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If no tax hike, no option but to print money: Nandalal Weerasinghe

12 May 2022

  • Governor says political instability delayed plans to increase tax 
By Imesh Ranasinghe  Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said that unless there is a hike in taxes by any government that comes to power, the CBSL will have to continue printing money to fund government expenses. Speaking at a press conference held yesterday (11), he said that he expected the Government to increase taxes, which were reduced in 2019, within a week or two. “But due to the political instability, we haven’t been able to do that yet,” he added. He noted that a delay in raising taxes would mean delaying both the rebuilding of the economy and availing of an International Monetary Fund (IMF) programme. Dr. Weerasinghe said that the ongoing IMF talks require assurances on how Sri Lanka will repay its debt, for which the Government needs to provide assurances that can be agreed upon and enforced through the approval of the Finance Minister, Cabinet, and Parliament. Further, he said no matter what government comes to power, taxes will have to be hiked to increase government revenue, as reducing expenditure is difficult. The CBSL has printed money worth Rs. 20.1 billion net under Governor Dr. Weerasinghe between 8 April and 9 May. Moreover, he said that the liquid foreign reserves of the CBSL are critically low at the moment, and added that there is insufficient foreign exchange to fund the imports for next week. He added that the CBSL has managed until now with weekly collections from exporters through banks and the Asian Clearing Union, but that this is now not sufficient to fund next week’s imports. “If this instability continues for a few more days, then there will be power cuts for 10-12 hours, as there is no sufficient foreign exchange to import fuel for the generation of electricity,” he added.

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