Sri Lanka amends 2016 budget amid public protest

(Reuters) – Sri Lanka’s new government has amended 2016 budget proposals, a move that could widen the fiscal deficit, after trade unions and farmers protested over long-term fiscal tightening measures.

The changes could raise concern over Sri Lanka’s efforts for fiscal consolidation as the government is expected to start negotiations next year for an IMF standby arrangement.

The final vote on the reformist budget is scheduled for Saturday. It initially aimed to boost revenue 38 percent and cut the deficit to 5.9 percent of GDP next year, from an estimated 6 percent in 2015.

Since Finance Minister Ravi Karunanayake presented the budget on Nov. 20, the government has amended several revenue proposals, including an increase in fees on vehicle emission tests and valuations and vehicle permits for public servants.

On Friday, the government extended fertiliser subsidies for plantation crops, a day after dozens of paddy farmers wearing only loincloths protested against a subsidy cut.

Karunanayake told the parliament that the revenue lost by the amendments would be only 7 billion rupees ($48.80 million), less than 1 percent of the estimated budget deficit of 740 billion rupees.

He told Reuters the revisions would not affect the revenue target.

Many analysts say the resulting fall in revenue and increase in expenditure could swell the deficit.

"Public finances remain a key credit weakness for Sri Lanka," Sagarika Chandra, Fitch Ratings’ associate director for Asia Pacific Sovereigns, told Reuters.

She said there was a risk of missing the 2016 fiscal deficit target, due to the trend of very low revenue in recent years but ambitious economic reforms to boost foreign investment and private participation could be positive for the economy, if Sri Lanka reduces external borrowing to finance growth.





Strong protests by trade unions have prompted the government to withdraw a proposal to revise public sector pensions.

The IMF last week warned Sri Lanka of an uncertain economic outlook, while a top IMF official raised questions about its ambitious revenue and capital expenditure goals.,

Kyran Curry, S&P’s director of sovereign ratings, said Sri Lanka’s sovereign rating could be lowered if its external liquidity deteriorated markedly or growth and fiscal consolidation prospects worsened significantly. (COLOMBO, Dec 18 /2015)

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