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Thursday September 29th, 2022

Sri Lanka budget deficit may be pressured, but framework to be kept: CB Governor

ECONOMYNEXT – Sri Lanka’s budget deficit may be pressured by a slowdown in revenues and a new spending but the expenditures will be re-prioritized to keep within an overall framework, Central Bank Governor Indrajit Coomaraswamy said.

Sri Lanka’s private credit has slowed after the collapse of a soft-peg in 2018 and confidence shocks from a political crisis triggered by President Maithripala Sirisena in October 2018 compressing imports and revenues.

There are pre-announced salary increments due to come in July, which will feed into demand, Governor Coomaraswamy said.

"Clearly there will be pressure to increase expenditure, compensation payments for support to the affected sectors," he said.

"At the same time revenues, VAT, corporation income taxes and customs duty – all those are likely to be affected."

The reviewing is its budget in June to accommodate all changes as much possible within the broad framework, he said.

Sri Lanka announced an ambitious 4.4 percent deficit target for 2019, down from 5.3 percent before currency depreciation in 2018.

Sri Lanka’s national debt as a share of gross domestic product grew in 2019, despite the budget deficit falling, because the rupee-peg with the US dollar collapsed.

Sri Lanka’s growth will be lower than the earlier projected 4.0 percent, Coomaraswamy said.

Economic growth usually falls after Sri Lanka’s soft-peg collapses.

Sri Lanka’s rupee collapsed in 2018 largely from lender of last resort operations and hedging deals of Sri Lanka’s central bank, despite the budget deficit being brought down, critics have said.

Pressure on the currency worsened after political crisis in October spooked foreign investors. (Colombo/Jun03/2019)

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