Red Flags Ahead

World Bank says the erosion of fiscal gains made in the last two years will slow growth to below 5 percent and reduce donor funding for the budget. World Bank says the erosion of fiscal gains made in the last two years will slow growth to below 5 percent and reduce donor funding for the budget. The bank in a review of development policy also says meeting targets in the Fiscal Management Responsibility (FMR) Act will become very challenging unless the government balances the Primary Account.

The government says it is committed to reduce the budget deficit to 5 percent of GDP by 2006 and bring down public debt to 85 percent of GDP.

The Primary Account balance is the difference between the budget deficit and interest cost in a fiscal year.

A deficit in the Primary Account indicates the government is borrowing money to meet its interest payments.

Sri Lanka has always been running Primary Account deficits.

The World Bank says the country will have to balance the Primary Account if it wants to achieve targets set in the Fiscal Responsibility Management Act.

It warns that the country is unlikely to grow above the historical rat