Nov 23, 2017 (LBO) – Sri Lanka’s ex-President Mahinda Rajapaksa quoting experts said the hidden motive of the proposed debt repayment levy is to deliberately weaken the state banks.
Speaking at the 2018 budget debate in Parliament, Rajapaksa said the government will use that weakness later to condemn the management of these banks in order to propose the privatisation of such banks.
“Given the past sordid conduct of this Government, it is quite possible and reasonable to believe that the government will carry out such a devious plan. Therefore we are highly apprehensive about this tax,” Rajapaksa said.
He said the main reason to entertain such a doubt is that it would hardly be possible to repay even a tiny part of the debt with the money expected to be raised through this tax.
“Even if the entirety of the Rs20bn expected to be realized through this tax is utilized, it will take 139 years to settle the debt of Rs2,773bn obtained by this joint government.
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Rajapaksa quoting experts in the banking field said the state banks in particular will be heavily burdened and weakened as a result of this tax.
2018 budget, however, proposed to infuse 5 billion rupees as equity to BoC in 2017 and a further 5 billion rupees in 2018. The government said they will also allow the BoC and the People's Bank to raise both debt and equity capital.
Finance Minister said in raising equity capital, the state will not relinquish the controlling ownership, but is willing to allow the divestitures, provided that the depositors and the employees are given the option of becoming shareholders.
Meanwhile, Former Central Bank Deputy Governor W.A. Wijewardena recently said the proposed debt repayment levy on banks will have a disruptive effect on the banking sector in Sri Lanka.
Wijewardena proposed the government to increase the tax rate of the banks by a certain percentage to collect the intended tax.
2018 budget proposed a special levy for financial institutions to be implemented with effect from 1st April 2018 which will be applicable for 3 years.
According to revenue proposals, only 20,000 million rupees are expected to collect through this levy next year. In 2018 alone, the debt repayment amounts to 1,970 billion rupees.
Samaraweera termed this levy as ‘Medamulana tax,’ as it intended at collecting additional revenue to repay foreign debt taken during the Rajapaksa era.
Rajapaksa, however, said from 2006 to 2014 public debt have increased by 5,169 billion where as from January 2015 to June 2017, it was increased by 2,773 billion rupees.
“We were able to reduce public debt to GDP ratio from 91% to 71% by the end of 2014,” Rajapaksa said.
“During this government that ratio has recorded a very sharp increase from a comfortable level of 71% to a critical level of 85% by end June 2017.”
According to the 2018 Fiscal Management Report, the government expects to gradually reduce the ratio to 70 percent by 2020 with the expected lower fiscal deficit supported by a higher economic growth.
Full speech made by the former President is reproduced below.
Speech on 2018 Budget