Sri Lanka budget slightly behind target in August

Sri Lankan President Maithripala Sirisena (L) and Sri Lankan Prime Minister Ranil Wickremasinghe gesture as Sri Lankan Finance Minister Ravi Karunanayake (unseen) presents a supplementary budget to parliament, marking the first economic policy statement of the new government which came to power earlier in the month in Colombo on January 29, 2015. Sri Lanka's new government announced hefty taxes on top companies in a bid to raise revenue, accusing the previous regime of fudging the figures and leaving the economy in a "sad state". AFP PHOTO / Ishara S. KODIKARA (Photo credit should read Ishara S.KODIKARA/AFP/Getty Images)

Nov 01, 2010 (LBO) – Sri Lanka’s budget performance for the first eight months of the year is broadly on track though a gap between revenues and current spending has overshot the the full year target, official data show. The revenue deficit in the budget which involves cash items such as salaries puts pressure on domestic credit markets, which makes the central bank to monetize debt (print money) and de-stabilize the economy with high inflation.

Analysts have pointed to higher levels of monetization up to August 2010. Since then the government has floated a billion US dollar soveriegn bond to repay central bank credit, but markets remain highly liquid amid a pick up in credit growth and inflation.

Capital spending for the first eight months was up 15.1 percent to 158.3 billion rupees, putting the overall budget deficit (before counting grants) to 5.8 percent of GDP, which is better than the 7.54 percent gap last year. The budget gap after grants is 5.72 percent of GDP.

Roughly annualised it puts the overall year-end deficit at 8.58 percent of GDP, higher than the planned 8.0 percent of GDP gap for 2010.

In 2009, an increase in profit transfers was also balanced by faster disbursement of loans in Chin