Sri Lanka targets 4.8-pct of GDP deficit in 2018

ECONOMYNEXT – Sri Lanka is targeting a budget deficit of 4.8 percent of gross domestic product in 2018, after overshooting an ambitious 4.6 percent target in 2017, showing a steady correction from a runway budget in 2015, but current spending remains high.

Sri Lanka is expecting to end the year with a deficit of 5.2 percent of GDP (680 billion rupees) in a revised out-turn presented in a budget for 2018 to parliament, steadily improving from 5.4 percent in 2016.

The fiscal consolidation comes after a disastrous 7.6 percent deficit in 2015, which generated a balance of payments crisis in after the central bank printed money and the currency collapsed, pushing inflation up.

Improvements in the deficit may not bring much benefits to the ordinary people as the central bank is depreciating the currency and generating high inflation by targeting a real effective exchange rate index, instead of prices, some analysts have warned.

The central bank has also overshot its ‘mid-single digits’ inflation target up to October 2017, and is giving old excuses seen in Sri Lanka in the past about supply driven or ‘cost-push’ inflation, ‘beyond its control.’

In 2017, Sri Lanka is hoping to collect 2,250 billion rupees from the people, including from value added tax on healthcare, and 705 billion rupees will be busted on salaries.

Tax to GDP is expected to rise to 16.4 percent in 2018 (2,326 billion rupees), after rising to 15.3 percent in 2016 from 14.9 percent in 2015.

However since the new administration took over, current spending rocketed to 16.2 percent of GDP with the runway 2015 budget, came down to 15.5 percent and deteriorated against to 15.8 percent in 2017, amid some drought related spending.

In 2018 the budget is hoping to contain current spending at 15.8 percent of GDP.

But in 2014, under then Treasury Secretary P B Jayasundera recurrent spending was only 13.3 percent of GDP, though with heavy state orientation and high import duties, the country was heading for trouble due to a deteriorating investment environment.

Most of the money is going for interest payments. In 2015 and 2016, Sri Lanka also issued long term bonds are high rates, instead of issuing shorter tenors through a controversial series of rigged auctions. (Colombo/Nov09/2017)