Sri Lanka must cut budget deficit, inflation: ADB

Apr 20, 2010 (LBO) – Post-war Sri Lanka’s main priorities in accelerating economic growth would be to rein in ballooning budget deficits and inflation, the Asian Development Bank said. The government is expected to introduce reforms to broaden the tax base and reduce tax exemptions in the 2011 budget in order to increase revenue, said Rao

“If you reduce taxes it is possible in the short-run revenue will fall,” he said. “But then it will start rising again as the economy improves. Tax reforms and fiscal consolidation will be big issues in bringing the fiscal deficit down.”

Sri Lanka’s rulers and state workers are exempted from income tax on their salaries.

Growth Prospects

Rao said Sri Lanka did “fairly well” last year to achieve a growth rate of 3.5 percent, which although down from six percent the previous year was commendable given global recession and a devastating war that however ended in May 2009.

But he said the growing fiscal deficit was a “worrying” sign that would need to be addressed by policymakers.

Sri Lankan authorities have said the deficit is 9.8 percent based on a different accounting treatment from this year, though it is over 10