Sri Lanka’s budget deficit, debt targets challenging: Moody’s

ECONOMYNEXT – Achieving the Sri Lankan government’s deficit and debt targets set out in last week’s budget for 2019 will be challenging without a big increase in fiscal policy effectiveness and faster economic growth, Moody’s Investors Service said.

The budget presented on 5 March, highlights the government’s “credit-positive commitment” to revenue-led fiscal consolidation and debt reduction, the rating agency said in a statement.

After a fiscal deficit of 5.3 percent of Gross Domestic Product in 2018, the government aims to reduce it to 4.4 percent of GDP in 2019 and to 3.5 percent in 2020, in line with its International Monetary Fund programme targets.

“However, achieving its deficit and debt targets will be challenging without a significant increase in fiscal policy effectiveness and faster GDP growth,” Moody’s said.

“Sri Lanka’s ambitious fiscal consolidation targets – when the country has not had a fiscal deficit below 5.0 percent since at least 1990 – will rely on effective tax collection and administration and increases in some taxes.”

The government has lifted revenue to 14 percent of GDP in 2018 from as low as 11.6 percent in 2014 by raising the value-added tax rate in October 2016 and implementing the Inland Revenue Act (IRA) in April 2018.

Moody’s said the budget anticipates that this trend will continue, projecting revenue increasing to 15.8 percent of GDP in 2019 and 16.8 percent in 2020, which equates to annual growth of about 22 percent in 2019 and 16 percent in 2020.

These projected revenue growth rates exceed what the government has achieved, on average, in recent years, Moody’s said.
(COLOMBO, March 11, 2019-SB)

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