The Treasury says it will try to maintain fiscal discipline and try to keep interest rates low as much as possible. The Treasury says it will try to maintain fiscal discipline and try to keep interest rates low as much as possible. The Treasury is also hoping to keep to an eight percent budget deficit this year and a seven percent deficit next year.
This is broadly in line with the path mapped out by the Fiscal Responsibility Act.
Inflation started to trend up long before fuel prices were raised.
For two years inflation fell, as exchange rates stabilized and the budget deficit reduced.
But it all ended in April, when inflation started to climb again.
Before the price increase, the fuel subsidy was costing the Treasury about Rs. 1.5 billion a month.
Even after the price increase, diesel continues to be subsidized.
But with a cap of Rs. 8 billion on subsidies, the prices are likely to be adjusted once more.
“Up to Rs. 8 billion we are accommodating within the budget. Eight percent deficit is a recognition of a fairly large subsidy on petroleum,” said Dr P. B. Jayasundera, Treasury Secretary.