Sri Lanka IMF supported budget implies tight second half

July 27, 2009 (LBO) – Sri Lanka’s IMF supported budget for 2009 implies a more credible revenue target, maintaining nominal capital expenditure at previous year’s levels in an economy that is inflating less, initial analysis shows. Sri Lanka’s runaway budgets were the underlying reason for the balance of payments crisis last year.

IMF said short term foreign money that was used to fill the budget deficit fled late last year triggering the balance of payments crisis, which was worsened by the defence of a peg.

Serious Business

“[T]he government understands the seriousness of the situation and the need for reform to avoid falling into this situation again,” Brian Aitken, who led a mission to Colombo to negotiate a 2.6 billion dollar loan to Sri Lanka said in a video statement.

“They’ve come up with a very ambitious program to reduce the budget deficit to eliminate one of the key vulnerabilities that the economy has.”

Sri Lanka’s original budget of 2009 presented to parliament expected revenues to grow by an incredible 200 billion rupees to 854.9 billion rupees from 655.4 billion a year earlier or 16.4 percent of gross domestic product (GDP).