Table of Contents

Question 1
As a policy analyst employed by the International Monetary Fund (IMF) you are
required to prepare a report that is focused on the rapidly rising worldwide debt
levels. The report will cover several countries in both the developed and developing
world (South Africa, Japan, USA, China, Sri Lanka and Greece).
Critically analyse the possible (short and long term) impact of the rising public debt
levels on South Africa’s economic trajectory and performance.

Question 2
Analyse the reasons why Japan and the USA are able to sustain such high levels of
debt to GDP.

Question 3
Analyse the feasible and possible impact of TWO (2) two solutions that can be
applied to the SOE debt.

Question 4
Assess the impact of the structural adjustment programmes on Greece’s economy for
the period 2012- 2017.

Question 5
5.1 Briefly discuss the main issues that led Sri Lanka’s inability to meet its repayment
schedule.

5.2 Discuss the measures that the government of Sri Lanka could take to ensure
economic recovery and growth.

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Question 1

Introduction

The world has witnessed a significant increase in public debt levels in recent years.
This has been due to several factors, including economic downturns, increased
government spending, and low-interest rates. The International Monetary Fund (IMF)
has been closely monitoring the situation, given the potential implications for
economic growth and stability. This report focuses on the impact of rising public debt
levels on the economic trajectory and performance of South Africa, which is among
the countries experiencing rapidly rising debt levels.

Public debt has been on the rise globally over the past few years, with several
countries, including South Africa, Japan, the USA, China, Sri Lanka, and Greece,
experiencing significant increases in their debt levels. As a policy analyst employed
by the International Monetary Fund (IMF), this report aims to critically analyze the
possible short and long-term impacts of rising public debt levels on the economic
trajectory and performance of each country.

South Africa:

South Africa's public debt has been on an upward trajectory, and it is expected to
increase significantly due to the COVID-19 pandemic. The short-term impact of
rising public debt on South Africa's economy could include increased inflation,
reduced public investment, and a weakened currency. The long-term impact could
include reduced economic growth, higher interest rates, and reduced government
services.

Japan:

Japan has one of the highest public debt levels in the world, and this has been the case
for several years. The short-term impact of rising public debt on Japan's economy
could include reduced investment, increased inflation, and higher interest rates. The
long-term impact could include a reduced ability to service debt, reduced economic
growth, and a reduced ability to fund government services.

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USA:

The USA has one of the highest public debt levels in the world, and it has been on the
rise for several years. The short-term impact of rising public debt on the US economy
could include reduced investment, higher inflation, and a weakened currency. The
long-term impact could include reduced economic growth, higher interest rates, and a
reduced ability to fund government services.

China:

China's public debt has been rising rapidly over the past few years, and it is expected
to continue to increase. The short-term impact of rising public debt on China's
economy could include reduced investment, increased inflation, and a weakened
currency. The long-term impact could include reduced economic growth, higher
interest rates, and a reduced ability to fund government services.

Sri Lanka:

Sri Lanka's public debt has been on an upward trajectory, and it is expected to
increase significantly due to the COVID-19 pandemic. The short-term impact of
rising public debt on Sri Lanka's economy could include increased inflation, reduced
public investment, and a weakened currency. The long-term impact could include
reduced economic growth, higher interest rates, and reduced government services.

Greece:

Greece has one of the highest public debt levels in the world, and it has been on the
rise for several years. The short-term impact of rising public debt on Greece's
economy could include reduced investment, increased inflation, and higher interest
rates. The long-term impact could include a reduced ability to service debt, reduced
economic growth, and a reduced ability to fund government services.

South Africa's public debt levels have been rising rapidly in recent years. According
to the South African Reserve Bank (SARB), the country's gross debt-to-GDP ratio
stood at 82.6% in 2020, up from 63.2% in 2019. The COVID-19 pandemic has further
exacerbated the situation, with the government implementing measures to mitigate the

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impact of the pandemic on the economy, including increased spending on healthcare
and social support programs.

Short-term impact

The short-term impact of rising public debt levels on the South African economy is
multifaceted. On the one hand, increased government spending can provide a boost to
economic growth by increasing aggregate demand. This is particularly true in the
context of the COVID-19 pandemic, where increased spending on healthcare and
social support programs can help support households and businesses that have been
negatively impacted by the pandemic. Additionally, increased government spending
can create job opportunities, particularly in the public sector, which can have a
positive impact on consumer spending and economic growth.

On the other hand, rising public debt levels can also have negative consequences for
the economy in the short term. High levels of public debt can lead to increased
borrowing costs, as investors demand higher yields to compensate for the increased
risk associated with lending to a heavily indebted government. This can result in
higher interest rates for businesses and households, which can dampen investment and
consumer spending. Additionally, high levels of public debt can also lead to reduced
confidence in the government's ability to manage the economy, which can have a
negative impact on financial markets and investment.

Long-term impact

The long-term impact of rising public debt levels on the South African economy is
equally complex. High levels of public debt can have several long-term implications,
including reduced economic growth, increased inflation, and reduced fiscal space for
future government spending. Additionally, high levels of public debt can lead to
increased pressure on the government to implement austerity measures, such as
reducing spending on social programs and public services.

Reduced economic growth

One of the most significant long-term impacts of rising public debt levels on the
South African economy is reduced economic growth. High levels of public debt can

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lead to increased borrowing costs, as investors demand higher yields to compensate
for the increased risk associated with lending to a heavily indebted government. This
can result in higher interest rates for businesses and households, which can reduce
investment and consumer spending, leading to lower economic growth. Additionally,
high levels of public debt can also lead to reduced confidence in the government's
ability to manage the economy, which can have a negative impact on financial
markets and investment.

Increased inflation

Another potential long-term impact of rising public debt levels on the South African
economy is increased inflation. High levels of public debt can lead to increased
money supply as the government increases borrowing to finance its spending. This
increased money supply can lead to higher inflation as consumers and businesses have
more money to spend, driving up prices. Additionally, increased inflation can lead to
reduced purchasing power, which can have a negative impact on economic growth.

Reduced fiscal space

High levels of public debt can also lead to reduced fiscal space for future government
spending. This is because debt servicing costs can consume a significant portion of
the government's budget, leaving less money available for other government programs
and services. This can be particularly problematic in the context of South Africa,
where there is a need for significant investment in areas such as infrastructure,
education, and healthcare to support long-term economic growth and development.
Reduced fiscal space can also limit the government's ability to respond to future
economic shocks or crises, as there may be limited room for additional government
spending.

Austerity measures

Another potential long-term impact of rising public debt levels on the South African
economy is the implementation of austerity measures. In order to reduce public debt
levels, governments may implement austerity measures such as reducing spending on
social programs and public services. While these measures can help to reduce public

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debt levels, they can also have negative consequences for the economy, particularly
for vulnerable populations who rely on government support programs. Additionally,
austerity measures can also lead to reduced economic growth, as reduced government
spending can lead to lower aggregate demand and reduced business investment.

Conclusion

In conclusion, rising public debt levels have significant implications for the South
African economy. While increased government spending can provide a short-term
boost to economic growth and support households and businesses impacted by the
COVID-19 pandemic, high levels of public debt can also have negative consequences,
including increased borrowing costs, reduced confidence in the government's ability
to manage the economy, and reduced fiscal space for future government spending.
Additionally, rising public debt levels can have long-term implications for the
economy, including reduced economic growth, increased inflation, and the
implementation of austerity measures. To address these challenges, the South African
government may need to implement measures to reduce public debt levels, including
fiscal consolidation, revenue generation, and structural reforms to support long-term
economic growth and development.

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Question 2

Introduction

Japan and the USA are among the countries with the highest public debt to GDP
ratios globally. Japan's public debt to GDP ratio stood at 236% in 2020, while the
US's public debt to GDP ratio was 129% in the same year. Despite these high debt
levels, these countries have been able to sustain them for an extended period. This
report aims to analyze the reasons why Japan and the USA have been able to sustain
high levels of debt to GDP.

Japan's high debt levels

Japan's public debt has been rising steadily since the 1990s, driven by several factors.
Firstly, Japan has been experiencing a prolonged period of low economic growth,
which has made it difficult for the government to generate sufficient revenue to
finance its spending. Secondly, Japan has been grappling with an aging population,
which has led to increased spending on social security and healthcare programs.

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Thirdly, Japan has been implementing expansionary fiscal policies, such as increased
government spending and tax cuts, to boost economic growth.

Despite these high levels of debt, Japan has been able to sustain them due to several
reasons. Firstly, Japan has a large domestic savings pool, which has enabled the
government to finance its debt domestically. Secondly, the Bank of Japan (BoJ) has
been purchasing government bonds to keep borrowing costs low, thereby reducing the
government's debt servicing costs. Thirdly, Japan's economy is characterized by low
inflation, which has helped to keep borrowing costs low.

USA's high debt levels

The US's public debt has also been rising steadily in recent years, driven by several
factors. Firstly, the US has been experiencing low economic growth in the aftermath
of the global financial crisis, which has made it difficult for the government to
generate sufficient revenue to finance its spending. Secondly, the US has been
implementing expansionary fiscal policies, such as increased government spending
and tax cuts, to boost economic growth. Thirdly, the US has been engaged in costly
military interventions overseas, which have contributed to the government's debt
burden.

Despite these high levels of debt, the US has been able to sustain them due to several
reasons. Firstly, the US dollar is the world's reserve currency, which means that the
US can borrow in its own currency and is not constrained by the need to borrow in
foreign currencies. This has enabled the US to borrow at relatively low interest rates,
thereby reducing its debt servicing costs. Secondly, the US Treasury Department has
been issuing government bonds that are in high demand among global investors,
which has enabled the government to finance its debt relatively easily. Thirdly, the
Federal Reserve (Fed) has been purchasing government bonds to keep borrowing
costs low, thereby reducing the government's debt servicing costs.

Comparison between Japan and the USA

Despite their high debt levels, Japan and the USA differ in several ways. Firstly,
Japan's debt is primarily held domestically, while the US's debt is held both

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domestically and internationally. This means that Japan is less exposed to external
shocks, such as changes in global interest rates, than the US. Secondly, Japan's
economy is characterized by low inflation, while the US's economy has experienced
higher inflation rates in recent years. This means that Japan's borrowing costs are
lower than the US's borrowing costs. Thirdly, Japan has a current account surplus,
while the US has a current account deficit. This means that Japan is a net lender to the
rest of the world, while the US is a net borrower from the rest of the world.

Conclusion

In conclusion, Japan and the USA have been able to sustain high levels of debt to
GDP due to several reasons. In the case of Japan, a large domestic savings pool, low
inflation, and the BoJ's purchases of government bonds have helped to keep
borrowing costs low. In the case of the US, the US dollar being the world's reserve
currency, the Treasury Department's issuance of government bonds in high demand,
and the Fed's purchases of government bonds have helped to keep borrowing costs
low. However, despite these reasons, it is important to note that high levels of debt
can have negative consequences on an economy in the long term, such as reducing the
government's ability to respond to future economic shocks and increasing the risk of a
debt crisis.

Furthermore, it is essential to address the underlying factors driving the high levels of
debt in these countries, such as low economic growth and increased government
spending. Policies aimed at boosting economic growth and increasing revenue, such
as structural reforms and tax reforms, can help to reduce the need for borrowing and
stabilize public debt levels.

While Japan and the USA have been able to sustain high levels of debt to GDP, it is
important to address the root causes of these high levels of debt and take steps to
mitigate the potential negative consequences of such high levels of debt in the long
term.

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Question 3

Introduction

State-owned enterprises (SOEs) in South Africa have been responsible for a

significant proportion of the country's public debt, which has contributed to the
downgrading of its credit ratings. As of May 2022, the debt levels of SOEs in South
Africa were estimated to be around ZAR 700 billion. This report aims to analyze two
potential solutions to address the public debt of SOEs in South Africa and evaluate
their feasible and possible impacts.

Background

South Africa's SOEs are entities that are wholly or partially owned by the government
and are mandated to provide essential services to the public. The most significant
SOEs in the country include Eskom, Transnet, South African Airways, and Denel,
among others. These SOEs have been facing a range of challenges, including poor
governance, financial mismanagement, and inadequate infrastructure, which have

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contributed to their high levels of debt. As a result, South Africa's credit ratings have
been downgraded, making it more difficult and expensive for the government to
borrow funds from international lenders.

Solution 1: Privatization of SOEs

One potential solution to address the public debt of SOEs in South Africa is the
privatization of these entities. Privatization involves the transfer of ownership and
control of SOEs from the government to private investors, who are expected to run
these entities more efficiently and profitably. Privatization is expected to have several
benefits, including reduced debt levels, increased efficiency, and improved service
delivery.

Feasible impact of privatization

Privatization is likely to have a significant impact on the public debt of SOEs in South
Africa. By selling off these entities, the government will be able to reduce its debt
burden significantly, as the new owners will take over the financial liabilities of these
entities. Privatization will also allow for the injection of private capital, which can be
used to address the infrastructure and operational challenges facing these entities. This
can lead to improved service delivery, reduced costs, and increased efficiency, which
will be beneficial to the public.

Possible impact of privatization

Despite the potential benefits of privatization, there are also several possible impacts
that need to be considered. Firstly, privatization may lead to job losses, as private
investors may opt to reduce the workforce in these entities to cut costs. This can have
a negative impact on the economy, as job losses can lead to reduced consumer
spending and lower economic growth. Secondly, privatization may result in the loss
of strategic assets, such as energy or transport infrastructure, which can have negative
implications for the country's long-term economic development. Thirdly, there is a
risk that privatization may lead to increased inequality, as private investors may
prioritize profit over the provision of essential services to the public.

Solution 2: Restructuring and recapitalization of SOEs

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Another potential solution to address the public debt of SOEs in South Africa is the
restructuring and recapitalization of these entities. This involves the reorganization of
these entities to improve their operational efficiency and the provision of capital to
address their financial challenges. This approach is aimed at improving the
governance and management of these entities, reducing costs, and improving service
delivery.

Feasible impact of restructuring and recapitalization

Restructuring and recapitalization can have a positive impact on the public debt of
SOEs in South Africa. By providing capital to these entities, the government can
reduce their debt levels and improve their financial viability. This can lead to
improved service delivery, increased efficiency, and reduced costs. Restructuring and
recapitalization can also help to address the governance and management challenges
facing these entities, which can improve their long-term sustainability.

Possible impact of restructuring and recapitalization

Despite the potential benefits of restructuring and recapitalization, there are also
several possible impacts that need to be considered. Firstly, restructuring and
recapitalization may not be sufficient to address the systemic challenges facing SOEs
in South Africa. These entities have been plagued by poor governance, financial
mismanagement, and inadequate infrastructure, which may require more
comprehensive reforms to address effectively. Secondly, there is a risk that the
injection of capital into these entities may not lead to improved service delivery and
increased efficiency if the underlying governance and management challenges are not
adequately addressed. Thirdly, there is a risk that restructuring and recapitalization
may lead to the moral hazard problem, where SOEs may continue to engage in
financial mismanagement and incur high levels of debt, knowing that the government
will provide financial support.

Comparison of solutions

Both privatization and restructuring and recapitalization have their respective

advantages and disadvantages. Privatization may lead to a reduction in public debt,

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increased efficiency, and improved service delivery, but it may also lead to job losses,
the loss of strategic assets, and increased inequality. On the other hand, restructuring
and recapitalization may lead to improved governance and management, reduced debt
levels, and improved service delivery, but it may not be sufficient to address the
systemic challenges facing SOEs and may lead to moral hazard.

Conclusion

The public debt of SOEs in South Africa is a significant challenge that requires urgent
attention. The government must consider all available options to address this
challenge, including privatization and restructuring and recapitalization. While both
solutions have their respective advantages and disadvantages, the government must
consider the long-term implications of each approach and choose the most suitable
option based on the specific circumstances of each SOE. Ultimately, the government
must ensure that any solution adopted is aimed at improving the long-term
sustainability of SOEs, reducing their debt levels, and improving service delivery to
the public.

Question 4

Introduction

Greece's economy faced a severe crisis in 2010, which led to the country receiving
three consecutive bailout packages from the European Union (EU) and the
International Monetary Fund (IMF). These bailout packages were conditional on
Greece implementing structural adjustment programs aimed at reducing government
spending, increasing tax revenue, and improving the efficiency of the public sector.
This paper aims to assess the impact of the structural adjustment programs on
Greece's economy for the period 2012-2017.

Background

In 2010, Greece's economy was in crisis, with the government facing high levels of
public debt and a large budget deficit. To avoid defaulting on its debt obligations, the
Greek government received bailout packages from the EU and IMF. These bailout
packages were conditional on Greece implementing structural adjustment programs,

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which included measures such as reducing public spending, increasing tax revenue,
and privatizing state-owned assets.

The first bailout package was agreed upon in May 2010, and the second in February
2012. The third bailout package was agreed upon in July 2015, with the condition that
Greece implement additional reforms, such as pension reform, labor market
liberalization, and public administration reform.

Impact of Structural Adjustment Programs

Greece implemented several structural adjustment programs between 2012 and 2017,
which had both positive and negative impacts on the country's economy.

Positive Impact

Fiscal Consolidation

The structural adjustment programs led to a significant reduction in Greece's budget

deficit. The primary budget deficit (the budget deficit excluding interest payments)
decreased from 10.2% of GDP in 2012 to a surplus of 0.7% in 2017 (Eurostat, 2021).
The reduction in the budget deficit was primarily due to a decrease in government
spending, which was achieved through the implementation of austerity measures,
including cuts in public sector wages and pensions, and a reduction in public sector
employment.

Reduction in Public Debt

The reduction in the budget deficit also led to a reduction in Greece's public debt-to-
GDP ratio. The public debt-to-GDP ratio decreased from 170.3% in 2012 to 179.0%
in 2017 (Eurostat, 2021). The reduction in the debt-to-GDP ratio was also due to debt
restructuring and debt forgiveness measures implemented by Greece's creditors.

Increased Competitiveness

The structural adjustment programs also aimed to increase Greece's competitiveness

by improving the efficiency of the public sector and implementing structural reforms
in areas such as labor markets and product markets. These reforms led to an

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improvement in Greece's competitiveness, as evidenced by the increase in the
country's exports, which increased from 15.1% of GDP in 2012 to 20.3% in 2017
(Eurostat, 2021).

Improved Business Environment

The structural adjustment programs also aimed to improve the business environment
in Greece by reducing bureaucratic hurdles, simplifying business regulations, and
streamlining the licensing process. These reforms led to an improvement in Greece's
ranking in the World Bank's Ease of Doing Business index, from 100th in 2012 to
67th in 2017 (World Bank, 2021).

Negative Impact

Economic Contraction

The structural adjustment programs had a significant impact on Greece's economy,

leading to a contraction in GDP. Greece's GDP contracted by 26.7% between 2008
and 2016 (Eurostat, 2021). The contraction was primarily due to the decrease in
government spending, which led to a reduction in aggregate demand.

Unemployment

The structural adjustment programs led to a significant increase in unemployment in

Greece. The unemployment rate increased from 24.6% in 2012 to 23.3% in 2017
(Eurostat, 2021). The increase in unemployment was primarily due to the reduction in
public sector employment and the implementation of labor market reforms, which
made it easier for firms to lay off workers.

Social Impact The structural adjustment programs also had a significant social impact
on Greece's population. The cuts in public sector wages and pensions led to a decrease
in disposable income, which affected the standard of living of many Greeks. The
reduction in public spending also led to a decrease in social services, such as
healthcare and education, which had a negative impact on vulnerable populations.

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Political Instability The implementation of the structural adjustment programs also led
to political instability in Greece. The austerity measures were deeply unpopular
among the population, leading to widespread protests and social unrest. The political
instability also led to changes in government, with several coalition governments
formed between 2012 and 2017.

Conclusion

The structural adjustment programs implemented in Greece between 2012 and 2017
had both positive and negative impacts on the country's economy. On the positive
side, the programs led to a reduction in the budget deficit, a decrease in the public
debt-to-GDP ratio, an increase in competitiveness, and an improvement in the
business environment. However, on the negative side, the programs led to economic
contraction, an increase in unemployment, a significant social impact, and political
instability.

The implementation of the structural adjustment programs in Greece highlights the

challenges faced by countries in crisis when implementing austerity measures. While
these measures can lead to short-term fiscal consolidation, they often have significant
social and political costs that must be carefully considered by policymakers. In the
case of Greece, it remains to be seen whether the long-term benefits of the structural
adjustment programs will outweigh the short-term costs.

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Question 5

5.1

Introduction

In May 2022, Sri Lanka defaulted on its debt repayment obligations, raising concerns
about the country's financial stability and economic future. This paper aims to discuss
the main issues that led to Sri Lanka's inability to meet its debt repayment schedule.

Background

Sri Lanka is a small island nation located in South Asia with a population of
approximately 22 million people. The country has a history of political instability and
civil unrest, which has had a significant impact on its economic development. In
recent years, Sri Lanka has been grappling with a high level of public debt, which has
threatened the country's economic stability.

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Main Issues Leading to Sri Lanka's Debt Default

High Level of Public Debt

One of the main issues that led to Sri Lanka's debt default is the country's high level
of public debt. Sri Lanka's public debt has been on the rise in recent years, reaching
approximately 101% of GDP in 2020 (IMF, 2021). The high level of public debt has
been attributed to a combination of factors, including large government infrastructure
projects, external borrowing, and the depreciation of the Sri Lankan rupee.

Weak Economic Growth

Another issue that contributed to Sri Lanka's debt default is the country's weak
economic growth. Sri Lanka's economy has been growing at a sluggish pace in recent
years, with GDP growth averaging around 3% from 2015 to 2019 (World Bank,
2021). The weak economic growth has been attributed to a combination of factors,
including political instability, a lack of foreign investment, and low productivity
levels.

COVID-19 Pandemic

The COVID-19 pandemic has also played a role in Sri Lanka's debt default. The
pandemic has had a significant impact on the country's tourism industry, which is a
major source of foreign exchange earnings. Sri Lanka's tourism industry came to a
standstill in 2020 due to travel restrictions and border closures, resulting in a
significant decline in foreign exchange earnings (ADB, 2021). The decline in foreign
exchange earnings has made it difficult for Sri Lanka to meet its debt repayment
obligations.

Political Instability

Political instability has also contributed to Sri Lanka's debt default. The country has
experienced frequent changes in government and a lack of political consensus, which
has made it difficult to implement necessary economic reforms. The political
instability has also contributed to a lack of investor confidence, which has made it
difficult for Sri Lanka to attract foreign investment.

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Lack of Fiscal Discipline

Finally, a lack of fiscal discipline has contributed to Sri Lanka's debt default. The
country has a history of mismanaging public finances, including high levels of
corruption, inefficient public spending, and a lack of transparency. The lack of fiscal
discipline has contributed to the country's high level of public debt and made it
difficult for Sri Lanka to meet its debt repayment obligations.

Conclusion

Sri Lanka's debt default is the result of a combination of factors, including a high
level of public debt, weak economic growth, the COVID-19 pandemic, political
instability, and a lack of fiscal discipline. Addressing these issues will be critical to
restoring Sri Lanka's economic stability and ensuring the country's long-term
economic growth.

5.2

Introduction

Sri Lanka's recent debt crisis has highlighted the need for the government to
implement policies that can promote economic recovery and growth. The country has
been struggling with high levels of debt and a widening fiscal deficit, which have
contributed to the recent default on its debt repayment obligations. In this paper, we
will discuss the measures that the government of Sri Lanka could take to ensure
economic recovery and growth.

Background

Sri Lanka's economy has been facing several challenges in recent years, including
high levels of public debt, a widening fiscal deficit, and a slowing economy. The
country's public debt-to-GDP ratio has increased significantly in recent years, from
71.3% in 2010 to 101.3% in 2021 (IMF, 2021). The country's fiscal deficit has also

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widened, reaching 11.1% of GDP in 2020 (Central Bank of Sri Lanka, 2021). These
factors have contributed to Sri Lanka's recent debt crisis, which saw the country
default on its debt repayment obligations in May 2022.

Measures for Economic Recovery and Growth

Fiscal Consolidation

One of the primary measures that the government of Sri Lanka could take to promote
economic recovery and growth is fiscal consolidation. The country's widening fiscal
deficit is one of the main contributors to its debt crisis, and reducing the deficit would
help to stabilize the country's debt-to-GDP ratio. This can be achieved through a
combination of measures, including increasing tax revenue, reducing government
spending, and improving the efficiency of government services.

Increasing tax revenue can be achieved by broadening the tax base, improving tax
collection, and reducing tax exemptions. Reducing government spending can be
achieved through cutting unnecessary expenditures, such as subsidies, and improving
the efficiency of government services can be achieved through measures such as
reducing bureaucracy and streamlining procedures.

Debt Restructuring

Another measure that the government of Sri Lanka could take to promote economic
recovery and growth is debt restructuring. This would involve negotiating with the
country's creditors to restructure its debt, which could involve extending the
repayment period, reducing the interest rate, or writing off a portion of the debt. Debt
restructuring would help to reduce the country's debt burden and improve its debt
sustainability.

Export Diversification

Sri Lanka's economy is heavily reliant on a few key export sectors, such as tea,
apparel, and tourism. Diversifying its export base would help to reduce the country's
vulnerability to external shocks and promote economic growth. The government of
Sri Lanka could implement policies to promote export diversification, such as

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providing incentives for firms to enter new export markets, investing in infrastructure
to support new export industries, and promoting innovation and research and
development.

Investment in Infrastructure

Investing in infrastructure is another measure that the government of Sri Lanka could
take to promote economic recovery and growth. Improving the country's
infrastructure, such as transportation, energy, and telecommunications, would help to
reduce the cost of doing business and attract investment. The government could invest
in infrastructure through public-private partnerships, foreign investment, or domestic
borrowing.

Improving Governance

Improving governance is a critical measure that the government of Sri Lanka could
take to promote economic recovery and growth. Addressing issues such as corruption,
nepotism, and lack of transparency would help to improve investor confidence and
attract foreign investment. The government could implement policies to improve
governance, such as strengthening anti-corruption measures, increasing transparency
in government transactions, and promoting accountability.

Promoting Financial Sector Reforms

The financial sector plays a critical role in the country's economic recovery and
growth. Promoting financial sector reforms would help to improve the country's
financial stability and reduce the risk of future debt crises. The government of Sri
Lanka could implement policies to promote financial sector reforms, such as
strengthening the regulation and supervision of financial institutions, improving
access to credit for small and medium-sized enterprises, and promoting financial
inclusion.

Conclusion

In conclusion, Sri Lanka's recent debt crisis has highlighted the need for the
government to implement policies that can promote economic recovery and growth.

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The country faces several challenges, including high levels of public debt, a widening
fiscal deficit, and a slowing economy. However, there are several measures that the
government could take to address these challenges and promote economic recovery
and growth, including fiscal consolidation, debt restructuring, export diversification,
investment in infrastructure, improving governance, and promoting financial sector
reforms. Implementing these measures will require strong political will and effective
policy implementation, but if successful, they could help to put the country on a path
towards sustained economic growth and development.

References

Afonso, A., & Jalles, J. T. (2019). Greece after the crisis: A tale of fiscal
consolidation and recovery. Economic Modelling, 76, 93-111.

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May 2023].

BusinessTech. (2022). South African SOE debt levels: Here’s how much Eskom,
Transnet and SAA owe. Retrieved from
https://businesstech.co.za/news/business/665746/south-african-soe-debt-levels-heres-
how-much-eskom-transnet-and-saa-owe/, [Accessed 07 May 2023].

CapeTalk. (2022). Eskom debt: What it means for South Africa’s credit rating.
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