by Ifham Nizam Courtesy The Island

Dr. Ahilan Kadirgamar

‘On a research project on debt restructuring and economic recovery of Sri Lanka following the default in April 2022, I have found that the IMF program is further aggravating the crisis. The IMF’s Debt Sustainability Analysis, with targets such as, a primary budget surplus of 2.3% of GDP and foreign debt servicing of 4.5% of GDP are creating a new and extended crisis in the Sri Lankan economy. The primary budget surplus, meaning government revenue minus government expenditure, excluding debt payments, will lead to the continuing regime of extreme austerity, senior economist Dr. Ahilan Kadirgamar said.

Kadirgamar was speaking on the sidelines of the National Consultation on Sustainable Recovery and Development seminar organized by the National Science Foundation. The event took place recently at Sankanthani Hall, SLIDA, Colombo 07.

Kadirgamar stressed that it will also be difficult to raise income tax which is based on the flow of incomes amid a contracting economy. Therefore, wealth taxes on the stock of wealth become important. For example, on property and vehicles.

Kadirgamar added: Low revenues is a major problem for Sri Lanka. We need to raise taxes but we cannot put more pressure on the working people by raising indirect taxes like VAT. The wealthy need to share the burden of this crisis and redistribution is critical. While the government has limited funds, land alienation and land redistribution for the survival of landless people are other avenues for economic recovery.

‘This means government spending will be minimal in terms of providing relief to the people and investment to stimulate the economy that has been contracting. If we are to allocate 4.5% of GDP in yearly repayment of foreign principal and interest, it is unsustainable, as it is equal to 30% of projected government revenue. While the government is talking about an export led economy, 30% of foreign earnings through projected exports will be used for foreign debt servicing. Therefore, according to our research, Sri Lanka will probably default again if the IMF program continues on the same path, and there will be huge social costs, including losing the future of another generation. Any new government that comes to power must renegotiate the IMF agreement or leave the program altogether.’