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Sri Lanka budget: nobody said deficit is too large: Treasury Secretary
13 Oct, 2012 10:02:10
Oct 13, 2012 (LBO) - Not a single representative of the public or business community that had met Sri Lanka's President Mahinda Rajapaksa, who is also finance minister, ahead of next month's budget said the deficit was too large, an official said.
Treasury secretary P B Jayasundera said President Rajapaksa has met numerous delegations and representatives of 18 out of 25 districts so far.

"All what they are asking is some extra extension and some extra concessions. Universally, that is the observation that I can make," Jayasundera told alumni of Sri Lanka's Colombo University.

"Nobody told and told President 'Look you have a too large a deficit, you have to allow certain things for others to do and you have to make only what is necessary by the government' kind of things did not come to date."

Though a state can only spend taxes taken from the people themselves, money borrowed from locals and foreigners or printed by a central bank which creates inflation and currency depreciation.

"The budget formulation is difficult," Jayasundera said. "It is more difficult because people do not understand it.

"People think that the government has unlimited resources available and the budget is essentially to be distributed among everyone."

Critics say the ruling political elite of all hues, has successfully maintained a fiction of 'the government bearing the burden,' while steadily impoverishing the people through inflation, currency depreciation, expropriation and the expansion of the state.

Sri Lanka has run large deficit budgets after gaining self-determination from British rule, helped by a money printing central bank created in 1951 which allowed the state to inflate away its ever growing debt to citizens without default.

In 1950 Sri Lanka had a debt of 654 million rupees or 16.9 percent of gross domestic product. By 2011 it had grown to 5.1 trillion in inflated rupees and 78.5 percent of GDP.

The exchange rate had fallen from 4.76 to the US dollar and 13.33 to the Sterling and one for one with the Indian rupee in 1950 which was maintained under a currency board to 110 to the US dollar, 177 to the Sterling and 2.39 to the Indian rupee by 2011.

In 2012 however the rupee fell from 110 to 134.

In 2011, though the central government deficit was kept at 6.2 percent of GDP, the rupee fell after rulers deficit spent outside the budget with state energy enterprises taking large volumes of bank credit to manipulate energy prices, which was accommodated by the Central Bank.

Key non-financial state enterprises ran losses in excess of 1.5 percent of GDP.

Jayasudera said in 2012 foreign exchange management was corrected, monetary risk was addressed by tightening policy and "substantial fiscal risks" in power, petroleum and transport was fixed with price hikes in February 2012.

He said the country was put on a "on a serious adjustment path" to make sure that the administration's "strategic consolidation of the direction" that was achieved was not compromised.

Jayasundera said a direction has been set to bring the deficit down to about 5.0 percent of GDP, a target set in a fiscal responsibility law and which many people think is a desirable target.

Public debt has already been reduced to 80 percent of GDP from 100 percent 10 years ago.

Trend economic growth has been increased from around 4.5 to 5.0 percent a year to 6.0 to 7.0 percent. Sri Lanka's international reserves were also up, poverty and unemployment has come down.

War zones were being reconstructed and lives of people were being normalized, despite criticism. Infrastructure was being developed.

Jayasundera said the measures could be made consolidate these gains or reverse them.

"The question is should we strengthen them, should we stay at the same point or should we take a step back?," Jayasundera asked.

"These issues need to be addressed. The challenge is to continue in the direction. The direction in my view, should be continued."

Update II

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READER COMMENT(S)
1. Niro Oct 15
"All what they are asking is some extra extension and some extra concessions. Universally, that is the observation that I can make,"

Its human nature to expect things for free without working hard for it. The above statement is testament to that fact. How can a economy sustain itself when everyone wants a even a bigger piece of govt spending?

Economic illiteracy is rampant in this country. Everybody expects someone else to work hard and pay taxes so they can enjoy the 'free' benefits provided by the govt.

With this kind of mindset, how can we achieve economic prosperity?

Politicians understand this game very well. They fool the people, people fool themselves and pay a price in inflation and numerous state controls on their freedoms and liberties ...