Sri Lanka faces a challenge to emerge from the continuing crisis. This background note argues that domestic debt restructuring (DDR) provides four benefits critical for the economy and country to emerge from the present crisis stronger and more resilient than before. First, DDR provides a pathway toward solvency for the Government of Sri Lanka. Second, it provides the foundations for the stability of the economy (macro stability). Third, it reduces the likelihood of needing subsequent sovereign debt restructuring, and fourth, it facilitates the equitable sharing of the burden of the costs of the crisis.
As Sri Lanka’s crisis continues, up to 50% or more of the population is likely to need state support, however current targeting through Samurdhi reaches just about a quarter of all households and only 40% of the poorest individuals. As such, this background note by the Verité Research Sri Lanka Economic Policy Group recommends household electricity use as a determinant of eligibility for welfare benefits.
This note by the Verité Research Sri Lanka Economic Policy Group estimates the additional revenue that can be collected from reinstating in Sri Lanka two methods of efficient tax collection that were discontinued in 2020. That is: the withholding tax (WHT) and the pay-as-you-earn (PAYE) methods of tax collection. Without any change in the current, reduced, tax rates, and a WHT of 10% the additional revenue that can be collected is estimated to be 0.70% of GDP (which is LKR 184.2 billion in 2023).