UNESCAP recommends tax reforms and expenditure rationalisation to improve SL fiscal condition

Saturday, 7 May 2016 00:00 -     - {{hitsCtrl.values.hits}}

New Delhi: While projecting Sri Lanka’s economy to grow 5.4 % in 2016, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) says Sri Lanka’s fiscal condition will not improve significantly unless tax reforms and expenditure rationalisation are implemented.

The UNESCAP in its latest flagship publication, The Economic and Social Survey of Asia and the Pacific 2016, released recently in New Delhi, projects Sri Lanka’s economic growth to gain further momentum, at 5.4% in 2016 and 5.9% in 2017.

Private consumption will likely remain the key growth driver of Sri Lanka’s economy amid greater urbanisation and rising demand for housing, according to the report.

Economic growth in Sri Lanka was stable at 4.9% in 2015, although this rate remained much lower than the average growth rate of 8.5% during the period 2010-2012.

According to the UNESCAP, one immediate policy challenge for the government is to ensure a strong fiscal position and debt sustainability. While public debt reached 72% of GDP in 2014, the 2016 budget suggests that the fiscal deficit would remain large at 5.9% of GDP.

The fiscal shortfall is due to both limited revenue collection, with the tax revenue-to-GDP ratio having been only 10.2% in 2014, and the country’s large expenditure burden. Unless tax reforms and expenditure rationalisation are implemented, fiscal conditions are unlikely to improve significantly.

The report highlights that one of the medium-term challenges is to transform Sri Lanka into a competitive export-led economy. To achieve this, the Government has fostered public-private partnerships and promoted liberalisation of the services sector.

The need to enhance labor skills, diversify export markets, restructure loss-making State-owned enterprises and reduce infrastructure deficiencies will remain important. Development in these areas would help the country to attract more FDI and employment.

According to the report, youth employment in Sri Lanka is 10 times higher than overall employment, the largest difference in the Asia-Pacific region.

The Economic and Social Survey of Asia and the Pacific 2016 monitors regional progress, providing cutting-edge analyses and guiding policy discussion on the current and emerging socio-economic issues and policy challenges to support inclusive and sustainable development in the region.