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Wednesday, January 5, 2011

Fiscal discipline improves : Last year Cabraal gave a warning, this year a commendation

For the first time in its post liberalisation economic history, Sri Lanka is enjoying benign macroeconomic fundamentals with low inflation and low interest rates and the Central Bank said the government was improving its fiscal discipline, which is good news for stability and growth. A year ago in January 2010, Central Bank Governor Ajith Nivard Cabraal warned the government against reckless spending as it would threaten the low inflation and low interest rate environment and crowd-out credit to the private sector which was crucial for growth. He made this statement because the previous year, the government’s budget deficit expanded to 9.9 percent of GDP against the original target of 7 percent.

A year since then, the Central Bank Governor said fiscal discipline was improving. Cabraal, presenting the ‘Road Map: Monetary and Financial Policies for 2011 and Beyond’ yesterday morning (4) said the fiscal consolidation took place in 2010. Revenue grew 15 percent during the first ten months of 2010, while recurrent expenditure declined to 14.25 percent of GDP from 15.8 percent the previous year and capital expenditure (on long term public investments) was maintained at 6.3 percent. The deficit for 2010 is expected to reach 8 percent of GDP.

For 2011, he said the overall budget deficit is expected to decline to 6.8 percent of GDP and reach 5 percent thereafter. Revenue is expected to increase to 15.6 percent of GDP in 2011 (from 14.6 percent in 2010).

Expenditure and net lending is expected to decline to 22.4 percent of GDP in 2011 with recurrent expenditure falling to 16.1 percent of GDP and public investments unchanged at 6.5 percent.

Government debt as a percentage of GDP fell to 84 percent in 2010, and is expected to decline further to 80 percent this year, 75 percent in 2012 and reach 60 percent of GDP by 2016. The public debt to GDP ratio increased to 86.2 percent in 2009 from 81.4 percent in 2008. It was on the decline since reaching nearly 105 percent a few years ago.

source - www.island.lk