Groundviews

Demystifying Debt

Revisiting ties with China, a bailout deal from the IMF, and increases in VAT have been making headlines recently. What does this all mean from an economic standpoint, and is Sri Lanka following the right tactics? Groundviews spoke to some economists to ask if they could unravel these issues. Those interviewed include Eran Wickramaratne, Deputy Minister of State Enterprise Development, Chief Economist, Ceylon Chamber of Commerce Anushka Wijesinha, economist Deshal de Mel and Lead Economist and Senior Product Head at Frontier Research, Shiran Fernando

We asked them the following questions:

  1. What is your input on Sri Lanka’s current situation in terms of debt repayment, given recent statements that the balance of payments crisis has been avoided?
  2. Some MPs are saying they are still uncovering the amount of the debt to be repaid due to excesses/alleged corruption of previous government- what are your thoughts on this?
  3. There has been concern raised on the government making contradictory statements, particularly on VAT. What is your view on these contradicting statements?
  4. Sri Lanka is taking a 1.5 billion dollar bailout package from the IMF – what will this cost us, from an economic standpoint?
  5. There seems to have been a complete turnaround in terms of foreign policy in regards to China. What are your thoughts on this? Are there other viable options?

Here are some key highlights –

“There needs to be discipline in economic and fiscal management. An economic plan signals to the investment community that Sri Lanka has a plan. Investors don’t like uncertainty.” – Eran Wickramaratne

“Contradicting statements on key policy issues is never a good thing. It results in uncertainty in the market and is a negative for the investment and business climate…It is expected that there will be ideological differences in a coalition of this nature, but it is important that these issues are debated internally and a compromise reached prior to going public with policy statements, such that the government can speak in one voice, avoiding policy reversals and contradictions.” – Deshal de Mel

“The Debt repayment bunch up was expected to occur in 2015 and moving into 2016. This level of repayments is something new to the economy. To refinance this, ideally the investments made in the last 5-10 years plus more earnings from exports should be able to mitigate this to some extent. Unfortunately those two factors have not met expectations.” – Shiran Fernando

“Our tax to GDP ratio is now well below what it should be for a middle income country like ours, and well below many of our peer economies. We have a narrow tax base, and lots of exemptions and loopholes. We have an outdated tax code..” – Anushka Wijesinha

Click here to see the full interview, compiled on Microsoft Sway, or access it directly below.