Sri Lanka may be able to avoid money printing if deficit is lower in 2008: minister

Dec 28, 2007(LBO) – Sri Lanka can manage without printing money for next year if the government keeps to the budget deficit of around 7.5 to 8 percent of the domestic product, a senior minister said. The 2008 budget was designed to maintain the deficit at 7.5 percent but if anything unpredictable takes place, expenditure might increase, says Bandula Gunawardene, the consumer affairs minister.

The minister admits the government of Sri Lanka printed money during the past year since capital and recurrent expenditure more than doubled, following the recruitment drive to hire more public officials and increasing defense spending.

Since the government restricted itself from borrowing from commercial banks, the alternative was to print money, he said.

During October 2007, the government borrowed heavily from state commercial banks as well, through overdrafts, creating more problems for monetary management.

Minister Gunewardene, a former economics teacher, is one of the few politicians who understands monetary economics and has been supportive of fiscal discipline.

Inflation in Colombo rose to 19.6 percent in November 2007 as the central bank printed 45.2 billion rupees into the mone