Sri Lanka Budget Deficit Shrinks to 1.9pct of GDP for First TwoMonths of 2011 as Government Fscal Discipline Improves

16th May 2011, www.island.lk

Government fiscal discipline seems to improve with latest data showing that the budget deficit contracted nearly 3 percent during the first two months of 2011 to Rs. 106.5 billion from Rs. 109 billion a year earlier, as revenue growth out paced expenditure growth. Also encouraging is the increase in long term government investments.

As a percentage of GDP, the fiscal deficit for the first two months of 2011 is estimated at 1.9 percent, a steady improvement from 2.25 percent a year earlier.

After the budget deficit ballooned to 9.9 percent of GDP in 2009, resulting in a temporary halt of the US$ 2.6 billion IMF standby facility arrangement, government fiscal discipline showed much improvement recording a deficit of 7.9 percent in 2010, a little better than the 8 percent IMF target.

Poor fiscal discipline over the years has made it difficult to maintain low inflation. The Central Bank said it was in precarious position in 2009 long before the actual deficit numbers came out and think tank the Institute of Policy Studies said fiscal indiscipline was the bane of macroeconomic stability in Sri Lanka.

According to Central Bank data released a few days ago, government revenue growth during the first two months of 2011 has outpaced expenditure growth, resulting in a slight, but significant, contraction of the deficit.

Total revenue was up 24.74 percent to Rs. 135.4 billion from Rs. 108.6 billion a year earlier. Tax revenue increased by 23.16 percent to Rs. 126 billion, non-tax revenue was up 51.78 percent to Rs. 8.5 billion. Grants increased by 14.28 percent to Rs. 800 million from Rs. 700 million a year earlier.

Total government expenditure increased by 11.16 percent to Rs. 241.9 billion from Rs. 217.6 billion a year ago. Current expenditure grew 9.15 percent to Rs. 198 billion while capital expenditure or long term investments increased 20.99 percent to Rs. 43.8 billion.

Earlier this year the IMF said the Sri Lankan government was in a position to absorb the flood related expenditure within its budget. The government was also expected to increase domestic fuel prices, which it has already done, in order to breakeven the Ceylon Petroleum Corporation and Ceylon Electricity Board (CEB). This means inflation would spike but the government would be able to sustain better fiscal control and medium to long term macroeconomic stability.

"It is a tough choice. Will the government sacrifice medium to long term stability for short term relief, or sacrifice giving the people relief today for a more stable economy tomorrow? It is a very tough choice and requires a tight-rope kind of balancing act," an analyst told The Island Financial Review.

"This is where the government has to take good governance, accountability and transparency seriously, so that people can better understand the choices they face," he said.

Meanwhile, total outstanding government debt increased by 10.56 percent Rs. 4.71 trillion as at end February 2011, from Rs. 4.26 trillion a year ago. Total domestic debt grew 7.25 percent to Rs. 2.66 trillion while foreign debts increased 15.16 percent to Rs. 2.05 trillion.

Related Info :

• Sri Lanka Budget Deficit Falls to 7.9pct of GDP in 2010 - Annual Report of the Central Bank of Sri Lanka

• Sri Lanka’s January Exports Up 72.4pct. Garment Exports to Europe Up 143.5pct without EU GSP+ and Trade Deficit Contracts 10pct

• Sri Lanka Trade Deficit Doubles During First Nine Months of 2010

Sri Lanka Budget Deficit Falls to 7.9pct of GDP in 2010 - Annual Report of the Central Bank of Sri Lanka

11th April 2011, www.lankabusinessonline.com

Sri Lanka's budget deficit fell to 7.9 percent of Gross Domestic Product in 2010 from 9.9 percent in 2009, Swarna Gunaratne, additional director of the central bank's economic research department said.

The deficit was better than the 8.0 percent of GDP that had been expected, she told a news conference held to mark the launch of the central bank's annual report.

Total government revenue rose 17 percent to 818.2 billion rupees in 2010 from the year before.

"The pickup in domestic economic activity and the strong recovery in imports increased government revenue in nominal terms above the original target set in the budget for 2010," the annual report said.

Revenue as a percentage of GDP increased to 14.6 percent in 2010 from 14.5 percent in the previous year.

Total government expenses fell to 22.9 percent of GDP in 2010 from 24.9 percent of GDP in 2009.

Total expenses rose to 1,280.2 billion rupees in 2010 from 1,201.9 billion the year before.

"Government expenditure was maintained within the original budgetary targets for 2010 with the strict monitoring of recurrent expenditure, while maintaining capital expenditure for the accelerated implementation of planned infrastructure projects," the report said.

Related Info:

• The Summary of the Annual Report of the Central Bank of Sri Lanka for the Year 2010

• Sri Lanka Performs better than BRIC Economies. Smart Money Highlights Investing in Smaller Emerging Markets

Sri Lanka Budget Deficit Contracts by 9.25pct for the First Eight Months of 2010

31st October 2010, www.island.lk

According to data released by the Central Bank last Friday, the budget deficit for the first eight months of this year as contracted by 9.25 percent to Rs. 314.6 billion from a deficit of Rs. 346.7 recorded during the corresponding period of 2009.

Total revenue, including grants, increased 17.94 percent to Rs. 502.9 billion from Rs. 426.4 billion a year ago. Tax revenue increased 18.04 percent to Rs. 441 billion from Rs. 373.6 billion a year ago while non-tax revenue increased 52.95 percent to Rs. 54.3 billion. Grants declined by 56.81 percent from Rs. 17.6 billion a year ago to Rs. 7.6 billion.

Total expenditure increased by 5.74 percent during the first eight months of this year to Rs. 817.5 billion from Rs. 773.1 billion a year ago.

Recurrent expenditure increased 3.33 percent to Rs. 635.3 billion from Rs. 614.8 billion while capital expenditure, usually on infrastructure and long term public works, increased 15.09 percent to Rs. 182.2 billion from Rs. 158.3 billion a year ago.

Our calculations show that the budget deficit as a percentage of GDP is estimated at around 5.7 percent, a welcome improvement from 7.18 percent a year ago.

Economists point out that the rise in revenue is a result of natural growth spurred by post-conflict economic activity and this has contributed towards contracting the deficit from the previous year. For this favourable fiscal performance to be sustainable, hard reforms to revenue and expenditure management would have to be introduced sooner or later.

The much awaited reforms of the tax system would only be announced later this month when the budget for 2011 is presented in parliament. Here again, we would probably hear the recommendations of the Presidential Taxation Commission the government would choose to accept.

On the expenditure side, the government is committed to rationalise its expenditure. Recurrent expenditure growth has slowed down but needs to be better controlled over the next few years if the budget deficit, which ballooned to 9.9 percent last year, is to be brought down to 5.2 percent by 2012.

Related Info:
Fiscal Setor Statistics - Central Bank of Sri Lanka

Sri Lanka Plans to Cut Deficit by Half as Economic Expansion after War Boosts Revenue

07th April 2010, www.bloomberg.com, By Anusha Ondaatjie

Sri Lanka plans to nearly halve its fiscal deficit in three years as the end of the island’s 26-year civil war spurs economic growth and boosts revenue, Treasury Secretary P.B. Jayasundera said.

The budget shortfall is targeted to narrow to 5 percent of gross domestic product by 2012, from 9.7 percent last year and 7.5 percent in 2010, Jayasundera said in an interview at his Colombo office yesterday.

“We will not compromise on public investment but revenue will be raised,” he said. “As the deficit falls, borrowing from banking sources will disappear.”

The International Monetary Fund said Feb. 25 it may consider changing a $2.6 billion loan package to Sri Lanka after government spending to rebuild areas destroyed when ethnic Tamil rebels were routed last year caused the deficit to exceed the lender’s target. The Central Bank of Sri Lanka has forecast economic growth of 6.5 percent this year, 7.5 percent in 2011 and 8 percent in 2012.

President Mahinda Rajapaksa, whose government faces parliamentary elections tomorrow, has pledged to spend $1 billion a year to build new roads, ports and power plants.

Under the IMF loan approved in July, Sri Lanka is expected to cut its deficit to 6 percent of GDP in 2010, from 7 percent last year, and to reduce it to 5 percent by 2011. Fitch Ratings said last month that Sri Lanka’s credit rating may be lowered if the island nation fails to narrow its budget deficit.

2010 Budget

The IMF has said it will decide whether to grant Sri Lanka a third loan tranche of about $330 million after completing a review of the $42 billion economy once the government presents its 2010 budget.

Sri Lanka’s foreign-exchange reserves are at a record $6 billion, after dipping to $1.27 billion before the IMF bailout package.

“The IMF targets will have to be revised,” Jayasundera said. “Now that stabilization is over, the program needs to be more of a buffer to help create growth in the medium-term.”

The government’s delayed 2010 budget is likely to be presented in June, following consultations with the newly elected government, Jayasundera said.

“It will be a policy budget, with a new tax regime and growth momentum for the private sector while rationalizing public spending,” he said. “Defense and interest expenditure has stabilized.”

Central bank Governor Nivard Cabraal left interest rates unchanged in March for a fourth straight month, holding the reverse repurchase rate at 9.75 percent, its lowest level since November 2004.

Sri Lanka, which usually presents its budget for the calendar year the preceding November, tabled spending estimates for the first four months of 2010 due to the elections.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net