A senior official said on Friday that bankrupt Sri Lanka will have to undertake serious fiscal reforms to revive the ailing economy because it has identified a huge gap between the state’s revenue and expenditure.
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Speaking at a seminar, Treasury Secretary Mahinda Siriwardena stated, “We have an average monthly income of 145 billion rupees, while our monthly expenditure is 157 billion rupees.”
He stated that the monthly state payroll bill was 93 billion, with an additional 27 billion for pensions. There would be a revenue shortfall of 11 billion due to the costs of poor relief, social welfare, and capital expenditure.
“We are programmed to borrow to bridge the gap. This is why fiscal reforms were required to reduce spending and increase revenue,” Siriwardena emphasized.
The government has faced opposition to its planned tax reforms, which would result in significant increases in personal income taxes from employment.
All salaries in excess of $100,000 per month will be taxed at higher rates.
“These direct taxation proposals would only affect 10% of the population. “We appeal to them to assist the remaining 90% in surviving,” said Ranjith Siyambalapitiya, state minister of finance.
Tax increases have already been opposed by the opposition and professional groups. Trade unions have promised to lead public demonstrations against tax reform.
Srilanka’s Financial Situation
Sri Lanka is encountering its most horrendously terrible financial emergency since its freedom in 1948, which has been exacerbated by a serious absence of unfamiliar trade saves.
Subsequent to proclaiming worldwide obligation default without precedent for history in mid-April this year, the public authority delegated global lawful and obligation guides for obligation rebuilding in May.
Sri Lanka is nearly liquidation and has stopped installments on its USD 51 billion unfamiliar obligations, of which it should reimburse USD 28 billion by 2027.
The desperate nation is presently endeavoring to get a USD 2.9 billion extension credit from the IMF, as well as monetary confirmations from its significant lenders — China, Japan, and India — which are expected for the island country to get the bailout bundle.
What has led to the financial emergency?
The government blamed the covid pandemic, which has hit tourism in Sri Lanka – one of the country’s biggest foreign exchange earners – hard.
It also says tourists have been deterred by a series of deadly bombings in 2019.
However, many experts blame President Rajapaksa’s poor economic management. in 2009, after the end of the civil war, Sri Lanka focused on supplying the domestic market rather than boosting foreign trade.
This meant that income from exports to other countries remained low, while the bill for imports kept rising.
Sri Lanka now imports $3 billion (£2.3 billion) more than it exports every year, and therefore the country has run out of the foreign exchange.
At the end of 2019, Sri Lanka had foreign exchange reserves of $7.6 billion, which have fallen to about $250 million.
Mr Rajapaksa has also been criticized for the large tax cuts he introduced in 2019, which have deprived the government of more than $1.4bn a year in revenue.
At the point when Sri Lanka’s unfamiliar cash deficiencies turned into a difficult issue in mid-2021, the public authority attempted to restrict them by forbidding imports of substance manure.
It advised ranchers to utilize privately obtained natural composts all things being equal.
This prompted far and wide harvest disappointment. Sri Lanka needed to enhance its food stocks from abroad, which made its unfamiliar cash deficiency much more terrible.
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