Sri Lanka non-state sector to bear adjustment burden under IMF deal

Sri Dharanee Performance Arts Theatre

Sept 03, 2009 (LBO) – Workers in Sri Lanka’s private sector and their workplaces will bear the brunt of an adjustment to stabilize the economy under an International Monetary Fund backed program, economists have said. Under an IMF stand-by loan, Sri Lanka is planning a 7.0 budget deficit and 5.0 percent deficit over two years. Officials are expecting to increase tax collections by 2.0 percent of gross domestic product over the next two years.

A slowing economy has already reduced tax revenues in nominal terms. To restore economic equilibrium, the private sector has to provide the means for the government to keep spending.

Crowded Out

“The government will not give way, if you want to reduce demand someone must give way,” economist G Uswatte-Arachchi said at a forum organized by Pathfinder, a think tank.

“You must reduce your total expenditure and the private sector will have no choice but to cut down its expenditure.”

Uswatte-Arachchi says there wasn’t a significant depreciation of the exchange rate to promote exports. Exporters have been hit by an overvalued rupee and rising inflation in recent years due to money printed to finance budget deficits.

According to the Central Bank’s