New PM says printing money will have to stay until budget is fixed by higher taxes – Reuters
New Prime Minister Ranil Wickremesinghe has said the government may have to continue to seek cash from the Central Bank until taxes are raised, non-essential and non-emergency spending is cut to fill the gaping hole in the budget, in order to pay salaries. Sri Lanka’s overstaffed civil service.
In an interview with BBC News Sinhala, the Prime Minister said they should pump money into the system through printed money, when the Treasury can’t come up with its own money in the meantime, until to fix the budget through tax and other reforms.
“We printed for 3.0 trillion rupees. All of that is now exhausted. At the moment, the government only has 100 billion rupees. So Parliament will have to ask for more money
to be printed.
Otherwise, we will not be able to pay public sector salaries,” Wickremesinghe said, outlining a series of measures he is ready to use in the short term to get out of the current economic crisis, which has caused people endless mystery. .
When asked by the reporter if printing money was going to be his economic policy, he said, “My policy is not that, but we will have to do that for now. If we don’t, we won’t be able to pay the salaries of public sector employees. There is a common misconception that every time money is printed it causes inflation. But excessive money printing causes inflation when productive capacity does not keep pace with money supply growth.
The unprecedented monetary and fiscal stimulus triggered by central banks and global governments during the two years of the pandemic, when supply was repeatedly interrupted due to pandemic-induced lockdowns and other restrictions , have caused the current outbreak of record inflation and commodity shortages around the world.
Wickremesinghe’s comments echoed comments made by Central Bank Governor Dr Nandala Weerasinghe a few days ago when he said he may have to resort to printing money to prop up the Treasury when the latter cannot find money to pay for urgent and essential needs such as the payment of state sector salaries.
However, he reiterated that the Central Bank is now doing so with utmost caution and restraint.
Wickremesinghe meanwhile said that it is of utmost importance to ensure that the economy works in order to generate income for the people. However, the economy is either shut down or operating at a level well below its current optimal level, in part due to fuel shortages and power cuts, which he says must be addressed quickly.
For that to happen, he said, the country needs to raise foreign borrowing from its bilateral and multilateral partners imminently to restore dollar liquidity in the domestic foreign exchange market, which would provide money to pay for essential imports. Shortly after taking office, Wickremesinghe met with several diplomats and is exploring the possibility of establishing a foreign aid consortium to help Sri Lanka emerge from its current depths.
Initiator of a very good practice, absent for the past two years, he often communicates by informing the public of the actions he takes on a daily basis to revive the economy.