ECONOMYNEXT – Sri Lanka’s new Central Bank Act is a challenge for the government, State Finance Minister Ranjith Siyambalapitiya said, as the state has been used for spending more than its revenue through money printing.
Successive Sri Lankan governments failed to curb money printing due to their failure in reducing the spending in line with revenue amid a narrow tax net.
But the island nation is unable to print money by law, according to the new Central Bank Act which came into effect on September 15.
“We can only print money during a global pandemic,” State Finance Minister told Reporters in Colombo at a media briefing when asked about the impact of the new Central Bank Act.
“Even that, we can only go up to the 5 percent of the parliament approved level from treasury bills. It’s a challenge. It’s a new thing.”
The new Act came as President Ranil Wickremesinghe government’s commitment to the International Monetary Fund in return to a $3 billion loan programme to come out of an unprecedented economic crisis.
Sri Lanka declared bankruptcy and defaulted its sovereign debts in April last year after the central bank ran out of foreign currency to repay foreign loans.
Since the IMF programme was approved in June, the government has been in the process of both domestic and external debt restructuring.
The government has also raised taxes despite protests by trade unions and some politically motivated demonstrations.
Siyambalapitiya said the government should be able to manage the new challenge with the raised taxes and rationalized spending.
“We have already raised the revenue by 50 percent this year. We need to go further,” the Minister said.
“I hope we can face this challenge with the government’s expenditure management. The government’s financial discipline is essential.” (Colombo/September 23/2023)