Monday, November 22, 2010

Sri Lanka to run budget deficit of 6.8-pct of GDP in 2011

Nov 22, 2010 (LBO) - Sri Lanka is planning to run a budget deficit of 433.7 billion rupees or 6.8 percent of gross domestic product, down from a revised 446.7 billion rupees or 8.0 percent gap in 2010, a budget presented to parliament said.
In 2011 the government is planning to increase tax revenues by 151 billion rupees to 963.5 billion rupees from 828.2 billion rupees in 2010.

In 2010 the government extracted 128.7 billion more taxes from the people compared to 2009.

The government said it will raise state salaries by 5.0 percent and clear anomalies.

The estimated salary bill for 2011 will go up to 344 billion rupees from 295 billion rupees indicating that 49 billion rupees out of the extra 151 billion rupees in taxes collected from the people will go for state salaries.

The state will also recruit 10,000 graduates to an already bloated sector of 1.3 million people. But each year about 20,000 people retire.

Tax Changes
The government said it will raise taxes on raw material but cut duties on machinery and vehicles and cut taxes on the financial sector.

A debit tax charged on bank withdrawals has been removed, a financial VAT cut to 12 percent from 20 and corporate tax cut to 28 from 35 percent to allow banks to build up capital for higher lending.
The financial sector has been growing and profits have been rising. A levy on share trading has also been raised to 0.3 percent from the currency 0.2 percent.

Total current expenditure will go up to 1,017 billion rupees from 926.0 billion rupees, leaving a current account deficit of 53.4 billion rupees or 0.8 percent of GDP.

The deficit of 433.7 billion rupees (without grants) will be financed with 94.5 billion rupees in foreign financing (down from 205.5 billion in 2010).

Domestic Borrowings

Domestic borrowings will go up to 339.2 billion rupees from 241.2 billion rupees.

The government said a new pension fund will be set up cutting 2.0 percent from private sector wages and employees will have to contribute 2.0 percent, which will give more access for deficit financing.

Private sector workers forced savings scheme, the Employees Provident Fund (EPF), is the key source of financing of the deficit.

The interest bill for 2011 is estimated at 353 billion rupees, hardly changed from the 350.3 billion rupees a year earlier. Sri Lanka's interest rates fell after inflation fell with better monetary policy in 2009 and lower domestic borrowing in 2010.

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