Finance Minister faces tough task

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Ceylon Today website on Wednesday, quoting Premier Ranil Wickremesinghe, said that as Sri Lanka has no rupee revenue it will have to print another trillion rupees.

He also warned that inflation would pass a record 40 per cent in the coming months, “Placing further pressure on Sri Lankan households already grappling with high prices.”

According to Central Bank of Sri Lanka’s (CBSL) 2021 Annual Report, of Sri Lanka’s projected revenue equivalent to 8.6 per cent of GDP last year, salaries and wages (S&W) alone will have had eaten up revenue equivalent to five per cent of GDP, leaving only 3.6 per cent of revenue for other expenditure.

CBSL further said, interest payments (IP) on borrowings had been equivalent to 6.2 per cent of GDP. IP at 6.2 per cent of GDP and S&W at five per cent of GDP, together, had amounted to 11.2 per cent of GDP, easily surpassing the 8.6 per cent of GDP revenue for last year. On the whole, CBSL estimated that last year’s budget deficit had been equivalent to 12.3 per cent of GDP.

“Recurrent expenditure increased to Rs 2,747.5 billion (Rs 2.7475 trillion) in 2021 compared to Rs. 2,548.4 billion (Rs 2.5484 trillion) recorded in 2020, reflecting higher expenses on account of S&W and IP,” CBSL said.

Meanwhile, recurrent expenditure in January 2022 amounted to Rs 252.9 billion (Rs 0.2529 trillion) compared to Rs 232.4 billion (Rs 0.2324 trillion) in January 2021, up Rs 20.5 billion (Rs 0.0205 trillion) or by 8.82 per cent year on year according to latest CBSL data.

Wickremesinghe in the aforementioned article further said, he will present an interim budget within six weeks, slashing infrastructure projects to reroute funds into a two-year relief programme targeting the indigent. Infrastructure costs at 4.6 per cent of GDP (Rs 774.2 billion or Rs 0.7742 trillion) was Government of Sri Lanka’s (GoSL’s)  third largest expenditure cost  in 2021, according to CBSL.

“With the interim budget, it’s just about cutting down expenditure, cutting to the bone where possible and transferring it to welfare,” the Premier said. To find money for supporting relief measures, Wickremesinghe said, his administration was undertaking a review of possible expenditure cuts across the country’s bloated Government sector, CT further said.

Sri Lanka’s economic crisis, the main reason of which is that the country doesn’t have US dollars to even pay for essential imports, backed by the fact that the island is an import-dependent economy, has resulted in the closure of several trading firms, most of which are private sector run.

This has resulted in not only several losing their jobs, but “tax revenue” losses to the GoSL coffers as well, due to the closure of such companies, causing further budgetary balancing problems among other existing socioeconomic ills. The private sector is called the engine of growth. No wonder, Fitch Rating expects the economy to contract by 0.5 per cent this year, after growing by 3.7 per cent in the previous.

With Sri Lanka declaring itself bankrupt last month, the only recourse left for the uplift of the private sector, like Sri Lanka itself, is the international community (IC). Such sustenance in the first place is required to keep those companies afloat and to revive those already closed down due to the current economic morass for no fault of theirs, but because of corruption, stemming in particular during the almost 10-year regime of President Mahinda Rajapaksa from 17 November 2005 to 8 January 2015.

Already, the World Bank is to roll out a relief package amounting to Rs 7,500 monthly to the indigent, but the sustenance of the private sector is another thing. Perhaps, relief from corporate and other taxes is one way out, but the key is to revive their business, mainly trading and tourism, which will have cascading effects on the rest of the economy as well.

US dollar credit extended to such impacted trading companies by the IC, while GoSL simultaneously implements the rule of law without fear of favour to ensure political stability, is the only terrestrial way out from this gloom and doom situation.