* IMF second tranche will raise international confidence
* Maximum possible relief given from Budget 2024
* Govt. working to reduce indirect taxes
Buoyed by an agreement with international creditors for debt restructuring, the Government hopes to end the country’s bankruptcy status by the start of next year.
Still, many challenges remain to be surmounted in the country’s economic landscape, as explained in exclusive interview with the Sunday Observer by State Finance Minister Ranjith Siyambalapitiya.
Excerpts from the interview
Q: Sri Lanka’s official creditors have reached a preliminary agreement for debt restructuring, as announced recently via international media. When will the restructuring actually take place?
A: The agreement (with India, Japan, and the Paris Club) has been received. We believe that we will be able to complete the relevant work before the end of this month. The restructuring agreement was a big win for us. Nearly US$ 8 billion is foreign debt, and the rest is domestic. Domestic Debt Restructuring (DDR) has already taken place. It is a very challenging situation.
We had to deal with a traditional Opposition. Among the foreign debts, we paid off one part of the multilateral debt. We continued to repay loans from the Asian Development Bank (ADB), the World Bank and the International Monetary Fund (IMF). These repayments cannot stop.
The remainder is a bilateral section. One part of it within the country and the other part is International Sovereign Bonds (ISBs).
We are preparing the basic foundation for it. Simultaneously, we are waiting for permission to change the loan account for that in the Budget document. Debt restructuring is a very serious matter. It is a very difficult and complicated process in a bankrupt country. But we can finish it without delay.
Q: The Government assures that the country can be saved from bankruptcy in the near future. Do you think that all stalled foreign funded projects will receive financial support to restart?
A: Certainly, we hope to start new projects with the second IMF loan tranche by the middle of next month and then get on with the restructuring process. The stalled multilateral and bilateral loans will be available in the future. Especially highways, expressways and hydropower development projects are starting. The business community conducts loan transactions. There is a revival in all Small and Medium Enterprises (SMEs). It is an economic awakening as well as a very important situation in terms of developing the country.
Q: If the second tranche of the IMF Extended Fund Facility (EFF) is received, will other entities such as the World Bank and the ADB provide further financial facilities or assistance?
A: What is more important to us than the US$ 2.9 billion is the international financial confidence built on the IMF, which is very important. We also know the situation we faced by announcing that we could not repay loans temporarily during April last year.
Today we have reached a big win. The challenge is to rebuild the broken country. Confidence in us will be restored 100 percent if we receive the second installment. This will greatly affect transactions with other institutions.
Q: A World Bank report revealed that Sri Lanka spends 72 percent of the country’s total income on debt interest payments. Sri Lanka’s total debt has exceeded US$ 91 billion. A country like this cannot withstand this debt, right?
A: That is the point where we had to face a big problem. The amount of debt has become unsustainable for our country. We are a country where expenditure was higher than income for 70 out of 75 years. Our current target is to bring down the total debt. We are going towards that goal. We have also worked to systematically reduce the amount of loan interest. The crisis cannot be resolved quickly. It should have short-term, medium-term and long-term plans.
Q: Do you think that the relief allocated by the Budget for the people is enough? The public is complaining that the necessary relief was not received.
A: It would be better if more concessions were given. We gave maximum relief. An increase of Rs. 10,000 per month for 1.3 million Government employees means a new increase of Rs.13 billion per month. On the other hand, the pension has been increased by Rs. 2,500 for 730,000 retirees.
This was supposed to start from April. But the President has informed us to give at least half of it from January. He pays attention to these issues very intently. Moreover, there are 200,000 families in our country who do not have land title deeds.
Around 50,000 people living in flats will be given free ownership, 200,000 people will be given Aswasuma. 15,000 per month for low income earners, kidney and disability assistance will be increased by Rs. 2,500. Elderly welfare has been increased to Rs. 3,000. All those on the waiting list will receive benefits next year. I think that the Government has done its best at a time like this.
Q: The Opposition alleges that the tax burden is being imposed on the poor and the Government is constantly changing the way taxes are levied without catching those who should in the tax net?
A: Those are naive accusations. A country cannot run without taxes. During each Government, 92 percent tax and other eight percent non-tax collection took place. We are primarily trying to collect from taxpayers at this time. For example, we have a 20 percent direct tax, 80 percent indirect tax like VAT. When the total tax composition is taken, it is about 1/5 of the tax revenue.
High taxes are levied on sectors that should be discouraged in society by the Government. For example, Rs.5, 000 million is charged for casino registration. We charge 40 percent tax from a casino owner. We impose the maximum tax on discouraged sectors and then only we look at other sectors.
Q: Is there progress in opening tax files for those over 18?
A: There is no need to fear that every citizen over 18 years of age will be given a file. That does not mean everyone has to pay taxes.
Everyone over 18 is registered in many countries around the world. That is a common practice. Thus, we have filed tax papers for 14 classes of society. We started it especially with professionals, doctors, lawyers and engineers.
Q: Although it is said that taxation to be conducted through RAMIS (Revenue Administration Management Information System) will be developed, it is still not functional?
A: Since 2013, this project was not implemented continuously. The electronic tax payment project is starting. There is a big solution to the problem of those who can pay but are not paying. It will be possible to gradually reduce the burden of indirect taxes with this system used by the Inland Revenue Department (IRD).
Q: There is a situation where professionals are leaving the country due to high taxes. Is there a solution for that?
A: We levy maximum taxes on casinos and there are excise duties on certain items. Although there are problems related to graft when earning, these taxes are also levied in other countries. Therefore, we should reduce these taxes at the first possible opportunity.
We are not saying that the people have no burden. It is difficult for many professionals when the cost of living, bank interest increases and the tax burden comes. Money cannot be moulded. At this time, 200,000 families are asking for help from the Government to survive. We all need to share this burden. We have fallen into a deep abyss as a country. Everyone should support us to get out of this. We should all work together to extricate the country from the economic crisis.
(Translated by Jonathan Frank)
