Sri Lanka has very limited policy tools to provide relief and boost output recovery
While Sri Lanka has constrained policy options in its fragile recovery phase from a macroeconomic point of view, the country has very limited policy tools to provide relief and boost output recovery, according to Dr. Dushni Weerakoon, Executive Director of the Institute of Policy Studies (IPS).
Last Tuesday the IPS released its annual flagship report, ‘Sri Lanka State of the Economy 2024’ under the theme ‘Economic Scars of Multiple Crisis: from Data to Policy’
“The more prudent option is to look at ways and means of marginal changes on tax and spending policies to address distributional concerns,” stressed Dr. Weerakoon. Some of the outcomes of output losses are slower job growth, lower living standards and higher levels of poverty and persistent inequality, she added.
She also mentioned that ‘austerity hurts’, but for a country in ‘default’, options are very limited and downside risks are high. Bigger haircuts on debt restructure can lead towards protracted negotiations and hold back swifter recovery whereas debt forgiveness for a middle-income country is not an offer and can be costly for future market access. Bringing about any required changes without disturbing the fiscal framework is the more prudent choice at this juncture of recovery, she noted.
On revisiting taxes and spending for greater equity the report highlights, the recent increase on VAT rates and removal of exemptions are found to hurt the poorest income decile the most. The poor spend around 10 per cent of their income on VAT compared to 6 per cent for higher-income groups. By contrast, direct income taxation like Pay-As-You-Earn (PAYE) and Personal Income Tax (PIT) were found to be highly progressive. The richest 10 per cent of households contribute as much as 95 per cent of PAYE and PIT. The findings also reveal a high degree of tax evasion. From the estimated PIT payable of Rs. 131 billion, less than one-third (Rs. 43 billion) appears to have been collected in 2023.
The report also touched on preparing youth for work and securing decent jobs and Sri Lanka’s challenges in youth employment and education, based on recent labour force survey data.
While education participation drops after 16 years of age, there has been an improvement since 2018, especially in vocational training.
About 65 per cent of youth between the ages 20-24 are not participating in any kind of education which means that they are entering the labour force with low skills. Given the technological advancements and skills in demand, this does not bode well for Sri Lanka’s labour market productivity.
There was a decline in high-skilled employment, which fell from 23 per cent in 2018 to 20 per cent in 2023, accompanied by a dramatic halving of managerial positions during this period. This decline is largely driven by the emigration of skilled workers seeking better wages abroad, exacerbated by the falling real incomes in Sri Lanka.
Hitad.lk has you covered with quality used or brand new cars for sale that are budget friendly yet reliable! Now is the time to sell your old ride for something more attractive to today's modern automotive market demands. Browse through our selection of affordable options now on Hitad.lk before deciding on what will work best for you!