Government faces dilemma in raising budget 2022 taxes
Sri Lanka’s public debt crisis will become critical in 2022 and beyond leading towards a worse economic downturn in the next three years, economists said analysing the statistics of government borrowings.
The government’s debt-GDP ratio is expected to rise to 108 percent by 2022 from 101 percent by the end of 2020, Finance Ministry provisional data revealed.
Public debt sustainability involves macroeconomic variables and in finding a solution it is necessary to tackle the issue at the macro level, they pointed out.
Finance Minister Basil Rajapaksa has reiterated that Sri Lanka is confident of not defaulting on its debts and measures will be taken to enhance its foreign exchange reserves. He said that the government will reduce its budget deficit to around 8.8 percent of GDP in 2022 while the deficit target for 2021 was revised to 11.1 percent.
Dr. Nandasiri Keembiyahetti, Senior Lecturer of Ruhuna University said that 70 percent of the tax revenue proposed in the budget cannot be collected under the present circumstances due to financial difficulties faced by the private sector.
The government will have to go for more bank borrowings while printing money to provide loan facilities in rupees and dollars to meet local and foreign borrowings, he opined.
Big business enterprises and other firms which are struggling to survive will have to cut their costs and the other companies will pass the 2.5 percent tax on their turnover to consumers, he pointed out. These proposals have given a wrong signal to businesses while discouraging them from making their contributions to the economy, he added.
The present government has had to borrow a massive amount of money during the 3-year period ending 2022 which is more than the total borrowings of all the previous regimes during the 60 years since 1950, official statistics revealed.
The total public borrowings of previous governments during the period of 1950 to 2010 was in the region of Rs. 4.59 trillion, the computing of data included in the 2020 annual report of the Central Bank and budget speeches in 2021 and 2022 indicated.
According to the estimated expenditure contained in the Appropriation Bill the total expenditure was Rs. 5.13 trillion, of which the expenditure on public debt repayment was Rs. 1.52 trillion.
Secretary to the Treasury and Ministry of Finance S.R Attygalle, recently explained to the Parliamentary Committee on Recurrent Expenditure in the Bill that this mainly consists of Rs. 980.2 billion for the payment of salaries of public servants.
He further stated that Rs. 1 trillion for payment of government loan interest, Rs. 310 billion for pensions and welfare payments of disabled war heroes, Rs. 68 billion for medical supplies, Rs. 50 billion for Samurdhi subsidy and Rs. 35 billion for fertilizer and Rs. 69 billion for other subsidies have been allocated.
The million dollar question is as to how the government is going to find money to settle all those expenditure, several economic experts said adding that most of the revenue proposals in the budget were unrealistic.
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