Colombo, January 10 (NIA): Sri Lankan Finance Minister Ravi Karunanayake’s being chosen as the Best Finance Minister in the Asia-Pacific region in 2016 by the prestigious London-based financial magazine The Banker, could not have come at a more appropriate time for the beleaguered Sri Lankan government.
Subjected to barbed comments about its alleged incompetence, the government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe has had a hard time proving to the common man that it had done good things since it was elected with great hope in January 2015.
On the occasion of the second anniversary of the government on January 8, President Sirisena publicly admitted that people were asking him what his government had done in the past two years, and then proceeded to list out its achievements. But the achievements he listed were mostly political. Prime Minister Wickremesinghe, as his wont, did talk economics, but only to outline his vision of the future. Neither leader mentioned the many concrete achievements on the public finance front under the leadership of Finance Minister Ravi Karunanayake.
However, it is not surprising that these achievements had drawn the attention of The Banker which annually evaluates over 5,000 banks. It applauded Karunanayake’s efforts to steer Sri Lanka into a new era of economic reform and into a change of mindset.
Karunanayake had taken bold and often politically suicidal steps towards these ends. He believed in giving shocks to wake up the slumbering, or at best, easy going, Sri Lankan to come out of his comfort zone and be more prudent, thrifty and adventurous. Political leaders who were reluctant to think out of the box for fear of losing the vote, were shaken out of their hide bound mind set.
In this task, Karunanayake had to face loads of ridicule and barbed criticism and cynicism, but he was unfazed. As the country’s financial statistics show, the results of his aggressive style were encouraging though the distance to be covered is considerable and sustainability of the new systems and new mindset is still open to question.
Narrowing of Fiscal Deficit
The Banker noted that under Karunanayake’s leadership, Sri Lanka had been working towards fiscal consolidation. Sri Lanka’s budget deficit dropped from 7% ,when Karunanayake took office in January 2015, to 5.4% in 2016 – a significant achievement though it is below the targeted expectation of 5.6%.
According to the latest fugures, Sri Lanka’s total government revenue grew from LKR. 1205 in 2014 to LKR. 1,461 billion in 2015. Tax revenue rose from LKR. 1,050 billion to LKR. 1,356 billion in the same period.
This is crucial for Sri Lanka, which has a very low tax revenue-to-gross domestic product ratio.
Better Tax Collection
To raise tax revenue further, Parliament passed a bill to increase value-added tax from 11% to 15%. Karunanayake was also keen to continue simplifying the tax system as well as change people’s mindset towards taxes. But even without expected revenue from the increased VAT due to its late implementation the Finance ministry was able to increase the national revenue to 13.5% the GDP in 2016 from 11.4% in 2014, thus making it possible to cover recurrent expenditure.
Karunanayake inculcated in the minds of the people that paying taxes is not something bad, but a must for the country. As a result, Sri Lanka’s tax records have grown from having 700,000 files in January 2015 to having 1.4 million today.
Meeting IMF Expectations
The Banker says Karunanayake secured a US$ 1.5 billion International Monetary Fund (IMF) loan program to avoid a balance of payments crisis, replenish reserves and rebuild confidence among international investors.
Sri Lanka’s latest bond issues in the international capital markets suggest Karunanayake has indeed reached his objective. In 2015, the sovereign issued a US $ 1.5 billion dual-tranche note – its largest since 2007. A year later, it printed a second bond of the same size, with order books of $US 6.6 billion, despite market volatility after the UK voted to leave the EU.
After a visit in September 2016, the IMF said Sri Lanka’s tightening of fiscal and monetary policies had been effective and that it met the IMF program’s targets through to the end of June 2016.
(The featured image at the top is that of Sri Lankan Finance Minister Ravi Karunanayake)