Five lakh individuals in Sri Lanka are estimated to have dropped below the poverty line since the outbreak, which the World Bank termed as “a major setback comparable to five years’ worth of development.”
According to the Census and Statistics Department said year-on-year inflation in December was the highest since the National Consumer Price Index (NCPI) was established in 2015. It said food inflation also hit a record 21.5 percent, up from 16.9 percent in November and 7.5 percent a year ago.
In order to feed people who are most in need, shops have already been reducing staples like milk powder, sugar, lentils, and other items for months. A government executive issued warnings about more limitations last month. Due to COVID-19’s devastating effects on the tourism industry, which have left countless numbers of people jobless, unemployment is also extremely high in the nation.
Sri Lanka has started talks with the International Monetary Fund (IMF) to salvage the economy and lessen the suffering of the people.around June IMF representatives visited Sri Lanka’s capital city of Colombo and had meetings with government representatives about economic reforms and policies that may be supported by an IMF Extended Fund Facility arrangement. In addition to current discussions with the IMF, Sri Lanka is in discussions to create an assistance partnership with China, Japan, and India. Up to this point, India has given Sri Lanka aid of almost $3 billion, along with a $400 million exchange and $1.5 billion in outstanding loans.
Loans, such as mortgages, vehicle loans, personal loans, and credit card debt, are the most common types of debt. The borrower is obligated to repay the loan balance by a particular date, usually several years in the future, according to the terms of the loan. The amount of interest that the borrower must pay annually, stated as a percentage of the loan amount, is also specified in the loan terms. Interest is used to reward the lender for taking on the risk of the loan, as well as to encourage the borrower to repay the loan fast in order to reduce their total interest expense.
Credit card debt works similarly to a loan, with the exception that the borrowed amount fluctuates over time based on the borrower’s needs—up to a predetermined limit—and has a rolling, or open-ended, repayment date. Consolidating loans, such as student loans and personal loans, is an option.
Types of Debt
1. Secured Debt Putting yourself in the position of a lender might help you understand secured debt. When someone asks for a loan, the lender must examine whether the debt will be repaid. Creditors can limit their risk by using secured debt. Because secured debt is backed by an asset (also known as collateral), this is the case. To put it another way, the collateral acts as a “security” for the loan.
Cash or property can be used as collateral. It can also be taken if borrowers do not make timely payments. Failure to repay a secured debt might result in additional consequences. Missed payments, for example, could be reported to credit bureaus. In addition, an unpaid debt may be referred to collections.
For example, a secured credit card needs a cash deposit before it may be used to make transactions. Consider it similar to the security deposit you’d put down when renting an apartment. Secured debt includes mortgages and auto loans. With these, the collateral is usually the purchased property, such as a house or a car. However, there is a silver lining to collateral: For the borrower, a lower risk to the lender could mean more attractive lending conditions and rates. Furthermore, some lenders may be less stringent when it comes to credit score requirements.
2. Unsecured Debt When a debt is unsecured, there is no need for collateral. Consider student debts, credit cards, and personal loans. If you don’t have any collateral, your credit will usually play a significant role in determining whether you qualify for unsecured debt—though there are some exceptions, such as school loans.
Credit reports are used by lenders to assess your credit. That is true for the majority of debts. However, loan criteria may vary. Creditors typically consider factors such as your payment history and outstanding debt. Credit scores—another instrument that lenders may employ—are calculated using similar principles.
In general, the higher your credit score, the more possibilities you have. A higher credit score, for example, could help you qualify for bigger credit limits or cheaper interest rates on an unsecured credit card. Some credit cards may provide benefits such as cash back, miles, or points. Remember that a higher credit score does not guarantee that you will be approved for unsecured credit cards or other loans. And just because a loan is “unsecured” doesn’t imply it’s okay to skip payments. If you go behind on your payments, it may harm your credit and lead to collections or a lawsuit.
3. Revolving Debt You may already be familiar with revolving debt if you have a secured or unsecured credit card. A revolving credit account is open-ended, which means you can charge and pay off your debt as many times as you like as long as the account is in good standing. Revolving credit includes personal lines of credit and home equity lines of credit.
If you qualify for a revolving credit line, your lender will set a credit limit for you, which is the most you can charge on the account. The amount of credit you have available changes month to month based on how much you utilise it. The minimum payment amounts may also alter month to month. Any unpaid debt will be carried over to the following payment cycle, along with interest. What’s the greatest way to avoid paying interest? Each time you receive a bill, pay it in full.
4. Installment Debt In some respects, instalment debt varies from revolving debt. This sort of loan is closed-ended, unlike revolving credit. That is, it is paid back over a set length of time. And, as the name implies, payments are usually made monthly in equal increments. Payments may be needed more regularly depending on the loan agreement.
Installment loans are available. Car loans and mortgages are examples of this. Unsecured instalment loans are also available. Student loans are an example of this. Another sort of instalment loan is a buy-now-pay-later loan, sometimes known as a BNPL. When you pay off a loan in instalments, you’re repaying both the principal and the interest. As the debt is paid down, the amount of each payment that goes toward interest usually decreases. Amortization is the term for this procedure.
Is the central government again going to demand funds from RBI? Corona crisis has a profound impact on revenue collection.
Amidst the ongoing Corona crisis in the country, the news is coming that the Central Government can once again demand funds (money) from the Reserve Bank of India (RBI) for its urgent expenses. In fact, the government can also do so because the Corona epidemic has had a profound impact on revenue collection and is facing difficulties in meeting its regular expenses. In such a situation, it can ask the RBI directly to buy government bonds or ask for financial help in the form of a dividend.
According to the news published in the Economic Times, the coronavirus epidemic has had a major impact on the revenue of the government. The government’s budget has increased to 7 per cent of GDP. According to one estimate, this is the highest in two decades. Quoting Sabyasachi Kar, a New Delhi-based professor of public finance and policy (RBI chair), the newspaper has written that taking measures to reduce losses would be the right step. If the government spends, only then demand will arise in the economy. Sabyasachi Kar said that central banks from America to Japan are helping their governments in combating the corona epidemic. This is also seen in emerging markets. This week, the central bank in Indonesia has agreed to buy billions of dollars of bonds directly from the government. However, countries with emerging economies have their own risks. This can affect inflation, currency and central bank autonomy.
In India, RBI cannot buy bonds directly from the government in primary markets. There is a provision in the Fiscal Responsibility and Budget Management Act, but this law is allowed to do so under special conditions. This can be done in an atmosphere of national emergency or too much economic lethargy. Although the RBI has made some purchases of bonds in the secondary market so far, it has not said yet how it will implement the plan to raise Rs 12 lakh crore of borrowings for the government in this financial year.
RBI works for the central government to raise debt from the market. Right now banks are investing in government bonds with the hope that the central bank will buy these bonds later. Right now, banks have a lot of cash and on the other hand, loan demand is limited. Because of this situation, they have invested their money in government bonds. Investors of banks in government bonds reached Rs 41.4 lakh crore on June 19. This is 13 per cent additional, compared to the end of March.
It is worth noting that due to the autonomy of the Reserve Bank and the demand of Rs 3.6 lakh crore from RBI’s Reserve Fund by the Government, there was a fierce battle in the month of October-November of 2018. As a result, on 10 December 2018, the then RBI Governor Urjit Patel had to resign his post. After his resignation, the government appointed Shaktikanta Das as the Governor of the Reserve Bank.
Actually, the pull of 2018 was not just between the government and the RBI. It was the same at the level of fiscal policy and monetary policy in the economy. Fiscal policy and monetary policy have different effects on the economy. The Reserve Bank was established under the Reserve Bank of India Act. The central bank runs its monetary system through this act. Under Section 7 of the same Act, the government issues an order to the RBI if it considers it necessary to discuss any important issue.
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