Sri Lanka's talks with the International Monetary Fund (IMF) on a bailout package have made solid progress, its president said on Tuesday, as he presented an interim budget aimed at boosting revenue and mending the country's battered finances.
In an address to parliament, President Ranil Wickremesinghe also said the government would aim to control inflation and introduce legislation to bolster central bank independence.
The island nation of 22 million people is battling its worst economic crisis since independence from Britain in 1948. Wickremesinghe, who took over as president last month, is pushing to bring in fiscal consolidation measures agreed with the IMF.
Negotiations with the IMF, which currently has a team of officials visiting Sri Lanka, had made headway, said Wickremesinghe, who also serves as finance minister.
"Many people are still unaware of how serious this financial crisis is, but it is imperative that we use this opportunity to correct past mistakes and implement long-term policies that will stabilise the economy and take us out of the challenges we currently face," he said.
"Talks with the IMF have reached a positive juncture and we will also hold discussions with creditors on how to put Sri Lanka debt on a sustainable path."
Sri Lankan officials hope the budget will be followed by a preliminary, staff-level agreement with the IMF for a loan package worth between $2 billion and $3 billion.
Sri Lanka's sovereign bonds jumped 1.9 cents on the dollar following Wickremesinghe's address, although they were still below 33 cents, less than a third of their face value.
Outlining a raft of measures to stabilise the bruised economy, Wickremesinghe said he aimed to bring annual inflation down to mid single-digit levels from over 66 per cent currently.
Fresh taxes will be introduced in the next full-year budget but value-added tax will rise from next month to 15 per cent from 12 per cent currently.
In the medium-term, Sri Lanka will aim to bring its debt to GDP ratio below 100 per cent, down from around 120 per cent currently, alongside economic growth of 5 per cent.
The economy is likely to contract 8 per cent this year and growth is not likely until the second half of 2023, the central bank said earlier.
The government will introduce legislation to reduce politicisation of the Central Bank of Sri Lanka and reduce money printing, Wickremesinghe said.
Separate new laws would also be brought in to strengthen fiscal management, restructure over-leveraged firms and fight corruption.
Covid-19 upended Sri Lanka's tourism-reliant economy and slashed remittances from workers overseas. The damage was compounded by rising oil prices, populist tax cuts and a seven-month ban on importing chemical fertilisers last year that devastated agriculture.
The result has been chronic shortages of basic goods, runaway inflation and mass protests that forced then president Gotabaya Rajapaksa to flee the country, leaving his successor, Wickremesinghe, to handle the restructuring of billions of dollars in debt to China and other countries.