Spotlight: Econ Op-eds in Summary (Week ended 24th November '21)
1. Budget 2022: What’s the missing link?
By: Dr. W.A Wijewardena
The Budget 2022 failed to address three key issues the economy is currently facing. These were that the country is running out of reserves, facing significant pressure for the rupee to depreciate, and difficulty in servicing foreign debt. Furthermore, the country is now facing severe food shortages and a gradual move toward a debt default.
The external sector’s share of GDP has continued to fall since 2010, although its import bill has risen. This has led to a situation where net foreign assets of commercial banks and the CBSL are negative, putting further pressure on the external sector.
The Budget has also been silent on the possibility of an IMF program, with the Governor having implemented home grown policies which attempted to correct excessive money printing implemented by the previous Governor, alongside other measures. The Government needs to understand that seeking an IMF solution is the only option, before it is too late.
2. Is the 2022 budget a step towards fiscal consolidation?
By Nimal Sanderatne
Bringing down the budget deficit to a single digit number would prove difficult due to high government expenditures and revenue shortfalls. Although the government has identified the need of reducing the fiscal deficit, no adequate measures have been taken to achieve this, with the focus mainly being put on taxation rather than reducing the expenditure.
Finance Minister has identified that expenditure could be reduced by minimizing the losses of SOE and reducing samurdhi expenditure. But the budget did not have any policy reforms to correct these. Further, the tax changes were mainly on-off taxes charged retrospectively.
Retrospective taxes introduced could be disadvantageous in attracting foreign income. High taxes on banking and finance could result in negative effects on interest rates. In conclusion, it would be challenging to achieve financial stability and economic growth under the presented budget.
(Compiled by: Promodhya Abeysekara, Malitha Goonaratne & Mariyan Perera)
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