One very big reason for the current crisis in Sri Lanka is that the government there decided to increase the base year for computing economic data.
Sri Lanka is going through one of its worst economic crisis and experts now blame the government for exaggerating its economic data which indirectly led to the present situation. Diminishing forex reserves, huge piles of international debt, devaluation of currency, rising inflation and a falling economy has compelled the the island nation of 22 million people to struggle for items of basic necessity as well. One very big reason for this outcome is that the government there decided to increase the base year for computing economic data.
1. Increase base year for computing economic data
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The Sri Lankan government had decided to increase the base year for computing economic data from 2010 to 2015. Due to this decision alone, the size of the GDP of Sri Lanka by 2021 showed 876 billion rupees more. This reduced the ratio of debt and fiscal deficit to GDP.
(Image Source: Reuters)
2. Sri Lanka GDP reported to be 13 trillion 10 billion rupees
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An analysis of this aspect of Sri Lanka's economy has been published by the website economynext.com. According to this analysis, after adjusting the inflation rate in the new series of figures, Sri Lanka's GDP was reported to be 13 trillion 10 billion rupees.
If the calculation would have been done from the old series, then the GDP would have come out to be 9 trillion 88 billion rupees. With the increase in the value of GDP, naturally the debt on the government decreased. Earlier government debt was equal to 104.6% of GDP. It showed 99.5% in the new series.
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3. Increase in GDP showed
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Some new activities were also included in the new series of GDP calculation. Among them are the new economic activities of the port city. All these showed such an increase in GDP, which in reality was not making any significant contribution to the economy.
Similarly, if the calculation was done from the old series, it would have come out that the GDP per capita is down to USD 3,772. Whereas, according to the new series, the calculations showed that it remains at the earlier level of USD 3,922.
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4. Increase in GDP showed government revenue decrease
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One consequence of the increase in GDP was that the amount of government revenue decreased relative to GDP. The ratio of government revenue to GDP was 12.3% in 2014, as calculated in the analysis by EconomyNext.
If we look at the figures of that time from the new series, then this figure will show 11.6%. This gave the neo-liberal economists an opportunity to argue that people in Sri Lanka are paying less taxes than their actual economic condition. On the basis of this logic, the government increased some indirect taxes.
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5. Hiding real health of the economy costing the country
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Experts associated with this Sri Lankan website are of the opinion that the effort of the Rajapaksa government to hide the real health of the economy is now costing the country.
If the real face of the economy remained in front, the government would have followed the policy of reducing expenditure adopted earlier. But the Gotabaya Rajapakse government abandoned this policy.
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6. In 2019, the government cut direct taxes
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In 2019, the government cut direct taxes, while no measures were taken to compensate for the shortfall in income from the exchequer. Experts say that today the country is facing the most severe currency crisis in its history, so a big hand behind it is such mismanagement.
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7. Sri Lanka, a classic twin deficits economy
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A 2019 Asian Development Bank working paper has termed Sri Lanka, a classic twin deficits economy. Twin deficits means that a country's national expenditure exceeds its national income, and that its production of tradable goods and services is inadequate.
(Image Source: ANI)
