ECONOMYNEXT – Sri Lanka’s government is expected not to rely on money printing by the central bank as it hopes to meet all the government finances from the increased taxes, the junior finance minister said, as the island nation is facing an unprecedented economic crisis.
Sri Lanka has already increased a raft of taxes including personal income taxes to boost the tax revenue by 70 percent in 2023 compared to this year’s estimated tax revenue.
“With the new taxes being made effective from tomorrow, we see the government earning sufficient revenues to meet expenditure. We hope not to print money to meet these dues because that spirals into inflation,” Shehan Semasinghe, State Finance Minister, told EconomyNext on Saturday (31).
“The revenue currently earned is being managed in an effective manner, compromising expenditures.”
The island nation defaulted sovereign debts this year as it had no foreign currency to repay the external loans. Sri Lanka’s rupee currency also collapsed after the central bank artificially propped it up through pumping dollars into the market.
The central bank also held interest rates artificially low at single digits by printing billions of rupees which was also used to finance government expenditure for a bloated, inefficient state sector.
However, Minister Semasinghe said the past errors will be rectified with new tax policies.
“The people of Sri Lanka have a certain expectation from the government, and the state workers and everyone involved in government enterprises must live up to these hopes. The government sector certainly must be more effective, productive and be able to compete with the private sector,” he said.
“We will not be relying on the central bank financing, because relying will result in higher inflation and economic downturns.”
Sri Lanka’s inflation hit a record 73 percent September mainly due to billions of money printing. However, the central bank’s late policy measures of raising the policy interest rates have helped to ease the inflation to 57 percent in December. (Colombo/Dec31/2022)