Sri Lanka’s Hard Infrastructure Drive Phasing Out: IMF!

Sri Lanka’s first phase of economic development i.e. putting the hard infrastructure in place is now gradually phasing out and thus it is time authorities shift focus on building the soft side of the infrastructure consisting of a sound regulatory and tax environment, skill building and human resource development, according to the International Monetary Fund (IMF).

The IMF Resident Representative for Sri Lanka and Maldives Dr. Eteri Kvintradze said, “Tax and regulatory environment is the centerpieces for understanding the quality of business environment”.

Post- war Sri Lanka has been investing heavily on physical infrastructure projects such as airports, sea ports, highways, power plants, industrial zones etc. predominantly on borrowed money at commercial rates.
The government is committed to maintain its public investments at 6 percent of GDP annually, and in 2013 the total investments were at 31 percent of GDP. This is projected to increase up to 33 percent by end 2016. “Now is the time for the second phase,” Dr. Kvintradze emphasized at her first public speech made at the 23rd Annual General Meeting of the Industrial Association of Sri Lanka (IASL).

Dr. Kvintradze was assigned to Sri Lanka and Maldives in April following the completion of Dr. Koshy Mathai’s 4-year tenor as resident representative in Sri Lanka.
Despite elevated rankings on the ‘doing business index’ and remaining competitive among the South Asian counterparts, Dr. Kvintradze was concerned about Sri Lanka’s ranking at the ease of paying taxes index which is at the bottom of the list.
Sri Lanka is ranked 85 on overall doing business index but the ease of paying taxes index ranks the country at 171 out of 189 nations.
IMF has been quite vocal in highlighting Sri Lanka’s dwindling tax revenues in comparison to GDP. In 2013, tax revenues were 11.6 percent of GDP slightly improving from 11.5 percent in 2012, yet the lowest in the region.

“Could Sri Lanka ease regulatory environment for paying taxes and increase revenues at the same time to meet the social infrastructure development?
Surely yes, if my own country – Georgia- could do it, I don’t see any reason why you couldn’t do it,” she said.
During the last decade, Georgia reformed its structure which resulted in increasing the country’s tax revenue to GDP ratio from 10 percent to 25 percent. The ‘doing business ranking’ also improved to eighth position with foreign direct investments flows rising 10 folds.
Nevertheless IMF expressed its content with recent measures taken to broadening the tax base, lowering the threshold and increasing the tax net in Sri Lanka.