Sri Lanka’s inflation remains in mid-single digit range, says CB
Moderate growth in Sri Lanka’s main foreign exchange earner, workers’ remittances, during the first three quarters of this year is not a healthy sign as the county’s other avenues of revenue such as exports, tourism and Foreign Direct Investments (FDI) have not performed upto expectations, economic analysts said.
One of the reasons for the moderate growth in remittances could be due to the drop in oil prices which affected many of the West Asian countries where a majority of Sri Lankan workers is employed, they said.
C.J.P. Siriwardena, Central Bank Assistant Governor, told a media conference in Colombo on Monday that the year-on-year headline inflation remained in mid-single digits in October 2016 as domestic supply conditions continued to normalise gradually.
The increase in Value Added Tax (VAT) and the removal of certain exemptions applicable on VAT and the Nation Building Tax (NBT) with effect from November 1 are expected to have a one-off impact on inflation as observed in May/June 2016, he added.
He noted that earnings from tourism were estimated to have increased by around 14.6 per cent during the first three quarters of 2016.
But according Finance Ministry data, FDI has come down to $117 million in August from $309 million in July while exports declined to $866 million from $891million during the same period.
Earnings from tourism during this period recorded a marginal drop to $308.76 million from $346.98 million.
Economic analysts noted that the country will have to face severe fiscal pressure as its revenue collection is not adequate due to a drop in vehicle imports and the delay in implementation of some of the tax proposals in 2016 budget including VAT, NBT, etc.
They pointed out, after the budget proposals 2016 the Land Lease Tax Bill and Ports and Development Levy as well as bills for Income Tax and Economic Service Charge are yet to be enacted by Parliament.
The lack of a proper mechanism to collect revenue from taxes under this set up has exerted severe fiscal pressure in bridging the gap between current expenditure and revenue.
However the Central Bank releasing the monetary policy review for October on Monday said although the earnings from exports grew by 8.4 per cent in August 2016, year-on-year reversing the continuous declining trend observed since March 2015, the deficit in the trade balance expanded by 8 per cent year-on-year as the increase in expenditure on imports was larger than the increase recorded in exports.