Crisis will prolong if country gives into populism: Ranil

• By Nishel Fernando

President Ranil Wickremesinghe warned that the Sri Lanka could face a prolonged recovery period similar to Greece which spent 13 years of austerity under three bailout packages, if the country moves away from the ongoing economic recovery programme giving into populism.  

“It took 13 years for Greece to come back, under three bailouts. The first agreement signed by  the Greek agreement was thrown out by the electorate, there was a referendum that they rejected, then they put in a new government in place, and what happened? It was a Center-left government and they had to go back and agree with the terms and in the meantime, the government collapsed. Thereafter, they had another government. Three bailouts and thirteen years, do you really want to go through that?” Wickremesinghe questioned.

He shared these remarks delivering the keynote speech at the Tax Forum 2023 held in Colombo yesterday.
The President stressed that the current tax policy is not an ordinary tax policy, but rather part of a rescue operation designed with the support of IMF and the country’s bilateral creditors to rebound from the crisis within a shorter period.

“The fact is that it’s not a normal taxation exercise. It’s a rescue operation. None of the Paris Club members, India or China were ready to help us unless we had a staff-level agreement with IMF. There’s nothing called a free lunch in this world. As our bilateral creditors say you can’t be kicking the can down the road anymore. So, this is the time for our reckoning, how we restructure the economy and how we ensure comeback as a fully functioning economy in a short time,” he said. Commenting on the possibility of increasing the current personal income tax threshold of Rs.100,000, President Wickremesinghe pointed out that it’s not possible to do so without diverting away from the 2026 revenue target of 15 percent of GDP which has been agreed upon with IMF and the country’s bilateral creditors.

 “Everyone is able to say that they will increase the threshold for taxes, but they don’t say how they will cover the deficit. This is the problem we have. When we started discussions on taxation, we suggested that we should start taxing at Rs.150,000 and they said Rs.48,000.

“We found that we couldn’t meet the target at Rs.150,000 and they found that a lot of people wouldn’t have a cent (left) at Rs.48,000 level. So, we finally came to Rs.100,000 and agreed not to subside any commercial enterprises, which meant they had to increase prices,” he elaborated.
However, he expects the burden created by higher taxes, inflation, and economic crisis to soften after March this year.

“So, we are at the worst moment. We are now feeling the consequences of reducing taxes ( in 2019) and also the steps taken in terms of our rescue operation. This month and next month can be the worst of it. There’s no other way we could have gotten out of this,” he added.
Meanwhile, the President urged all the stakeholders including Opposition parties to directly submit their proposals to the IMF. “In terms of political parties concerned, instead of rushing to the press and holding seminars, I would suggest that they should also speak to IMF,” he said.

The President also assured that once an agreement with the International Monetary Fund is reached, it will be presented to parliament where the MPs would be given the option to pass or reject it. If the proposal is rejected, he stressed that relevant political parties should submit alternative proposals to the IMF. “The final agreement will be brought out to the country and you can decide what you want to do. If you want to throw it away, you’d better come up with another set of proposals acceptable to the IMF and our bilateral creditors. Otherwise, if you are already thinking of throwing it away, I would suggest that you start collecting petrol from now and keeping it in the garage,” he told the audience.