The 2016 budget does not tally with the economic policy statement laid out by Prime Minister Ranil Wickremesinghe recently and the government needs to start putting the “right people in the right place along with the right system,” to genuinely implement reforms to put the country in order, internationally renowned economist Prof. Razeen Sally said.
“Sri Lanka’s high exposure to external debt has widened her current account and fiscal deficits, resulting in a weak currency that is vulnerable in a climate where international money is becoming more expensive, Prof Sally said at a forum organized by the Ceylon Chamber of Commerce on Thursday under the theme “Global Economy and Sri Lanka – What Can We Expect in 2016?”
Sally, an Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore said the budget of the previous regime dealt poorly in terms of fiscal and monetary policies.
He said as the interest rates continue to rise in the US and other parts of the world the “debt funded growth spree based on consumption and imports and public investment is no longer tenable for Sri Lanka.
“A worsening economic climate is the familiar story for Sri Lanka, which crafts very unbalanced macroeconomic policies and the chances are that this climate is going to get considerably worse in 2016, he said.
Sally also said IMF funds may become necessary as the money flow tightens. But the previous government acted irresponsibly.Expecting to be bailed out by the IMF is an issue for this government, he said.
Further,the last budget probably makes it more difficult, as the government clearly lacks credibility in the eyes of the IMF, the Ministry of Finance in particular. “Therefore, an efficient Finance Minister for the country is the need of the hour,Sally said.
“Consider the previous IMF standby agreement, which was clearly political. It was given under easy conditions, the government pretended it was reforming and the IMF pretended this was so. But it postponed the problem. The main message is that the problem has to be resolved at home. You cannot expect the IMF to come and sort out Sri Lanka’s problems, he said.
Prof Sally said that Sri Lanka would benefit from lower fuel prices but at the same time other commodity prices have weakened; non-oil commodity prices have fallen by about 17 percent and that has affected the plantation industry.
“So the currency is good from the export side but not so when it comes to foreign debt, especially when denominated in dollars, he added.
Sally also said the country needs a comprehensive tax reform in a fair and transparent way and concurrently expenditure reform, to put government expenditure on a sustainable footing as a first step to reducing debt.
“The government needs to get more serious and aside from China and India the really big prize is Europe and US. So the government should consider trade agreements with both, he said.
Sri Lanka would benefit from joining the Trans Pacific Partnership (TPP) because it would bring significant export markets and push the government towards key reforms that are needed anyway, he explained.
Deputy Governor, Central Bank of Sri Lanka Dr. Nandalal Weerasinghe said that Sri Lanka’s recent revisions on the budget have made it further difficult to bridge the budget deficit.
He said that despite all odds Sri Lanka will be able to register a 7 percent plus economic growth in the next year, as the IMF and the Central Bank have predicted.