The International Monetary Fund (IMF) appears to be hounding Finance Minister Ravi Karunanayake in the wake of multiple blunders in attempting to pass the Value Added Tax (VAT) Bill, increasing the taxation rates in recent months.
“We have another 55 days for the budget, and as the Finance Minister, I get harassed, by nobody else than the IMF,” Finance Minister Ravi Karunanayake told a recent forum in Colombo.
An IMF mission which was in the country last week said that not legislating the VAT Bill soon would threaten the continuation of the 3-year US$ 1.5 billion Extended Fund Facility which started this June and which Sri Lanka is depending on to correct its balance of payments issues.
The attempt to legislate the VAT rate increase through the Cabinet this June had resulted in the Joint Opposition filing a fundamental rights petition at the Supreme Court, which ruled that the VAT amendments were not constitutional, since they were not passed through parliament.
Karunanayake had then drafted another VAT Bill last month, which got cabinet approval this month to go to parliament. However, the Joint Opposition pointed out that the legislation was published through Government Gazette earlier than it was approved by the cabinet, which was also illegal.
The government had planned to increase VAT rates from 11 percent to 15 percent in order to shore up the budget deficit which had spun out of control to 7.4 percent of gross domestic product in 2015 due to unsustainable public sector wage increases, compared to a projected deficit of 4.4 percent.
The IMF funding, as well as further funding from other multilateral organizations such as the Asian Development Bank, are dependent on massive fiscal policy reforms the government has to fulfil within certain periods of time.
Karunanayake has recently been seen visiting all parts of the country collecting proposals for the upcoming budget from the people, and he was quoted saying that the new budget would be revolutionary.
However, past trends may be witnessed again, judging from the promises made by Karunanayake at recent forum to large businesses that protectionism and concessions would continue, despite the lack of fiscal space to enact them.
Sri Lankan budgets since independence had focused on giving election goodies instead of the required fiscal policy tightening, which, together with loose monetary policy had led the country to short cycles of boom and bust.
The IMF however noted that recent months had seen greater fiscal and monetary discipline in the country. This is possibly a side-effect of the appointment of Dr. Indrajit Coomaraswamy as the Central Bank Governor, who has acted pre-emptively to weigh down threats.
Meanwhile, the IMF too appeared to have acted pre-emptively, setting an appointment one hour earlier than they intended to show up, probably in order to account for the always late Karunanayake, who in this instance had arrived on time.
Karunanayake said that he had contemplated blowing off the meeting with the late IMF delegation, but decided on the contrary.
“I’m sorry I was late. Working to time is essential. They (IMF) were supposed to come at 10.30 in order to make me come on time, but they came at 11.15. So either I had to come late here or tell the IMF to go home,” he said.
(Source: Daily Mirror – By Chandeepa Wettasinghe)