Sri Lanka unveils $1BN relief plan as soaring food prices bite | Business and Economy News

Sri Lanka will increase pay and pensions for government employees, roll back some taxes on food and medicine and boost income support for the poorest citizens.

Sri Lanka will increase pay and pension for government employees, remove some taxes on food and medicine, and provide cash for its poorest citizens as prices of essential items surge in the nation that is running out of foreign exchange to pay for imports.

President Gotabaya Rajapaksa’s government will increase salaries of public sector staff by 5,000 rupees a month ($25) from January, his brother and Finance Minister Basil Rajapaksa said in a briefing in Colombo late Monday. About 2 million people on income support will receive 1,000 rupees each and the administration will also buy crops at higher-than-market rates from farmers who suffer losses due to a government rule to stop fertilizer use.

In total, the package amounts to 229 billion rupees, about 1.2% of gross domestic product, and will be re-allocated from the 3.9 trillion rupees budgeted to be spent in the whole of 2022. No new taxes will be announced, Rajapaksa said.

The moves seek to calm public anger about rising prices of wheat, sugar and milk powder, which the island nation is struggling to purchase from abroad as the local currency depreciates and inflates its import bill. The coronavirus pandemic has hurt Sri Lanka’s crucial tourism sector, stoking debate among policy makers about whether it should seek a bailout from the International Monetary Fund or rely on bilateral emergency support from nations including China and India.

Sri Lanka’s sovereign dollar bonds had gained earlier Monday ahead of a planned cabinet meeting to consider whether the nation should seek IMF support. The government hasn’t made a decision, Rajapaksa said.

Sri Lanka has $500 million of dollar bonds maturing Jan. 18 and another $1 billion in July. It has $3.1 billion of foreign exchange reserves, roughly enough to pay for two months of imports, based on extrapolations from previous government calculations. Headline inflation accelerated to 12.1% in December, the second-fastest pace in Asia after Pakistan.