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Sri Lanka’s budget likely to target exports
November 09, 2017
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COLOMBO: Sri Lanka’s coalition government will seek to stoke exports and employment through support for the small business sector in its 2018 budget, a move that is likely keep the island nation’s fragile public finances under pressure.

Analysts say Finance Minister Mangala Samaraweera will struggle to strike the balance between populist policies and fiscal consolidation as President Maithripala Sirisena’s coalition government prepares for local elections expected next year.

Samaraweera, in his fist budget since taking the finance portfolio early this year, is expected to bring down the budget deficit to 4.3 per cent of gross domestic product (GDP) from this year’s 4.6 per cent target, a condition of a $1.5 billion loan from the International Monetary Fund. He delivers the budget on Thursday.

Since coming to power in 2015, the government has boosted revenue, rationalised spending and cut the fiscal deficit, in line with the IMF targets. But the tightening of fiscal and monetary policies has weighed on economic growth, which has also been hit by bad weather this year.

“In our first two years of government, we focused on stabilising the economy following a period of macroeconomic imbalance,” Samaraweera told a forum last week.

“Now we are poised for growth ñ growth that is led by exports, facilitated by technology, and driven by small and medium enterprises, entrepreneurs, and startups.”

The central bank expects economic growth of between 4 per cent and 4.5 per cent this year, after the $81 billion economy grew at 4.4 per cent last year. Prime Minister Ranil Wickremesinghe is targeting a fiscal deficit of 3.5 per cent of GDP by 2020, which compares with last year’s 5.4 per cent.

The government has already passed some tough tax reforms, most of which take effect in April next year.

It faced a debt and balance-of-payments crisis early last year before the IMF came to the rescue with the loan.

“If it is going to come up with populist policy measures, then the whole process of increasing the tax revenue is gone and we will be back to square one,” Sirimal Abeyratne, a professor in economics at University of Colombo told Reuters. “The budget policies should target incentives structures to get investments and improve business confidence. We need more investment for export growth.”

External debt was about $47 billion, or 57 per cent of GDP as of 2016, of which approximately 68 per cent was public sector debt, Moody’s said.

Reuters

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