Central Bank differs rate hike, as inflation gallops ahead

Sri Lanka’s budget deficit expands and reserves make a small recovery, as the government differs payments and opts for dollar bonds to balance the books. Sri Lanka’s budget deficit expands and reserves make a small recovery, as the government differs payments and opts for dollar bonds to balance the books. The overall budget deficit for first eight months has moved up to 5.6 percent, according to preliminary Central Bank estimates, indicating that year-end deficit may touch 8.5 percent.

A lethal cocktail of galloping world oil prices, a prolonged drought, hefty government subsidies and falling tax revenues, has taken the shine off government finances this year.

The Central Bank said Sri Lanka’s balance of payments deteriorated to a record US$ 250 mn deficit in the seven months to July compared with a surplus of US$ 502 mn last year.

The downturn is partly due to less-than-expected disbursement of foreign aid and a delay in selling off a third of downstream assets to a foreign player.

On the external front, exports grew by 8.4 percent (in US dollar terms) while imports grew by 19 percent from Jan-July, which helped widen the trade defi