Spotlight: Econ Op-eds in Summary (Week ended 09th September '20)
1. Ignoring the crisis
By: Victor Ivan
. The government of Sri Lanka is possibly looking at a large twin deficit, with a reduction in tax revenue due to tax relief measures introduced last year which is expected to hinder the ability of the government to finance its expenses using tax revenue. In such a situation the only option the government has is to borrow.
. Borrowing too poses an issue as on top of the debt burden, the country is also facing a deep external balance deficit. With worker remittances expected to fall as workers lose their jobs, Sri Lanka is in a dire need of foreign currency to repay the loan installments and interest. A failure to do so, will result in the economy being recognized as being bankrupt.
· In this context, the government had implemented extensive import controls to save foreign currency as much as possible. These controls are not a long-term solution as some of the leading exports in Sri Lanka is highly dependent on imports. The Government should explain to the public the policy it is going to adopt to overcome this crucial challenge Sri Lanka is facing.
2. Progressive taxation vital to reduce fiscal deficit
By: Nimal Sanderatne
· Sri Lanka has faced persistently high fiscal deficits in recent years, with indications that it may be in excess of 9% this year. It has the impact of distorting public spending while also resulting inflationary pressures which increase production costs- necessitating currency depreciation to maintain export competitiveness.
· Additionally, high fiscal deficits also drive up the cost of living and the debt burden due to borrowings to finance the deficit. Efforts to bring down the deficit have been hampered by excessive spending in election years, with low revenue due to economic slowdown and necessary stimulus expenditure compounding the issue.
· Reducing the deficit must be achieved through progressive taxation and public expenditure rationalisation by targeting to reduce the deficit to around 5% of GDP in 2021. Maintaining a revenue to GDP target of 20% in the coming years is also important. However, high taxes must not disincentivise savings and investments, in order to stabilise the economy and achieve economic and social development.
(Compiled by: Chayu Damsinghe, Promodhya Abeysekara, & Eshan de Mel)
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