Sri Lanka will be in a very tight fiscal situation even after a successful debt restructuring as the country will have to pay about 6-7% of GDP in interest payments till 2028, a former IMF official said.

Speaking at a webinar held on Monday by the Youth Liberal Movement, Former Director of the International Monetary Fund (IMF) Dr. Sharmini Coorey said that even after a successful debt restructuring Sri Lanka will face a very tight fiscal situation as the debt to GDP ratio according to IMF Debt Sustainability Analysis(DSA) will be at 95% by 2028, “that is still very high”.

She said that raising the tax revenue to GDP ratio is critical, as the current ratio which is about 10% is way too low, “we have to get to about 14% GDP to be in a better shape to be able to have normal functioning expenditures that are not on interest payments,” she added.

Coorey said that Sri Lanka is still going to pay 6-7% of GDP in interest payments by 2028 even after a successful debt restructuring according to the IMF projections.

“If you are to use 6-7% of GDP on interest payments, you are to have a reasonable tax collection,” she said.

Moreover, she noted that as part of the debt deal with the IMF, Sri Lanka will have to generate large fiscal surpluses excluding interest rates which cannot be done without having tax revenue.

Also, she said that Sri Lanka should have annual economic growth of 6% on a sustained basis over the next decade before the country can bring down its debt stock to sustainable level and finance the expenditure that is needed for development.

Further, she said that reserves should not be used to finance external debt and the Government should push for more and more exports so that there is enough foreign exchange in the market for the Government to purchase to finance external debt.

“It is not the job of the Central Bank to pay government debt,” she added.