SL’S 2016 fiscal deficit goal challenging despite 1H success: economists

Sri Lanka fiscal deficit goal for 2016 would still be challenging despite a better-than-expected performance in the first half by the coalition government due to possible populist policies ahead of local elections next year, economists said yesterday.

The island-nation’s fiscal deficit was Rs.328.3 billion in January-june, almost half of this year’s target of Rs.659 billion or 5.4 percent of the gross domestic product (GDP), the latest Finance Ministry data showed.

The half-year achievement comes despite President Maithripala Sirisena’s coalition government facing a delay in implementing Value Added Tax (VAT) hikes after two court rulings forced it to temporarily suspend the move.

“Based on these numbers, the firsthalf fiscal progress is far ahead of market expectations. This should boost sentiment with regard to fiscal performance and stability of the economy,” Danushka Samarasinghe, an economist and research head at Softlogic Stockbrokers, told Reuters.

“However, concerns remain whether government expenditure in the second half of 2016 and the first half of 2017 could be kept below the target, given local government elections around the corner.”

Shiran Fernando, an analyst at Colombo-based Frontier Research, said curbing the budget deficit from last year’s 7.4 percent of GDP to 5.4 percent is ambitious.

Sri Lanka is likely to schedule elections for local government bodies in the first half of next year after delaying them for more than a year due to some changes in the electoral system.