Effective revenue generation system a must to overcome macroeconomic stress: Dr. Coomaraswamy

• Asserts current macroeconomic stress not entirely pandemic-induced
• Highlights need for clear medium-term plan to bring revenue up to at least 15% of GDP
• Identifies poor budgetary operation and anti-export bias in policy framework as root causes of the problem

By Shabiya Ali Ahlam
As Sri Lanka’s macroeconomic outlook remains bleak, just as it has been in the past, it is about time the country embarks on serious initiatives to establish an effective revenue generation system that will result in sustainable outcomes without further delay, said veteran economist Dr. Indrajith Coomaraswamy.

Dr. Coomaraswamy asserted that while this effort cannot be carried out immediately, it cannot be put off for later either as it is imperative to have in place a steady medium-term plan for the economy to achieve its growth prospects.

“We need once and for all, to put in place a taxation system or revenue generation system for the government which will give us a sustainable outcome. We need to have a clear medium-term plan to get revenue back up to about 15 percent (of GDP) and this has to be part of the building back a better agenda,” said the former Central Bank Governor this week when he shared his take on the way forward for the national economy.

The main cause of instability was attributed to the trade and export of goods and services, which has contracted to 21 percent of GDP at percent from 39 percent in the year 2000, and the budgetary operation of the government. 
Although sections of the economy maintain that the issues faced in the macroeconomic front are pandemic induced, Dr. Coomaraswamy pointed out it is not the case given that the Sri Lanka economy has been subject to macroeconomic stress for most of its post-independence period. 

“I think it’s important for us, when it comes to the way forward, to learn from our mistakes and to ensure that we will build back better. We don’t keep making the same mistakes again and again,” he said. 

When the pandemic struck home, Sri Lanka was a country with a twin deficit and fell under the categories of countries with unsustainable budgetary position and unsustainable current account with regard to its balance of payments. 

Coming out of the crisis would require doing away with the anti-export bias in the policy framework while having in place a consistent exchange rate, said Dr. Coomaraswamy.

Sri Lanka also requires improved efforts in maintaining discipline in fiscal operations as currently, a failure in this aspect continues to feed the instability in the system, adding to the woes of the economy, added the senior economist.