Sri Lanka’s economic crisis impacts the poor and the vulnerable continue to have adverse effects despite having positive macroeconomic indicators and economic stabilisation, Secretary to the Ministry of Finance Mahinda Siriwardana said.

Speaking at an event organised by the International Conference on Sustainable Globalisation (ICSG) on Saturday (11), he said that although macroeconomic indicators and reform outcomes are positive, and the economy has notably stabilised, the impacts of the crisis particularly on the poor and vulnerable continues.

“In the past, successive governments have attempted to address such public welfare concerns by providing tax reductions, tax exemptions, and artificially lower prices of essential commodities, including electricity, and fuel,” he said.

He said that the results of these past measures have been counter-productive due to a

continuous erosion of the revenue base and higher borrowings and today, these borrowings have to be serviced, and the resultant elevated interest costs have wiped out the fiscal space for targeted welfare expenditure.

However, he said that completing Sri Lanka’s debt restructuring has provided significant cash flow relief to the treasury and freed up further fiscal space to spend on essential public goods and services.

“It is important that we learn from these past mistakes and avoid mixing up tax policy with welfare policy and other objectives of the Government,” he said, adding that the Government's welfare objectives should be addressed through targeted cash transfers as has been envisaged through the Aswesuma programme. 

Siriwardena also said that the tax policy should be seen purely as a means of collecting revenue to finance public goods and services. We have learnt from the past that tax policy should not be used as a tool to achieve other policy objectives.

He added that the fiscal reforms implemented over the last two and a half years have now restored some fiscal space that has enabled higher expenditure on social security and welfare measures to mitigate the impact of these shocks to some extent.