‘SL needs to use proceeds of foreign loans to support only essential imports’

Sri Lanka needs to demonstrate its political will to use the proceeds of foreign loans or any form of swap facilities from other central banks to support only essential imports such as fuel and food and to settle maturing obligations, says Dr. Diwa C Guinigundo – Former Deputy Governor at Bangko Sentral ng Pilipinas. Speaking on previous concessions that Sri Lanka granted to both individual and corporate income taxpayers, Dr. Guinigundo stressed the need for lower income tax rates. However, he emphasised that ultimate goal should also be balanced against the requirements for public revenue.

“The Government needs resources to service the people’s needs. At this point I believe restructuring is critical because time is not on the side of Sri Lanka,” Dr. Guinigundo told a seminar organized by the Centre for Banking Studies, held under the theme, ‘Confronting the Current Foreign Exchange Crisis in Sri Lanka; Lessons from Global Experience’.

Sri Lanka’s record of honoring its credit obligations should provide comfort to the international credit community. Perhaps the authorities could also do that in exchange for bonds to lengthen maturities, Dr. Guinigundo added. He said further that tax and trade policy should be considered within the context of a revenue-based fiscal consolidation. “Fiscal discipline is key.

At the same time I share the view that tax policies drive equitable, more permanent fiscal strength.” He said further that Sri Lanka may need to create fiscal space and allow the exchange rate to be more flexible or allow it as an automatic stabilizer.