Monday, February 15, 2010

Sri Lanka budget deficit hit 8.5-pct of GDP for 10-months

Sri Lanka's budget deficit has hit an estimated 8.5 percent of gross domestic product (GDP) in the first ten months of the year, despite a recovery in revenues as expenses grew at a faster pace, the latest data showed.

Revenues from January to October grew 8.1 percent to 506.1 billion rupees, while expenditure rocketed at a much faster 27.1 percent driving the overall deficit to 416.3 billion rupees.

The deficit is about 8.5 percent of the 4,900 billion rupee GDP estimated at the time a deal with the International Monetary Fund was signed in July.

The overall deficit was expected to be 346 billion rupees for 2009, or about 7.0 percent of gross domestic product under the IMF deal. But the overall deficit had hit 416.4 billion rupees by October, exceeding the full year target.

The deficit in the current account of the budget, or the gap between revenue and recurrent expenditure overtook the full year target much earlier. It has now hit a record of 173.6 billion rupees or 3.5 percent of GDP.

Up to September 2009, total revenues lagged behind that of the previous year, as the economy slowed and import taxes in particular slumped amid a collapse in international trade.

Based on trends so far the budget is on track for an 11.3 percent of GDP deficit, though higher nominal growth in the economy and a faster pick up in revenues can moderated teh number.

The November numbers came after a long delay.

An International Monetary Fund mission due this month however will look at December numbers. Under the IMF deal, Sri Lanka has to provide preliminary data for assessment six weeks after a test date.

The IMF deal sought to cut the deficit so that the private sector would not be crowded out by government domestic borrowing and the economy would not be de-stabilized by money printing.

Up to October the government was able to borrow domestically without disrupting the domestic economy too much amid 'flight to treasuries' behaviour among banks, but in the past few week, the central bank has started to monetize debt.

In the first four months of the year, the government is running a temporary budget, broadly extrapolating the 2009 budget, with parliamentary polls due on April 08.

© Lanka Business Online

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