Friday, July 1, 2022

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Sri Lanka Treasury faces daily cash flow issues

Sri Lanka needs a long-term sustainable fiscal management mechanism to overcome the present socio –ecnomic crisis Prime Minister Ranil Wickremsinghe told the cabinet of ministers.

The Prime Minister called on the multi-party Cabinet of Ministers to keep aside their political differences and to collectively deliver the responsibilities in this crucial juncture wher the country has no money for daily needs.

“Last year, the daily State revenue was only Rs. 4 billion, while the expenditure was Rs. 9.6 billion. Thus, creating a daily cash shortfall of Rs. 5.6 billion.

To manage this fiscal gap, successive Governments obtained loans and serviced them. Eventually, this vicious cycle which spanned over decades led to the worst economic crisis,” he explained.

He also said in 2014, the daily income of the Government was Rs. 3.2 billion, while the expenses were Rs. 4.9 billion creating a cash shortfall of Rs. 1.7 billion.

In 2019, the revenue increased to Rs. 5 billion, but expenses also escalated to Rs. 9.1 billion, thus creating a daily shortfall of Rs. 4.1 billion.

“Sri Lanka also had an economic module where our daily lifestyles were based on imported goodies. The annual exports were around $ 12 billion, while the import bill was $ 22 billion – resulting in a major gap in the current account,” he added.

“The lost revenue of around $ 10 billion from the tourism industry over the past two years, drastic drop in workers’ remittances led to faster depletion of foreign reserves – recording an overall gross domestic product (GDP) of -3.6% in 2021 or a peril.

With known net debt service payments of US$ 6.6 bn this year and current fully usable official reserves of less than US$ 1 bn (2-3 weeks of imports), Sri Lanka is confronted with both a cash flow problem and a debt problem.

The liquidity problem is compounded by the fact that the only known additional external financing, at this point, are lines of credit from India (USD 1.5bn) and Pakistan (USD 200 mn).

These will certainly contain the depletion of reserves. They will not have a very material impact on the existing external financing gap, which is likely to be at least USD 7 bn this year, even with very optimistic assumptions about receipts from tourism, asset sales, remittances and FDI.

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