Professionals and the government who are under pressure due to the new taxes can come to a happy solace by reactivating the 1.2 million tax files that had been scrapped by then President Gotabaya Rajapaksa’s government which introduced a major tax relaxation by reducing 1.6 million tax files to 400,000 files after he assumed power in 2019, Colombo University’s Management and Finance Faculty Business Economics Department Prof.Nihal Hennayake said.
“Reforms are essential for the long-term economic recovery of the country, and all have to endure some pain during that process, Prof. Hennayake said.
Speaking at a press conference titled “Current status of Sri Lankan Economy and Future Challenges” at the Government Information Department yesterday, the Prof.Hennayake said all segments of society should act patiently, if the stability achieved in the recent months is to be maintained.
“Compared to how the country was in March-April last year, we clearly see some improvements, and those were results of strict financial policies. There are protests about tax reforms and those are natural. However, it is a time period that all should act patiently lest we reverse the gains and go into a deeper crisis. If an instability builds up that will affect our reviving tourism industry,” he commented.
He pointed out that the International Monetary Fund (IMF) has stated that the country’s tax revenue, which is only about 8 percent of the Gross Domestic Product (GDP) at present, needs to be improved to at least 15 percent of the GDP.
Observing that the country could not depend solely on the IMF credit facility to resolve the present crisis, Prof. Hennayake stressed that the country should expeditiously move towards an export-oriented economy.
“What is more important in reaching the IMF is not the US$ 2.9 billion credit facility, but the international confidence it accompanies. With the IMF settlement, other lending organizations and countries will not fear to deal with Sri Lanka. In that way, Sri Lanka can re-enter the international capital market. It will give the much-needed space for the country to work on the restructuring of the economy to create debt sustainability.
“We cannot and should not use up the IMF loan to repay our past loans or to pay for regular consumer items, because otherwise we will fall into a deeper crisis in a matter of a few years as we do not have the capacity to repay our loans. As of now, we have a monthly trade deficit about US$ 500-600 million. Our monthly export income is about US$ 900 million, whereas the monthly import expenditure is about US$ 1.4 billion.The monthly import expenditure usually goes up to US$ 2 billion, but currently it has come down due to import restrictions. The trade deficit should be bridged if we are to become a developed country in 2048.
“We need to use the IMF money to strengthen the production economy and go for export diversification. We should think about high-tech goods rather than depending on agricultural exports. This will take some years, and cannot be done overnight,” he emphasized. He pointed out that Sri Lanka needs to improve its export income, tourism income and remittances to bridge the trade gap.
Commenting on the Rupee appreciation, the Professor said that the prevailing import restrictions, US$ 300 million swap facility to commercial banks to buy essential items such as fertilizer, fuel and medicines, and the holders exchanging their dollars led to it.
He pointed out that the Central Bank of Sri Lanka (CBSL) bought about US$ 400 million from banks to regulate the exchange rate as sharp changes in the currency rate is not good for a country like Sri Lanka which has a small economy. He, however, pointed out that the CBSL gaining control of the exchange rate, to make sure that it floats between two given figures, is a good sign.
Add new comment