5 May 2022 12:00 am Views - 205
Presenting what could be the most honest account by a ruling party member of the depth of the economic crisis faced by Sri Lanka at present, Finance Minister Ali Sabry yesterday proposed a slew of policy reforms capable of correcting the course of the economy, including a new budget to be presented in Parliament, containing higher taxes.
He showed how the country’s annual net borrowings rose from as little as Rs.6 million in 1954 to over Rs.500 billion in 2019, before falling in both 2020 and 2021, as the government settled foreign currency borrowings worth of US $ 4.0 billion each in the two years, as Sri Lanka was cut off from the international markets from early 2020.
This was all the while the revenue as a percentage of gross domestic product (GDP) came down gradually to a shockingly low of 8.6 percent in 2021, from a peak of 24 percent in early 1980s.
The fiscal data, which was published last week, showed that Sri Lanka had spent two and a half times its revenue in 2021. Sri Lanka’s state sector salaries amounted to Rs.845 billion in 2021 and pension and other welfare and subsidies totalled Rs.595 billion, making its total revenue for the year, which was at Rs.1.46 trillion in 2021, barely sufficient for its recurrent expenditure sans interest payments.
Meanwhile, interest payments in 2021 were a mammoth Rs.1,048 billion, Sabry said. Presenting these lopsided numbers, he said he doubts if the people inside this House and outside are aware of the extent of this crisis in its very form and nature.
He cautioned that the current shortages of medicines, cooking gas and other essential commodities could aggravate, unless actions are taken expeditiously. He doubts if Sri Lanka could emerge from the current crisis even in two years.
“We are at an inflection point between whether we are going to make this crisis an opportunity to emerge stronger like South Korea or India in early 1990s or whether we are going down on the path of Venezuela or Lebanon,” Sabry said. While assuming the responsibility for the numerous mishaps made by his government, including the 2019 tax cut, which he termed as “a historical mistake”, he said the government should have gone to the International Monetary Fund (IMF) much earlier and made the exchange rate flexible many months ago. “We should have gone to the IMF before and there are no two words about it,” Sabry said.
“At the same time, we should have depreciated the rupee gradually.” However, he said there were factors, which were beyond the government’s control for the current economic hardships such as the pandemic, which significantly impacted the tourism earnings and the global commodities prices boom since last year, which was worsened by the Russia-Ukraine war that began in February.
Taking stock of all what went wrong, Sabry said the government intends to present a new budget for the remainder of the year, raising the current taxes in a bid to bring up the revenue to 15 percent of GDP.
Besides, he laid out a string of short to medium to long-term policy measures, with time frames, to put the economy back on track, which are very much in line with what the Central Bank announced last Friday.
Sabry said that while the legal and financial advisors are being appointed to speed up the debt restructuring process, he hoped bilateral and multiple assistance from India, China, the World Bank and Asian Development Bank would provide bridge financing to the country, until a deal is struck with the IMF, which according to him, would take at least six months from now. Although there are divergent views on whether the country must go for a general election to resolve the current crisis, Sabry is of the view that whoever is in power will have to confront the economic crisis and they will have limited choices than what the current government is making use of.
Hence, he expressed doubts whether a reset in politics is the right answer to the economic crisis at present.
Instead, he said he believes in forming an interim government for the next 18 months, after which the country calls a general election for the people to use their franchise and select the government of their choice. Identifying himself a ‘night watchman’, a term in test cricket, where a lower-order batsman is sent to the crease after a wicket falls just before day’s play ends, Sabry said he is willing at any time to sacrifice not only his portfolio but also his parliamentary seat for a better qualified person to do the job.