Sri Lanka budget deficit 4.0-pct of GDP in first half

Sep 10, 2012 (LBO) – Sri Lanka has run a deficit of 4.0 percent of gross domestic product in the first half of the year, though there are signs that more taxes are being extracted out of citizens to cover state spending, official data shows. The revenue deficit or the gap between money spent by the state on current expenses and total taxes paid by citizens had narrowed to 75.3 billion rupees by June from a peak of 139.8 billion rupees up to April 2012.

Fiscal Pressure

Runway state expenses from the second half of 2011 – mostly off-budget debt taken to fund state enterprise losses – as well as central bank money printing to keep interest rates down, forced Sri Lanka’s rupee to weaken and inflation to go up in 2012.

The rupee fell from 110 to 132 rupees and inflation has hit almost 10 percent, ending more than three years of economic stability, which helped improve people’s living standards.

In April, large volumes of money was printed to meet salaries of state workers, despite the rupee peg being under pressure, weakening the currency further and pushing inflation higher.

But from May Sri Lanka’s fiscal picture has started to improve.

Analysts say recent economic instability shows once again that annual