Sri Lanka grapples with unsustainable debt and dwindling revenue
Sri Lanka’s economic crisis is aggravating with unsustainable debt and dwindling revenue even amidst unprecedented tax reforms.
The Finance Ministry aims to increase tax revenue by 69 per cent to fund government spending in the crisis-hit economy this year, but analysts say the revenue collection is still to adjust to the new taxes.
This situation has become more critical in the uncertainty of concluding external debt restructuring negotiations as the assurance of creditors to the IMF except India is still pending, high level official sources confirmed.
Sri Lanka is committed to meeting all its debt repayments and is hoping to complete debt restructuring negotiations in the next six months, State Finance Minister Shehan Semasinghe told the Business Times.
He noted that "there has been good progress with India already pledging financing assurances, and the same is expected from China and Japan, which are the other bilateral creditors.
Government revenue for the month of January 2023 is not sufficient to meet the monthly expenditure estimates and it has compelled the Finance Ministry to direct all relevant authorities to curtail expenditure.
The Inland Revenue Department, Sri Lanka Customs and the Excise Department have collected Rs. 158.7 billion for the month of January 2023. While the total expenditure stood at Rs. 368.7 billion.
The Treasury is finding it challenging to meet all recurrent expenditures except those payments pertaining to salaries, pensions, welfare, pharmaceuticals and debt servicing, the President’s Media Division (PMD) announced last week.
Total Central Government external debt on creditor category as at the end of September, 2022 amounted to US$ 35.05 billion, the Finance Ministry revealed in a latest quarterly debt analysis report.
The total external debt has slightly dropped to $35.05 as at end of September 2022 from $ 35.89 compared to the same period in 2021, finance ministry data shows.
Commercial debt represented a significant portion of Government external debt which amounted to 42 per cent followed by the bilateral debt (31 per cent) and multilateral debt (27 per cent).
About 85 per cent of the commercial category debt consisted of International Bond Issuances (ISBs) and the rest from Term Financing Facilities (Syndicated Loans).
The World Bank and the Asian Development Bank were the major multilateral creditors representing over 95 per cent of the total multilateral debt.
Under bilateral debt, more than 60 per cent of its debt was represented by non-Paris Club countries while about 12 per cent came from Paris Club countries.