Sri Lankan banks moving towards severe debt trap, Senior Minister says
State and private banks are getting caught up in a severe debt trap by raising loans in international financial markets with the consent of the Central Bank, a Senior Minister has warned.
This trend is likely to continue under the capitalist free economic system as the country is not receiving concessionary low interest financing and grants due to its middle income country status, Senior Minister of Scientific Affairs Prof. Tissa Vitharana told the Business Times in an interview in Colombo on Thursday.
Tissa Vitharana
He made the comments outside a media briefing called by the LSSP hierarchy to discuss the crisis in the country. The LSSP is a small constituent party of the ruling United People’s Freedom Alliance (UPFA) but has been concerned over recent developments relating to economic and other issues.
Sri Lanka is investing borrowed funds mainly in infrastructure development activities that have low returns, he said, adding that the country can pay off its debt only by generating trade surpluses.
Foreign borrowing at commercial interest rates, has incurred a huge debt servicing cost and more borrowings to service debt will aggravate the problem, he said. It is essential to reduce foreign debt to manageable levels so that the country’s banks will not be caught up in a severe debt trap, he added.
Sri Lanka’s reliance on indirect taxes rather than direct taxation makes the lives of the poor more miserable while safeguarding the interests of the rich, he said.
Some 80 per cent of the tax revenue is coming from indirect taxes on the people while the balance 20 per cent is derived from direct taxes. People are paying these taxes without knowing how much of a percentage of the price of goods and services were being taken from them as taxes.
Indirect taxes on basic essential commodities consumed by the poor should be eliminated while imposing direct taxes on the rich to narrow the massive income gap between them, he said, adding that nobody knows the reason behind the cancellation of the recent proposal on levying wealth tax from the super rich.
The main reason for the current taxation scenario was the escalating fiscal deficit in the country, weakness in tax collection, and the inefficiency and corruption of the Inland Revenue, Customs and Excise Departments, he alleged.
There is no doubt that there are possibilities of increasing direct taxation by improving the administrative efficiency of the revenue collection units, Prof. Vitharana pointed out.
He expressed the belief that these issues could be solved through equal distribution of economic benefits among the people by doing away with capitalist systems and maintaining good governance as well as rule of law.
Science technology and innovation should be given high priority to achieve economic development, he said, adding that scientific thinking is essential for day to day life.
He expressed his displeasure that decisions even at the highest level are taken on opinion rather than scientific basis. This has resulted in many socio economic problems, he pointed out.