Lanka to launch urgent reforms to address fiscal challenges

(PTI) Cash-strapped Sri Lanka will have to undertake serious fiscal reforms to revive the ailing economy as it has identified a huge gap between the state’s revenue and expenditure, a senior official said on Friday.Addressing a seminar, Secretary to the Treasury Mahinda Siriwardena said, “We have an average monthly income of 145 billion rupees where the monthly expenditure amounts to 157 billion.”

He said the monthly state pay bill was 93 billion with another 27 billion for pensions. With the cost of the poor relief, social welfare costs, and capital expenditure of 11 billion there would be a revenue shortfall.

“We are made to borrow to finance the gap. This is why fiscal reforms were needed to bring down expenditure and raise revenue”, Siriwardena stressed.

The government has been facing opposition to its anticipated tax reforms which would see drastic rises in personal income taxes from employment.All salaries exceeding 100,000 per month are to be taxed at higher bands.

“These tax proposals with direct taxation would only affect 10 per cent of the population. We appeal to them to help the rest of the 90 per cent to live”, Ranjith Siyambalapitiya the state minister of finance had said.

The opposition and professional groups have already raised objections to tax hikes.Trade unions have vowed to lead public protests against tax reforms.

Sri Lanka is going through its worst economic crisis since its independence in 1948, triggered by a severe paucity of foreign exchange reserves.The government in May appointed international legal and debt advisors for debt restructuring after the country declared its international debt default in mid-April this year for the first time in history.

Sri Lanka is nearly bankrupt and has suspended repaying its USD 51 billion foreign debt, of which it must repay USD 28 billion by 2027.The cash-strapped country is now trying to secure a USD 2.9 billion bridge loan from the International Monetary Fund (IMF), and looking at financial assurances from its major creditors — China, Japan, and India — which is requisite for the island nation to get the bailout package.