Colombo, January 23 (CeylonFT): Around 90% of the Sri Lankan government’s revenue was absorbed by debt service payments in 2016, the Governor of the Central Bank, Dr. Indrajit Coomaraswamy said on Friday.
Delivering the 21st Annual Tax Oration organized by the Faculty of Taxation of the Institute of Chartered Accountants of Sri Lanka on ‘Revenue based Fiscal consolidation towards Sustainable Growth’, Coomaraswamy said that Sri Lanka’s present interest payments absorb about 35% of the total government revenue. And debt amortization obligations absorb a further 56% of it.
“The problem has been compounded now that Sri Lanka has become a lower middle income economy due to its per capita income. This has resulted in a gradual decline in concessional budgetary financing from donors, while increasing exposure to non –concessional and commercial borrowings”, he said.
Coomaraswamy stressed the importance of reducing government debt.
“High government debt imposes significant costs on the economy as it tends to increase interest rates, discourage private investments and constrain fiscal flexibility”, he said.
The Governor also said that large fiscal and current account deficits or twin deficits have been the two key problems in Sri Lanka’s economic structure.
“Sri Lanka needs to adopt a strong and durable fiscal consolidation program supported by compressive economic reforms to overcome what can be called a ‘high debt-low growth Trap”’, Coomaraswamy said.