Monday, February 6, 2023

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Sri Lanka money printing galore leads to economic collapse

Despite tightening of monetary policy and curtailing money printing, the Central Bank is compelled to increase the reserve money base as a result of the finance ministry’s proposal to raise the government borrowing ceiling to over Rs. 4.5 trillion from present Rs 3.84 trillion.

State Finance Minister Ranjith Siyambalapitiya has presented the proposal to raise the sate credit ceiling by Rs 663 billion to Rs 4.51 trillion claiming that the money printing has dropped by 7.8 percent compared to last year and bills were printed to meet essential recurrent expenditure.

In addition, a proposal was also tabled to raise the limit for Treasury Bills from Rs. 4 trillion to Rs.5 trillion.

The Central Bank has no option other than the raising of reserve money to Rs 2.4 trillion from the present level of Rs.1.4 trillion ,a high ranking treasury official said.

This will result in massive monetary expansion in 2 -3 years’ time unless corrective measures to taken to raise revenue and increase foreign reserves by implementing economic reforms in accordance with commitments made to the IMF, he warned.

This was confirmed by an eminent economist who is familiar with the monetary affairs adding that the Central Bank has to accommodate fiscal deficits by purchasing Treasury bills and bonds and providing temporary advances to the Government.

It will end up Net Credit to the Government (NCG) on the asset side of CB’s balance sheet causing a rise in the reserve money exerting pressure on the aggregate money supply and the overall liquidity level of the economy, he explained.

According to Central Bank Governor Nandalal Weerasinghe who clarified the money printing status, it has printed money to the tune of Rs. 341 billion in 2021 and it has dropped to Rs. 47 billion from January to October this year.

The reserve money base has gone up to Rs. 1.38 trillion during the first 11 months from Rs. 1.31 trillion by the end of 2021.

This will increase money supply slightly in another 1 and ½ years to 2 years high official of the ministry divulged.

The government’s daily revenue is set to increase to Rs9.5 billion in 2023 from Rs.6.53 billion in 2022 while the expenditure is expected rise to Rs.21.60 billion next year from Rs.17.05 billion this year, finance ministry estimates showed.

As per the budget 2023 revenue and expenditure estimates volume 01 , the government’s expenditure is estimated at Rs.5.82 trillion but the sum of Rs.3.80 trillion worth Treasury bills that should be repaid next year has not been included under the expenditure heading.

Therefore the actual expenditure is expected to be Rs.9.62 trillion .The International Monetary fund (IMF) will definitely consider this treasury bill amount when they consider the country’s debt structure next year.

The government is expected to collect Rs 3.42 trillion out of which Rs.915 billion would be from income tax and the balance Rs.2.50 trillion from other taxes. Raising such a massive amount from taxes is unrealistic under the present economic crisis, several economic experts and tax consultants said

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