Budget deficit 17.6% of GDP up to Sept 09
Year-end revenue inflows expected to bring it down

Available data shows the budget deficit for the first nine months of 2009 at 17.6 percent of GDP but with revenues generally coming in during the last few months of the year there is a possibility that the budget deficit could near the IMF target of 7 percent of GDP for the year.

According to Central Bank figures, the budget deficit for the first nine months of 2009 amounted to Rs. 322.7 billion. The Gross Domestic Product at constant 2002 prices for this period amounted to Rs. 1,824.6 billion according to data from the Department of Census and Statistics.

Using these data, the budget deficit as a percentage of GDP can be calculated and amounts to about 17.6 percent.

Economists told the Island Financial Review that this figure though correct would not show the real fiscal position.

"Government revenues tend to improve during the end of the year and beginning of the next year as inland revenues and the likes begin to roll in," an economist said, "so we would have to wait for the final figures to come out later this year to see what the actual fiscal performance of the government was like".

Using available data of the Central Bank and Department of Census and Statistics for the first nine months of 2006 to 2008 the budget deficit as a percentage of GDP were calculated and amounted to as follows: 10 percent of GDP in 2006, 11 percent of GDP in 2007 and 13 percent in 2008.

However, when the final fiscal positions for the entire year where announced, usually by April of each proceeding year, the budget deficits as a percentage of each year’s GDP amounted to as follows: eight percent in 2006, 7.7 percent in 2007 and again 7.7 percent of GDP in 2008.

It is highly possible, therefore, that the budget deficit of 17 percent of GDP for the first nine months of the year in 2009, the highest since 2006, could be brought down.

According to the original budget estimate for 2009, the budget deficit was 6.5 percent of GDP but was later revised to 7 percent during the year and this was the target set in the US$ 2.6 billion standby facility agreement with the IMF.

Given crucial post-war spending, the IMF has intimated that the budget deficit for 2009 could be allowed to expand up to 7.5 percent of GDP.

"The Island Financial Review’s calculations for the first nine months of the year would not give the real picture. We would have to wait for the final fiscal figures to come out. There is a strong possibility that the budget deficit could be within the IMF target or thereabouts," an economist said.

"However, 2010 would be another matter. We already had the presidential election and general elections are up next and it is going to be extremely challenging to maintain fiscal targets this year," he said.

The Central Bank, as do other analysts and economists, has repeatedly warned that the country’s fiscal position is in an unstable position calling on the government to exert itself to be more disciplined.

Earlier this year, Central Bank governor Ajith Nivard Cabraal said Sri Lanka’s economic prospects looked bright and with a low inflation and a low interest rate environment economic activity is on course to boom.

But Cabraal gave a warning.

He said that it would be a challenge to maintain fiscal discipline this year and that reckless spending by the government could put all these prospects at risk and undo Sri Lanka’s commendable economic performance despite having to face the final stages of a 30-year-old war and the global financial crisis.

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