Treasury Cuts OD by 20bn, SRi Lanka to Have Its Fastest Growth in 2010

14th November 2009, www.dailymirror.lk

Taking advantage of a more stable macroeconomic environment, the Government has decided to reduce the Treasury overdraft by Rs. 20 billion. This effectively brings the Treasury overdraft from Rs. 60 billion to Rs. 40 billion.

Deputy Finance Minister Ranjith Siyambalapitiya told Daily Mirror FT that the decision was taken given the positive economic climate and the positive outlook for 2010.

“The Treasury overdraft was reduced for two main reasons. One is the positive post-war climate, due to which we have seen a significant drop in defence expenditure; the other is the easing of the global recession,” he explained, adding that the Government would maintain the current level for the next few months.

Recalling that the Treasury overdraft increased markedly during the last months of 2008 to peak at Rs. 80 billion during the first three months of 2009, he noted that the Government’s expenditure reduction after the war coupled with increased economic performance had resulted in it being able to reduce the overdraft to Rs. 60 billion after May.

It was further decreased to Rs. 40 million given the positive foreign reserves and stable currency. He also maintained that the dependency on State banks to fund the overdraft would be extensively reduced with this measure freeing money for investment.

“When you compare the Government income for the first three months of this year it was 12% lower year-on-year. However, during the period from March to September, Government income grew by 12% year-on-year, so we have been able to stabilise our expenditure and focus on alternative avenues to reduce public expenditure,” he stated.

The Minister expressed a positive prognosis for 2010, terming it as “the year when our income will grow at its fastest” and insisted that promises of salary hikes among other Government expenditure would not spiral into another increase in the overdraft. A growth on exports and higher remissions are also expected to boost the economy, according to Siyambalapitiya.

Defence expenditure was also earmarked to be reduced, by the Minister. This would in turn be funnelled into capital and recurrent expenditure, particularly the payment of salary hikes promised at the beginning of the New Year.

However, the Vote on Account (VoA) allocated the largest expenditure for defence, with a whopping Rs. 71.4 billion for the first four months of 2010. In the previous Budget, the defence allocation was Rs. 166.5 billion.