IMF says Sri Lanka’s poor tax administration could cut economic growth

Saturday, 20 September 2014 00:09 -     - {{hitsCtrl.values.hits}}

Reuters: Sri Lanka’s continuing failure to strengthen its tax administration could force the its Government to spend less, which would hit economic growth, the International Monetary Fund (IMF) said on Friday. Since the Fund extended a $2.6 billion loan in 2009, it has regularly called for the Government to raise more revenue by broadening the tax base and reducing tax exemptions. However, tax revenue as a percentage of gross domestic product has been declining. It hit 11.6% last year, from 13.3% in 2008. In its annual report on Sri Lanka, the IMF said achieving Colombo’s 2014 budget deficit target of 5.2% of GDP will be “challenging”. The global lender said a failure to increase tax revenue will cause pressure to cut capital spending “with possible adverse impact on growth”. After failing to reach past tax revenue targets, the island nation has cut public investment to meet its budget deficit and debt targets. “Fiscal consolidation and debt reduction need to continue, but the burden of adjustment needs to shift decisively to revenue generation,” the IMF said. The Fund expects Sri Lanka’s economic growth to remain at a robust 7% this year and 6.5% in each year from 2015-2019, well below the estimates by the Sri Lankan authorities. On Thursday, a Government document showed Sri Lanka aims to have 8% growth this year, and gradually increase that to 8.4% by 2017. The IMF said it expects tax revenue growth to be sluggish and remain below 13% through 2019.

 Bourse gains for 4th straight session; seen gaining further

Reuters: Stocks rose for the fourth straight session on Friday to touch its highest in more than three years. The gains were led by banking and diversified shares on bullish sentiment due to lower interest rates, higher foreign fund buying and positive economic outlook. Stockbrokers said they expected the index to gain further as the market is expecting another rate cut during the central bank’s monetary policy rate meeting next week. The announcement is scheduled for 2.00 a.m. on Tuesday. The main stock index ended up 0.39%, or 28.02 points, at 7,234.92, its highest closing level since June 9, 2011. “The market is continuing its bull run on the back of lower interest rates and positive outlook,” said a stockbroker asking not to be named. “The market is expecting a rate cut because the treasury bill rates are now below the policy rates.” Yields on treasury bills fell 3-4 basis points at a weekly auction on Wednesday and are below the central bank’s standing deposit facility rate or the rate at which the central bank lends money to commercial banks. The cut in energy prices on Tuesday has also enthused the market. Sri Lanka is aiming for a higher economic growth of 8.2% and a lower fiscal deficit target of 4.4% of gross domestic product next year, a government document showed on Thursday. The index has gained 22.36% so far this year. The Bourse has been in an overbought region since July. The Relative Strength Index, a momentum indicator tracked by chartists, rose to 83.883 on Friday compared with Thursday’s 81.562, Thomson Reuters data showed. Shares in Bukit Darah Plc, which led the overall gain in the index, rose 2.69% to Rs. 725, while the biggest listed lender by market capitalisation, Commercial Bank of Ceylon, rose 1.27% to Rs. 158.90. The day’s turnover was Rs. 2.52 billion Sri Lankan ($ 19.35 million), more than this year’s daily average of over Rs. 1.27 billion. Foreign investors were net buyers of Rs. 196.3 million worth of shares on Friday, extending their year-to-date net purchases of Rs. 11.1 billion.