Parliament to resume VAT debate on August 11
The controversial Value Added Tax (VAT) discussion in Parliament is to be held on August 11, it was disclosed in the course of a media briefing by Central Bank (CB) Governor Indrajit Coomaraswamy on Friday. He said Sri Lanka’s revenue collection is expected to normalise following the parliamentary approval of the VAT Bill next month. Briefing journalists on the CB monetary policy decision on Thursday to raise policy rate by 50 basis points, he said that the fiscal slippage emerging from the delay in raising VAT was one of the factors for the present adjustment. Revenue collection will be disrupted to some extent due to delays that have been experienced as a result of pending court cases on the VAT revision, he said adding that the country’s fiscal performance was very good at present.
He noted that the delay in the implementation of VAT hike may affect the target of reducing budget deficit by two percentage points. “When there is a slippage in fiscal policy, clearly monetary policy has to lean against it,” he said. Dr. Coomaraswamy pointed out that private sector credit growth of 28 per cent in May and June, and average inflation of 4.8 per cent, also compelled the CB to raise interest rates. Economic growth of 5 per cent or more for 2016 could be maintained after this policy rate hike, he said. Sri Lanka’s official reserves increased to US$ 6.4 billion at the end of July from $5.27 billion at the end of June.
Reserves were boosted by a dual-tranche sovereign bond offering this month of $500 million through 5.5-year sovereign bonds and $1 billion dollars through 10-year sovereign bonds. The CB on Thursday announced an increase in trend-setting interest rates, the first time the rates have changed in several months. The CB raised the Standing Deposit Facility (SDF) rate and the standing lending facility rate (SLFR) to 7 per cent and 8.50 per cent, respectively. The third monetary policy tightening since December last year follows private sector credit growth maintaining at 28 per cent in May while June consumer price inflation rose to a 32-month high of 6 per cent.
The Monetary Board was of the view that tightening of monetary policy in a forward looking manner will ensure the maintenance of inflation at mid-single digits in the medium term, which is supportive of the growth momentum in the economy. “As such, the current policy adjustment is not expected to have a significant impact on the long end of the yield curve. The Central Bank will continue to monitor macroeconomic developments closely and make appropriate adjustments to the monetary policy stance, as necessary,” the CB announcement said.