Given the current debt dynamics, fiscal slippage can lead to a serious economic crisis: CB

Apr 26, 2018 (LBO) – Given the current debt dynamics, fiscal slippage can lead to a serious economic crisis, the Central Bank said releasing its Annual Report 2017.

Central Bank in its report said amidst the measures taken towards revenue based fiscal consolidation, fiscal sector performance in 2017 deviated from the envisaged targets.

“Avoiding deviations from fiscal targets and achieving fiscal discipline are imperative to make the fiscal consolidation programme a success,” the Central Bank said.

“Maintaining fiscal discipline by adhering to fiscal rules is important to achieve overall macroeconomic stability.

Central Bank further said revenue shortfall, expenditure overruns, high budget deficits and increase in government debt will lead to a fall in expenditure on public investment while making fiscal consolidation a difficult task.

“Though the government has taken several rigorous measures towards increasing revenue mobilisation, the continuation of such efforts is imperative to achieve revenue targets,”

Central Bank highlighted rationalisation of ineffective public expenditure, restructuring of SOBEs to operate them as commercially viable entities, improving fiscal transparency and accountability in public financial management essential to achieve targets.

Proper targeting of subsidies would improve the quality of public expenditure by aligning its composition with national priorities within the medium term budgetary framework.

“Fiscal consolidation is invariably politically challenging, particularly in a country which has been characterised by populist policies and an entitlement culture,” the Central Bank said.

“Hence, developing a political consensus and raising public awareness are paramount in achieving targets stipulated in the fiscal consolidation path.”

Full report here.