Home » “Another economic disaster next year” – Professor Janak Kumarasinghe

“Another economic disaster next year” – Professor Janak Kumarasinghe

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The World Bank has warned that the Sri Lankan economy may shrink by more than 10 billion dollars in the coming year and fall into a difficult situation next year, reveals Professor Janak Kumarasinghe, Head of the Department of Business Studies at the University of Sri Jayewardenepura.
He also emphasizes that as the government increases taxes, the rate of contraction of the economy will intensify, and the financial system, including banks and other related institutions, may be at greater risk.
He also says that the government has to be ready to make necessary commitments to recover the economy from the current crisis by providing data and conclusions when necessary.
“If the government tries to increase taxes, it will directly affect the lives of the entire people of the country. Also, they are trying to control inflation by raising interest rates. It was a step that the central bank should have taken. It would cause a shock to the economy.
The shock caused by this to the economy has affected other variables. The main impact is on business people. They raise their capital by taking bank loans. A cost has to be borne for obtaining bank loans. In a developing country, the profit in the business investment returns is between 10% and 15% of the total cost.
But today the interest rate has exceeded 25%. In this situation, the profit from the benefits obtained by taking loans from banks and investing will not be enough even to pay the interest on his bank loans. Because of this, all businesses have become unstable. Not only small and medium-scale businesses but even large-scale businesses have become unstable. Starting new businesses has been hampered. This is why our economy is shrinking.
According to the forecasts made by the World Bank in this regard, it has been warned that the Sri Lankan economy may shrink by more than 10 billion dollars in the next year. It has been shown that our economy may fall into a dire situation in the year 2023. As the government increases taxes, the rate of economic contraction intensifies. Because of this, there can be a big threat even to the businesses that are still standing.
It is possible that the IMF will advise going for debt restructuring and the current debt instalments, and it is also possible that a situation may arise where we are unable to pay the loan instalments and interest payments. In such a situation, the recovery of an economy and the financial system, including the banks that push the economy forward and other related institutions, can go at great risk. Therefore, the government should focus on managing the risk very carefully. Our entire financial system may be at serious risk if we don’t do that. Such a situation will bring irreparable consequences.”

Source: ‘Mawbima’

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