Money printing, deficits lead to economic crisis
View(s):Despite tightening of monetary policy and curtailing money printing, the Central Bank (CB) is compelled to increase the reserve money base as a result of the Finance Ministry’s proposal to raise the government borrowing ceiling to over Rs. 4.5 trillion from the present Rs. 3.84 trillion.
State Finance Minister Ranjith Siyambalapitiya has presented the proposal to Parliament to raise the state credit ceiling by Rs. 663 billion to Rs 4.51 trillion claiming that the money printing has dropped by 7.8 per cent compared to last year and bills were printed to meet essential recurrent expenditure.
In addition, a proposal was also tabled to raise the limit for Treasury Bills from Rs. 4 trillion to Rs. 5 trillion.
The CB has no option other than the raising of reserve money to Rs. 2.4 trillion from the present level of Rs.1.4 trillion, a high ranking Treasury official told the Business Times.
This will result in massive monetary expansion in 2 -3 years’ time unless corrective measures are taken to raise revenue and increase foreign reserves by implementing economic reforms in accordance with commitments made to the International Monetary fund (IMF), he warned.
This was confirmed by an eminent economist who is familiar with the monetary affairs adding that the CB has to accommodate fiscal deficits by purchasing Treasury bills and bonds and providing temporary advances to the Government.
It will end up as Net Credit to the Government (NCG) on the asset side of the CB’s balance sheet causing a rise in the reserve money exerting pressure on the aggregate money supply and the overall liquidity level of the economy, he explained.
CB Governor Nandalal Weerasinghe told reporters last week that printed money totaled Rs. 341 billion in 2021 and it has dropped to Rs. 47 billion from January to October this year.
The government’s daily revenue is set to increase to Rs.9.5 billion in 2023 from Rs.6.53 billion in 2022 while expenditure is expected to rise to Rs.21.60 billion next year from Rs.17.05 billion this year, Finance Ministry estimates showed. As per the budget 2023 revenue and expenditure estimates volume 01 , the government’s expenditure is estimated at Rs.5.82 trillion but the sum of Rs.3.80 trillion worth of Treasury Bills that should be repaid next year has not been included under the expenditure heading.
Therefore the actual expenditure is expected to be Rs.9.62 trillion. The IMF will deal with this Treasury bill amount when they consider the country’s debt structure next year.
The government is expected to collect Rs 3.42 trillion out of which Rs.915 billion would be from income tax and the balance Rs.2.50 trillion from other taxes. Raising such a massive amount from taxes is unrealistic under the present economic crisis, several economic experts and tax consultants said.
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