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Sunday September 24th, 2023

Sri Lanka debt rises to 104-pct of GDP by June 2021

ECONOMYNEXT – Sri Lanka’s central government debt had climbed to 104 percent of gross domestic product by June 2021 from 101 percent in December 2020, based on the latest national income estimates and debt data.

Sri Lanka’s nominal GDP for the 12 months ending June was 15.9 trillion rupees, while total debt had grown to 16.56 trillion rupees.

Foreign debt in rupee terms went up to 6.63 trillion rupees, from 6.0 trillion rupees, despite a net pay back of rupees as the rupee fell.

A falling rupee tends to make foreign debt rise, though the GDP can also inflate later as the currency falls.

The increase in central government debt does not take into account the fall in foreign reserves which makes net debt go up.

Sri Lanka’s central bank has also been entering into swaps taking on additional debt.

When central government loans are repaid with central bank swaps, debt is effectively transformed from the Treasury to the central bank balance sheet.

Sri Lanka has seen net foreign debt rise whenever money was printed to keep down rates, triggering forex shortages and the country loses the ability to settle loans using current external receipts.

The phenomenon was seen in 2015/2016, 2018 and 2020, analysts have shown.

Sri Lanka got the ability to print money after a domestic operations department was set up in the newly created Latin America style central bank in 1950.

Sri Lanka’s national debt has grown steadily under so-called revenue based fiscal consolidation where cost-cutting (state-austerity) was discouraged, spending to GDP was ratcheted up and the burden of higher spending was passed on to productive sectors.

Debt to GDP went up from 72 percent of GDP in 2014 to 86.8 percent by 2019 when taxes were cut and more money was printed. In 2020 debt rose to 101 percent of GDP as the economy contracted in the second quarter.

Classical economists label statist or ruling class friendly attempts to achieve budget balance by raising taxes as the ‘statistical’ alternative.

“This alternative is beset with pitfall,” classical economist B R Shenoy said in 1966 when Sri Lanka’s revenue to GDP was 20 percent and money was printed to cover what he called the ‘net cash deficit’.

“Past experience in Ceylon, which is in line with experience in virtually all parts of the world, is that in a democratic set up political and other pressures are heavily on the side of more and more spending by the government,” he said in great wisdom.

“When revenues increase, under the weight of these pressures, expenditures too increase to meet, or even exceed, revenue collections.

“There is a real danger that any program for increased revenue collections may be attended by a corresponding increase in the consumption expenditures of the government, and little may be left of the additional revenues to cover budget deficits.

“Increased revenue collections under these conditions would militate against the paramount need to step up national savings.”

Predictably under the revenue based fiscal consolidation debacle, spending to GDP was ratcheted up from 17 percent of GDP to close to 20 percent as taxes were collected from productive sectors and channeled to as higher state salaries to an expanding state worker cadre and subsidies. (Colombo/Sept26/2021)

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Sri Lanka India industrial zone around Trinco, maritime links mooted

ECONOMYNEXT – Sri Lanka’s Ports Minister Nimal Siripala de Silva had highlighted the desire of both the Governments to work closely to develop the industrial zone at Trincomalee, after accepting an invitation to participate in a maritime summit.

The Global Maritime India Summit (GMIS) will be held in India from October 17-19, 2023 at Mumbai where Sri Lanka has been invited at a partner country.

At a curtain raiser event on September 22, India’s High Commissioner in Colombo, Gopal Baglay had said both countries were working on enhancing sea connectivity according to a vision document launched during a recent visit of the President of Sri Lanka to India.

Minister de Silva will lead a delegation from Sri Lanka to the summit.

Secretary to the Ministry of Ports, Shipping and Waterways, Government of India, T K Ramachandran said the Global Maritime India Summit aims strengthen the Indian maritime economy by promoting global and regional partnerships and facilitating investments.

The event will give an opportunity to the Government of Sri Lanka to attracting greater investment from India in development of its maritime infrastructure, Ramachandran said.

It will also facilitate greater business to business interactions. (Colombo/Sept24/2023)

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Sri Lanka brings back import para tariff on milk

ECONOMYNEXT – Sri Lanka has brought back an import para tariff called the Ports and Airports Levy, to several grades of milk powder.

Milk powder has been removed from a list of PAL exemptions, making them liable for a 10 percent tax.

The PAL para tariffs are also a contentious issue in terms of export competitiveness, and the government has previously given undertakings that they will be eliminated.

Trade freedoms of the poor figure in an IMF/World bank reform program with the governments.

Milk is a protein rich food, in a country where children of poor families are facing stunting and malnutrition.

Economic nationalism is seen at high levels in food, with several businessmen are pushing for trade protection, amid an overall autarkist (self-sufficiency) ideology, going directly against policies followed in East Asia, which the same as hold up as examples.

Sri Lanka keeps dairy product prices up ostensibly to bring profits to a domestic dairy company and farmers.

Sri Lanka also keeps maize prices up, ostensibly to give profits to farmers and collectors. (Colombo/Sept22/2023)

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Sri Lanka govt warns liquor manufacturers: pay defaulted tax or lose licence

ECONOMYNEXT – Sri Lanka government which is struggling to raise the state revenue despite   higher taxes, has warned liquor manufacturers to pay defaulted taxes or lose their licence.

The government is now getting tough with past tax defaulters amid concerns over falling short of this year’s revenue target agreed with the International Monetary Fun (IMF).

“Liquor manufacturing firms owe us 660 crore rupees (6.6 billion rupees),” Siyambalapitiya told  reporters on Thursday (21).

“Most of this or around a third is the only excise tax amount to be paid. The rest is penalty. If a liquor manufacturer does not pay on time, we impose a penalty of 3 percent per month This means 36 percent (penalty) per annum,” he said.

“We have given them deadline to repay the basic excise taxes. If they don’t pay, we will cancel their licence.”

President Ranil Wickremesinghe’s government committed an ambitious revenue target among many other reforms to the International Monetary Fund (IMF) in return to a $3 billion loan package.

However, the revenue could face a short fall of 100 billion rupees, State Finance Minister Ranjith Siyambalapitiya has said.

A new Central Bank Act also has legally prevented the government of printing money at its discretion as  in the past.  (Colombo/September 24/2023)

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