Spotlight: Econ Op-eds in Summary (Week ended 24th November '21)

Snapshots

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.

For the full article – Refer Daily FT

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.

For the full article – Refer The Sunday Times

(Compiled by: Promodhya Abeysekara, Malitha Goonaratne & Mariyan Perera)