Government to reduce debt to GDP ratio by 70 percent by 2020

 

The government looking to reduce its debt to GDP ratio to 70 percent by 2020, had cabinet approve this week proposals put forward by the Central Bank to achieve this target.

The Central Bank made a presentation to the Cabinet Committee on Economic Management (CCEM) on November 1, 2017 on the options available to bring down debt to GDP ratio and offers from Investment Houses to facilitate with Liability Management.  

The debt to GDP ratio can mainly be brought down by decelerating debt accumulation and the key for this is to reduce the government budget deficit, informed the Central Bank.

The cabinet paper on the Central Bank was submitted to Cabinet by Prime Minister Ranil Wickremesinghe.  

The following options according to the cabinet paper have been recommended;

  • Achieve the revenue targets set out in the medium-term fiscal projections (15% of GDP in 2017; 15.5% in 2018, 16% in 2019 and 16.5% in 2020)
  • Rationalize capital expenditure to be included in the government budget- institutionalize a process for assessing costs and benefits associated with proposed capital expenditure projects
  • Encourage non-debt creating domestic and/or foreign currency inflows to the government
  • Strengthen the financial position and operations of major state-owned business enterprises
  • Careful articulation of domestic debt issuances; Effective debt liability management
  • Facilitate international financial institutions, such as International Finance Corporation (IFC) to issue rupee debt in the international market to finance various projects in the government budget
  • Issue local loans prudently and when loans can be obtained with a low interest and pay loans obtained at a high interest using such low interest loans.
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