By: Staff Writer
Colombo (LNW):The Government is compelled to go for domestic debt restructuring if the authorities fail in reaching the annual revenue target of Rs. 2 trillion in the remaining three quarters.What this means is that to realize the annual revenue target of about Rs. 2 trillion, in the remaining three quarters.
The department should work hard to increase its revenue realization to Rs. 561 billion. If the second quarter also yields a low revenue realization of, say 70% of the budgetary target of Rs. 500 billion, during the second half of 2023, the department should strive for a revenue realization of Rs. 661 billion in each of the remaining two quarters.
This is a challenging task for the Inland Revenue Department to realize the full target for the year.
If the revenue falls below the budgeted target of Rs. 3.2 trillion and unless the Government cuts its current and capital expenditure drastically, the need for restructuring the domestic debt, even when one considers only the central government debt, will be a ground certainty and not just a possibility, veteran economic expert and former Central Bank Deputy Governor Dr.W.A Wijewardena said.
Sri Lanka Government is planning to resolve its fragile budgetary issue, including the issues relating to meeting the domestic debt obligations, through the increase in the tax revenue known as fiscal consolidation by increased revenues of the state, he claimed.
As it is, this strategy has a limitation because there is an upper limit of increasing the tax revenue of the Government given the gloomy economic recovery and the drastic curtailment of the aggregate demand of both the private individuals and the Government under the macroeconomic stabilization program currently being pursued, finance ministry sources said. .
This curtailment of the aggregate demand is necessary to return to price stability which has gone haywire due to the irresponsible money supply increases in the past. But it has stunted the growth prospects and, according to the projections by IMF, growth will return steadily but slowly to 3% by 2028.
In this scenario, the prospect of raising a bigger volume of tax revenue sufficient to repay the domestic debt of the central government and to meet the debt repayment obligations of the wider public sector seems to be remote ,Dr Wijewardena pointed out.
Hence, it is necessary to adopt a combination of fiscal consolidation through the increase of revenue on one side and curtailment of public expenditure, on the other. The Ministry of Finance has postponed the capital expenditure programs which are also anti-growth.
There is not any observable plan by the Government to curtail its current expenditure which is ballooning year after year.
Without such curtailment, the government’s gross expenditure and consequently the gross financing requirements will remain high. Since it compounds the government’s ability to service the domestic debt of the central government, domestic debt restructuring will become necessary, he warned.
