Ravi Karunanayake has won the Finance Minister of the Year award for Asia-Pacific for his efforts to steer Sri Lanka into a new era of economic reform and a change of mindset. Crucially, Mr Karunanayake secured a $1.5bn International Monetary Fund (IMF) loan programme that the country needed to avoid a balance of payments crisis, replenish reserves and rebuild confidence among international investors.

“We were not desperate to go to the IMF. But [to others], securing an IMF loan [is a mark of] financial discipline, so our prime objective was achieved. We wanted to show that it is best to have abundance of prudence,” says Mr Karunanayake.

Sri Lanka’s latest bond issues in the international capital markets suggest Mr Karunanayake has indeed reached his objective. In 2015, the sovereign issued a $1.5bn dual-tranche note – its largest since 2007. A year later, it printed a second bond of the same size, with order books of $6.6bn, despite market volatility after the UK voted to leave the EU.

In line with the IMF programme, Sri Lanka is also working towards fiscal consolidation. Sri Lanka’s budget deficit has dropped from 7% when Mr Karunanayake took office in January 2015 to 5.6% in 2016 – just below expectations.
After a visit in September 2016, the IMF said Sri Lanka’s tightening of fiscal and monetary policies has been effective and that it met the IMF programme’s targets through to the end of June 2016.

Meanwhile, Sri Lanka’s total government revenue grew from SLRs1195bn ($8bn) in 2014 to SLRs1455bn in 2015. Tax revenue rose from SLRs1050bn to SLRs1356bn in the same period. This is crucial for Sri Lanka, which has a very low tax revenue-to-gross domestic product ratio.

To raise tax revenue further, parliament has passed a bill to increase value-added tax from 11% to 15%. Mr Karunanayake is also keen to continue simplifying the tax system as well as change people’s mindset towards taxes.
“We have inculcated in the minds of the people that paying taxes is not something bad, but a must for the country. Every person needs to pay a reasonable charge instead of relying on the government for everything,” he says. As a result, Sri Lanka’s tax records have grown from having 700,000 files in January 2015 to having 1.4 million today.

- The Banker