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Monday, September 24, 2012

UPDATE 1-Sri Lanka will cut spending to meet deficit target - top official

* Growth may fall to 6.5 percent - treasury secretary

* Sees inflation dropping below 9 percent after September

* September inflation data due on Friday

By Frank Jack Daniel

COLOMBO, Sept 24 (Reuters) - Sri Lanka will cut spending from the 2012 budget to keep the fiscal deficit to a targeted 6.2 percent, the treasury secretary said on Monday, adding that growth may fall as low as 6.5 percent this year because of a drought and the global slowdown.

By April this year, Sri Lanka's budget deficit was 285.8 billion rupees ($2.14 billion), almost 61 percent of the full-year goal of 468.9 billion rupees, raising concerns it may miss the target.

Treasury Secretary P.B. Jayasundera told Reuters in an interview non-essential expenditure would be rolled over to the next fiscal year with cuts possible in some farm programs.

"In agriculture, some of the programmes we projected for more normal weather conditions will not be implemented because of the conditions. It's that sort of adjustment that we will make," Jayasundera said. "There will be certain cuts."

"Other than the most important committed expenditure everything else will spill to the next year on a rollover basis."

Rising costs for imported fuel and higher interest rates put pressure on finances at the start of the year, but lower outgoings and back-loaded revenue will help keep the budget on track, Jayasundera said.

"The 6.2 percent deficit will be maintained."

Given the impact of the drought, and global economic uncertainty, Jayasundera lowered his forecast for Sri Lanka's growth to a range of 6.5 to 7 percent, and tended to the lower figure.

"I think it could be about 6.5 because 6.5 to 7 is very good growth considering all our major economies are slowing down."

The central bank has forecast 7.2 percent economic growth this year, after revising it down in March from an original 8 percent. Growth last year was a record 8.3 percent. Earlier this month, Jayasundera forecast a 6.7-7.2 percent range.

On Monday, he said inflation was likely to fall below 9 percent in coming months because of a slowdown in demand and credit growth.

"My gut feeling is inflation will slowly decline to about 9 percent and just below nine after September," he said.

Sri Lanka's inflation jumped to a 42-month high of 9.8 percent in July because of the drought and a weakening rupee, and was only slightly lower in August. September inflation figures are due on Friday. (Editing by Robert Birsel)

source -in.reuters.com