19 February 2019
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Inheriting a “scary” economic situation

FMSri Lanka’s new Government has inherited a “scary” economic situation and is looking for cheaper debt while aiming to maintain a stable rupee, the Finance Minister said on Monday.

New Minister Ravi Karunanayake said he would reveal the reality of the economy when he announces fiscal policies during the unveiling of a supplementary budget on Thursday.

“We have the economy in a precarious position,” Karunanayake told Reuters in an interview. “We have inherited an economy which gives a scary story,” he said adding that much debt data had not been recorded on Government books.

“We’re looking at reducing the debt elements. The higher debts that have been taken at higher interest rates have an impact on the revenue. We are trying to ensure cheaper debts,” he said without elaborating on sources of cheap debt.

The previous Government under former President Mahinda Rajapaksa, who lost a bid for a third term in a 8 January election, said its debt to Gross Domestic Product (GDP) was steady at 75% in 2014 from a year earlier, while the fiscal deficit fell 5.2% of GDP last year from 5.9% in 2013.

However, Karunanayake, said Rajapaksa Government’s “real” economic numbers could be different because of much missing data and his Ministry had launched an audit to find various real numbers including those for debt, the fiscal deficit and GDP.

“We don’t know what the contractual obligations are. Various bills are coming without contracts in hand. The debt to GDP they have shown is absolutely a mythical exercise,” he said. “We will not be tinkering around with the economy. We will ensure that we will reshape it to the correct momentum.”

Rajapaksa’s Government borrowed at higher rates mainly from China for big infrastructure projects.

Karunanayake’s pro-business United National Party had long complained of data manipulation by authorities under Rajapaksa. The Central Bank and Treasury had denied the accusations.

There is no independent data gathering in Sri Lanka.

The International Monetary Fund, which had advised the previous Government to strengthen some macroeconomic data compilation, had largely not found fault with it, Karunanayake said.

The new Government would maintain the previous Government’s stable rupee exchange rate policy, not wishing to “mess around” with it because the country was highly import-driven and “debt-ridden”, he said.

“At this moment, what they have pursued, has to be continuously pursued,” he said.


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