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 (US$25) from January, his brother and Finance Minister Basil Rajapaksa said in a briefing in Colombo late on 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 fertiliser use . In total, the package amounts to 229 billion rupees (US$1.12 billion), about 1.2 per cent of gross domestic product, and will be reallocated 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. Sri Lanka’s main opposition slammed the relief package, saying it did not address the issue of external liquidity and domestic inflation, which accelerated to 12.1 per cent in December, the second-fastest pace in Asia after Pakistan. “They are not addressing either of the problems. If they accommodate these wage increases by printing money, inflation may go up further,” said Harsha de Silva, a lawmaker and former minister of economic reforms. How Sri Lanka’s failed ‘organic utopia’ hurt its hopes of a Chinese bailout The coronavirus pandemic has hurt Sri Lanka’s crucial tourism sector, stoking debate among policymakers 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 on Monday ahead of a planned cabinet meeting to consider whether the nation should seek IMF support. The government has not made a decision, Rajapaksa said. Inflation woes hit South Asia as Omicron threatens to sweep region Sri Lanka has US$500 million of dollar bonds maturing on January 18 and another US$1 billion in July. It has US$3.1 billion of foreign exchange reserves, roughly enough to pay for two months of imports, based on extrapolations from previous government calculations. In the past few weeks, Sri Lanka has held discussions with India for $1.9 billion in economic aid and used a $1.5 billion currency swap facility from China to build up its reserves.
