Sri Lanka Brief
FeaturesGovt. plans extra spending despite deficit woes

Govt. plans extra spending despite deficit woes


 ■ Supplementary budget worth Rs. 14 b before Parliament
 ■Sluggish revenue, high imports widen budget gap; full year target under threat
 ■January-April deficit already 61% of 2012 target

The Government, already struggling to keep its budget deficit to a size agreed on with the International Monetary Fund, presented a plan for more spending this year, a Parliament document showed on Thursday.

It submitted to Parliament a supplementary budget of Rs. 14.09 billion ($ 107 million) and wants 26% of the funds allocated to the Defence Ministry and 23% for fertiliser subsidies. The supplementary budget is certain to be approved, as the Government has more than a two-third majority in Parliament.

 The additional spending is planned as Government is struggling to cut its budget deficit to 6.2% of Gross Domestic Product (GDP) by end 2012, from last year’s 6.9%. This year, revenue growth has been more sluggish than planned and spending on post-war economic development remains stubbornly high. Only last month, the Finance Ministry said slower spending was planned for the rest of 2012 to meet the target of a Rs. 468.9 billion deficit this year. That level was agreed to with the IMF as part of a $2.6 billion loan aimed at easing the country’s balance of payments pressure.

Through April, Sri Lanka’s budget deficit was Rs. 285.8 billion, almost 61% of the full-year target as rising costs for imports, slowing revenue and higher interest rates dampened the economy.
 Revenue has been below expectations after the country was compelled in February to introduce sweeping policy changes to deal with a high trade deficit. Last year, the deficit doubled to a record $ 9.7 billion.
 Deviation from the country’s IMF targets could hurt investor sentiment about the economy.
The IMF, which has fully disbursed the $2.6 billion loan, said last month it had begun talking with authorities in Colombo about arranging a new credit line called an extended fund facility.

 Since February, Sri Lanka has raised key monetary policy rates twice to more than two-year highs, allowed a flexible exchange rate that has resulted in more than 16% depreciation in the rupee, and limited credit growth.

 The IMF in June cut its projection of Sri Lanka’s growth this year to 6.75% from 7.5%. (Reuters)

The mid-July announcement following the duty revision saw a price reduction of between Rs. 10 and 35 per kilo of items such as canned fish, dry fish, fish, sprats, potatoes and Bombay onions. This was in addition to LPG prices being reduced by Rs. 150 as well.

 Given the higher exchange rate, both moves were termed as election gimmicks by the Opposition, though the Government has maintained that relief for consumers was warranted.
‘Deyata Kirula’..

This includes rural and regional priority development projects identified by the divisional development committees and district development committees, which have been allocated Rs. 11, 316 million.

Next of the list is Rs. 45, 375 million for ongoing development projects ear marked to be completed under the 2012-2014 Medium Term Budgetary Framework. In addition, special development projects to be implemented including renovation to the Ampara Higher Technical Institute and Trincomalee Codbay Fishery Harbour have been tagged at Rs. 2, 696 million.

 Housing Minister Wimal Weerawansa has been allocated Rs. 500 million for a housing project in the four districts, which includes 100 houses to be built for public servants. The money is to be sourced from the National Housing

Development Authority (Rs. 400 million) and the remainder from the Urban Settlement Authority under a Cabinet paper presented by Weerawansa.

“Public servants will be given the houses on the basis of non-recovery of the value of the land. A block of 10 acres situated near the Ampara town have been approved for this project,” Rambukwella said.

In total the funds for ‘Deyata Kirula 2013’ so far amount to Rs. 59 887 million. However, it was unclear when these projects would commence.

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