Budget 2015 commits.

Budget 2015 commits to contain deficit to 4.4%

Despite widespread speculation that the government would present an election-oriented budget ahead of the Presidential election undermining fiscal consolidation, the budget 2015 demonstrated the need to contain the fiscal deficit to 4.4 percent of GDP, from 5.2 percent expected to be achieved this year.

“The government is expected to continue its fiscal consolidation program as envisaged in the medium term macroeconomic framework,” the Central Bank (CB) stated in its ‘Recent economic developments’ released ahead of budget 2015.

Meanwhile, President Mahinda Rajapaksa during the budget speech said, the fiscal deficit would be further reduced to 3.6 percent by 2016, and to 3 percent in 2017. The government will contain its fiscal deficit while increasing its share of investments to 6.5 percent of GDP from the existing 6 percent. This will also not be at the expense of increasing government’s indebtedness as “government debt is expected to be reduced to 71 percent of GDP in 2015 from 75 per cent of GDP projected for 2014,” the CB further stated.

Meanwhile, Sri Lanka’s economy is expected to grow at 8 percent next year, picking up from 7.8 percent this year.

Country’s GDP during the 1H1 4 grew by an average 7.7 percent. However according to President Rajapaksa, the economy has grown by 8 percent Year-To-Date (YTD).

The total annual investment required to maintain 8 percent annual GDP growth rate is 33 percent.

Sri Lanka’s external sector is expected to be further enhanced with increased inflows from exports, services such as IT/BPO, port and air port related activities, tourism and remittances.

The projected current account balance is set at 2.4 percent by 2014 end, and according to the President, YTD current account balance has contained to 3 percent.

The projected current account balance for 2015 is set at 1 percent. “This, together with envisaged inflows to the financial account by way of Foreign Direct Investments (FDI) and portfolio investment flows and foreign loans to the government and the private sector, are expected to generate a BOP surplus of around US$ 2.2 billion in 2015, compared to the anticipated surplus of US$ 1.8 billion in 2014,” the CB further added. However, to sustain 8 percent GDP growth, FDIs must be increased to at least 5 percent of GDP. In 2013, it was just above 2 percent of GDP while during the first nine months in 2014 FDIs recorded a growth of 57 percent Year-On-Year (Yto US $ 1.364 billion.

Meanwhile in the monetary sector, the CB envisages broad money supply (M2b) to grow at13.5 percent, a 0.5 percent easing from 2014.

M2b rose to 12.3 percent (YoY) in August from 11.9 percent (YoY) in July, but the target for 2014 remains 14 percent.

(DK)