HomeAsiaIMF urges Sri Lanka to raise taxes, devalue currency

IMF urges Sri Lanka to raise taxes, devalue currency

COLOMBO: The International Monetary Fund warned crisis-hit Sri Lanka on Thursday (Mar 3) that its overseas debt was “unsustainable”, and known as for devaluation and better taxes to revive the virtually bankrupt economic system.

The pandemic pushed the South Asian island’s tourism sector – a key foreign-exchange earner – off a cliff, and the federal government in March 2020 imposed a broad import ban to attempt to shore up overseas currency.

But greater than two years on, Sri Lanka is grappling with meals and gasoline shortages, which this week noticed its public transport crippled as buses ran out of diesel and the state imposed blackouts.

Following its annual overview of the cash-strapped nation, the IMF mentioned its fast-dwindling overseas reserves have been insufficient to service the nation’s present overseas debt of US$51 billion.

Official knowledge exhibits Sri Lanka wants practically US$7 billion to service its overseas debt this yr, however the nation’s exterior reserves on the finish of January have been solely US$2.07 billion – simply sufficient to finance one month’s imports.

The IMF harassed “the urgency of implementing a credible and coherent strategy to restore macroeconomic stability and debt sustainability”, recommending a return to a “market-determined and flexible exchange rate” – that means a devaluation of the Sri Lankan rupee.

While the central financial institution’s set fee is 197 rupees to the greenback, a thriving black market provides 260 rupees for US currency notes.

This disparity has led to a greater than 50 % decline in overseas remittances by means of official banking channels.

But the IMF famous the nation’s financial woes started pre-pandemic.

Soon after taking workplace in November 2019, President Gotabaya Rajapaksa lower a number of taxes practically in half, the IMF mentioned, driving down authorities revenues and forcing it to borrow extra.

Among suggestions to deal with the disaster was to raise earnings taxes and VAT, “complemented with revenue administration reform”, the IMF mentioned.

The lack of {dollars} to import gasoline has led to a severe power disaster.

Besides bringing public transport to a halt on Wednesday, the state’s electrical energy firm additionally imposed a day by day seven-and-a-half-hour electrical energy blackout – the longest scheduled energy rationing in over 1 / 4 of a century.

Without {dollars} to finance important imports, rice, milk powder, sugar and wheat flour are briefly provide, whereas native industries are unable to herald uncooked supplies and equipment.

The shortages pushed inflation to 16.8 % in January – the fourth consecutive report rise – and the IMF mentioned it anticipated it to stay within the double digits.

International ranking companies have downgraded Sri Lanka over expectations it is probably not in a position to service its overseas debt, although the federal government insists it could possibly meet its obligations.



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