.
“The adverse weather conditions have resulted in a significant contraction in the agriculture produce this year,” he said.
The budget document showed the deficit target for 2018 was at 4.8 percent – lower than the downwardly revised 5.2 percent for this year – and proposed new taxes including a carbon tax and a levy on luxury vehicles to boost revenues.
Growth is expected to pick up pace to 5 percent next year compared with this year’s 4.5 percent.
With an eye on local elections next year, Samaraweera said the budget sought to empower youths and boost growth for the island’s $81 billion economy.
“The backbone of our economy is small and medium sector. But they are facing issues with the capital. Our aim is provide them funds by looking at their business proposals instead of collateral,” he said.
Since coming to power in 2015, President Maithripala Sirisena’s coalition government has boosted revenue and tried to rein in the fiscal deficit, in line with the IMF targets.
In the revenue proposals for 2018, the government has targeted bank transactions, telecoms, motor vehicles and liquor. The measures are expected to bring a total of 110 billion rupees ($716.61 million) in new revenue the government is budgeting to raise.
Sri Lanka faced a debt and balance-of-payments crisis early last year before the IMF came to the rescue with the loan.
The economy will face its highest debt repayment in the next two years and the government is in the process enacting legislation to borrow more than the annual budget limit to prevent a possible sovereign debt crisis.
Samaraweera also imposed a debt repayment levy – 20 cents per 1,000 rupee bank transaction – with effect from April 1 next year.
“This will be applicable only for three years and shall not be passed on to the (bank) customers,” he said adding that the next three years will be crucial with debt repayments amounting to almost 7 trillion rupee.