Sri Lanka budgets 7-pct deficit for 2008

Nov 07, 2007 (LBO) – Sri Lanka says the budget deficit for 2008 would be 7.0 percent of the economy and the country was hoping to balance its revenues and day-to-day expenditure, a goal that has proved elusive for two decades. The government also promised a revenue surplus in 2007 but ended up with a narrower deficit of 0.7 percent of gross domestic product (GDP) which was much narrower than in earlier years.

In 2006 the current account deficit was 2.4 percent of gross domestic product (GDP).

For 2008 the government is forecasting a 0.9 percent revenue surplus and an ambitious capital expenditure target of 8.0 percent of GDP.

In 2007 a 7.4 percent public investment target was eventually trimmed to 6.6 percent.

The budget also claimed that there was no central bank financing and a net 10 billion rupees was paid back to the banking system.

Analysts had predicted this outcome with 500 million dollars earned from a bond sale being used to repay the central bank as well as overdrafts with two state banks just days before the budget.

There were no across-the-board salary increments announced for state workers which had become the biggest burden on the exchequer in the last three years. But a cost of living allowance would be paid to cover inflation.

On the negative side the government said it would 15,000 unemployable graduates into the public service.

In a bizarre move, the government said it would cut taxes on fuel to keep prices down for petrol users and recover the lost cash from users of other goods.

Fuel subsidies are a politically important moves which have previously caused balance of payments problems, undermined government finances and pushed up inflation by forcing money printing.

The government also trimmed tax holidays, imposed a fixed charge on apparel exports and announced new taxes on wireless fixed phone users.