Samagi Jana Balawegaya (SJB) MP Patali Champika Ranawaka said the country is going through the deepest ever financial crisis in its history.
In an article compiled by him, argued that the tradition of undiscipline, irresponsible management of public finances over the years pushed the nation to an irredeemable quagmire and unprecedented vicious cycle of exponentially increasing national debt.
“One of the prime causes that has led to this crisis is the short term high interest commercial debt raised by the government in order to finance certain mega projects that do not generate any meaningful financial or economic returns—either never, or in the near-term—enabling payback of such debt. This was highlighted in my publication ‘Aalapaalu Arthikaya’ published in 2014. It was also spontaneously expounded by me how and why the tax-cuts introduced by the present government in December 2019 would mark a point of no return in its undisciplined policy towards public finance.
What are the consequences?
The government debt as a percentage of GDP has reached 109.7, as per the official reports of the Central Bank. This is the highest ever figure in history, and would stand in excess of 113% if the true financial burden of the sovereign bonds issued by the country, rather than their devalued market value, were to be considered in the calculations. The immediate cause of this unprecedentedly high percentage of public debt has obviously been the collapse of government revenue by as much as 40% due to those indiscriminate tax-cuts introduced in December 2019, which in turn has also led to a budget deficit of staggering 11.1% of the GDP. Again, the effective budget deficit, when adjusted for the overdue debt service payments, would rise to 14% of GDP.
Although the current economic downturn has been a significant contributory factor to this financial crisis, the fact that the government revenue as a percentage of GDP has declined to a meagre 9.2 %, the lowest ever in history, even against the backdrop of a negative GDP growth rate, simply illustrates that the current financial crisis in actual fact is the logical result of the aforesaid irrational tax-policy, rather than the pandemic affected economy it is misleadingly blamed for. The extent of the crisis is further evident from the fact that the annual debt service obligations now exceed equivalent of 70% of the total revenue of the government. International monetary institutions, including World Bank, have already forecasted that Sri Lanka’s debt burden would increase unsustainably due to the unsustainable financial policies followed by the government,” he said.