Tax cuts ahead of Sri Lanka elections

By Frances Harrison BBC correspondent in Sri Lanka

Sri Lanka's Finance Minister has announced populist tax cuts to try to ease the cost of living ahead of provincial council elections and possible general elections.

KN Choksy said a number of factors - including the president's decision to take over three ministries in November - had had disastrous effects on the economy.

Defending his performance in office, the minister said he had inherited a shrinking economy.

In two years, he said, Sri Lanka had achieved a 5.6% growth rate, the third highest in Asia after China and India.

Mr Choksy said inflation had halved, and for the first time in a quarter-century the Sri Lankan rupee had appreciated against the dollar, sterling and yen.

Presidential interference

But Mr Choksy told journalists that relief measures were now needed to help the lower and middle classes.

This, he said, was because of rising international oil and wheat prices, a severe drought in Sri Lanka and because of the political intervention of the president last November.

Mr Choksy announced a number of customs and value-added-tax cuts for staple food items such as wheat, dal, milk powder and potatoes.

He also announced subsidies on fertiliser prices to help farmers as well as some concessions on electricity charges for low consumers.

The government says this relief package has nothing to do with the expectation of snap parliamentary polls.

But the country is heading for provincial council elections, probably in late April, and there has been continued speculation that the president might try to resolve the current stand-off with the prime minister by calling a general election.