President Gotabaya Rajapaksa’s “Vistas of Prosperity and Splendour” policy framework has brought us directly to the current economic crisis.
Sri Lanka is currently going through two critical crises: Economic and Covid. Fortunately, with the increased speed of vaccination across the country and the national lockdown, we have seen a fall in the number of Covid deaths and infections. However, this Government’s mismanagement has created another humanitarian crisis – one driven by poor economic policy.
Economic challenges
Sri Lanka’s current crisis is a fundamental structural problem that has existed for decades. Our twin deficits mean that our national expenditure is higher than our income, and that we do not produce enough tradable goods and services compared to the amount we import.
We have faced a fiscal deficit that has averaged 7.6% of GDP (gross domestic product) since 1990. Our revenue-to-GDP has been in decline since 2000. In the name of patriotism, the (previous) Rajapaksa Government brought our tax revenue-to-GDP ratio from 14.6% in 2006 down to 10.4% in 2014. This was one of the lowest in the world. In contrast, when the last Government left office, revenue-to-GDP rose to 12.6%.
Our second structural issue is our persistent Balance of Payments (BOP) and current account deficits. Exports as a percentage of GDP have collapsed since the year 2000. One of the few times we experienced a current account surplus was in 1977. By importing more than we export, we put pressure on both our currency and our reserves.
These two deficits have compelled us to borrow locally and internationally. This leads to high levels of debt, a reliance on foreign capital inflows, and depreciation of our currency. The first Rajapaksa Government didn’t try to fix these two structural problems. Instead, they worsened it. To finance the deficit, then Central Bank Governor Ajith Nivard Cabraal went to international markets in 2007 and issued our first-ever international sovereign bond (ISB), borrowing $ 500 million. This opened a new source of borrowing with expensive commercial dollar-denominated debt. Borrowing expensive external commercial debt is fine, as long as we invest in productive assets.
The present Government often blames the economic policies of the previous Government for the present crisis. The truth is, from 2015-2019, we implemented difficult reforms to fix these persistent problems. This Government, instead of understanding the challenges that Sri Lanka faces, has been following a senseless policy that puts our already vulnerable economy on its deathbed.
Continue
Sri Lanka is currently going through two critical crises: Economic and Covid. Fortunately, with the increased speed of vaccination across the country and the national lockdown, we have seen a fall in the number of Covid deaths and infections. However, this Government’s mismanagement has created another humanitarian crisis – one driven by poor economic policy.
Economic challenges
Sri Lanka’s current crisis is a fundamental structural problem that has existed for decades. Our twin deficits mean that our national expenditure is higher than our income, and that we do not produce enough tradable goods and services compared to the amount we import.
We have faced a fiscal deficit that has averaged 7.6% of GDP (gross domestic product) since 1990. Our revenue-to-GDP has been in decline since 2000. In the name of patriotism, the (previous) Rajapaksa Government brought our tax revenue-to-GDP ratio from 14.6% in 2006 down to 10.4% in 2014. This was one of the lowest in the world. In contrast, when the last Government left office, revenue-to-GDP rose to 12.6%.
Our second structural issue is our persistent Balance of Payments (BOP) and current account deficits. Exports as a percentage of GDP have collapsed since the year 2000. One of the few times we experienced a current account surplus was in 1977. By importing more than we export, we put pressure on both our currency and our reserves.
These two deficits have compelled us to borrow locally and internationally. This leads to high levels of debt, a reliance on foreign capital inflows, and depreciation of our currency. The first Rajapaksa Government didn’t try to fix these two structural problems. Instead, they worsened it. To finance the deficit, then Central Bank Governor Ajith Nivard Cabraal went to international markets in 2007 and issued our first-ever international sovereign bond (ISB), borrowing $ 500 million. This opened a new source of borrowing with expensive commercial dollar-denominated debt. Borrowing expensive external commercial debt is fine, as long as we invest in productive assets.
The present Government often blames the economic policies of the previous Government for the present crisis. The truth is, from 2015-2019, we implemented difficult reforms to fix these persistent problems. This Government, instead of understanding the challenges that Sri Lanka faces, has been following a senseless policy that puts our already vulnerable economy on its deathbed.
Continue
