ECONOMYNEXT - Sri Lanka's cabinet of ministers may have a special sessions to discuss plans to deal with debt repayments, Minister Gayantha Karunathilake said, with expectations that taxes will be hiked to reduce the budget deficit in a 'mini budget'.
Finance Minister Ravi Karunanayake said last week that hidden liabilities had been discovered and the government had to come up with measures to deal with it.
"There was discussion that a special cabinet meeting could be convened in the coming week to deal with it," Minister Karunathilake said.
Prime Minister Ranil Wickremesinghe said in December that a 'contingency liability bill' may be brought to parliament in March with new taxes to sort out state finances.
"We may have to bring a contingencies liability bill to parliament, sometime next year and the parliament may have to make recommendations," he said on December 02,
"Parliament will have to decide how to raise additional revenues to pay for these expenditures."
Sri Lanka's fragile state finances were further damaged in a January 2015 budget which raised state salaries 40 percent and hike state worker pensions and subsidies.
The central bank then printed large volumes of money (central bank credit) to finance the deficit driving imports to unsustainable levels leading to a collapse of the currency.
A November budget failed to address the revenue and instead cut value added taxes and also lifted a threshold on personal income tax.
Sri Lanka has sought help from the International Monetary Fund, who has also asked the government to reduce the budget deficit which is the root cause of economic instability.
There are expectations that valued added taxes may be raised to 15 percent and general corporate income taxes will be kept around 20 percent.
Sri Lanka has a bloated public sector, which is stuffed with unemployable graduates (who have been taught from taxes collected from the general public) which is too heavy for the public to bear and special interest groups like farmers are also taught by the elected ruling class to demand privileges.
State enterprises such as SriLankan Airlines and LakSathosa also make large losses and are mired in corruption, competing with education and healthcare for funds and generally winning, critics say.
A government can tax people, which is the most transparent way of putting the burden on a large public sector, subsidies and loss-making state enterprises on the people, or take debt and burden yet unborn future generations, or print money and generate inflation and currency depreciation.