Cautiously optimistic of govt.’s fiscal policy, says Central Bank

Dr.Indrajit Coomaraswamy
Pic by Damith Wickramasinghe

Praises budget proposal to subject fiscal operations to parliamentary supervision on quarterly basis 
Says new standard in managing fiscal policy could help reduce excessive pressure on monetary policy 

“We are cautiously optimistic this year of the government’s targets in terms of the revenue and the budget deficit”

By Chandeepa Wettasinghe
The Governor of the Central Bank of Sri Lanka this week praised the budget proposal to subject fiscal operations to quarterly reporting at parliament, and said that he is cautiously optimistic of the government’s fiscal policy.

“I would like you to note particularly—this is something that hasn’t got much attention—that there’s a paragraph towards the end of the budget speech where the minister subjects the government to quarterly reporting to parliament on expenditure and revenue,” Dr. Indrajit Coomaraswamy said.
He was making the comments despite the Central Bank being on the receiving end of Finance Minister Ravi Karunanayake’s ire over the past month for managing the country’s monetary policy with relative autonomy, and over allegations of mismanagement and politicization.
According to the budget proposal, each quarterly report has to be presented in parliament at most a month after the end of the respective quarter, and any revenue shorfall over the quarter will be adjusted with future cuts in expenditure, in order to maintain fiscal consolidation targets.
However, Finance Minister Karunanayake during recent public engagements made at least one remark contradictory to policies set out in his budget speech, leaving the door open for more changes.

Dr. Coomaraswamy said that the new standard in managing fiscal policy could help reduce excessive pressure on monetary policy, and allow it to move towards maintaining a stable inflation rate, low interest rates and a competitive currency, which have not been seen since independence.
“We are cautiously optimistic this year of the government’s targets in terms of the revenue and the budget deficit, as well as for the next year,” he further added.

Dr. Coomaraswamy made the comments during his speech at the National Business Excellence Awards 2016 organized by the National Chamber of Commerce of Sri Lanka.
The government is expecting a budget deficit of 5.4 percent of the gross domestic product (GDP) this year, down from 7.4 percent deficit in 2015.

The budget deficit for 2017 is expected to be 4.6 percent of the GDP, which is expected to be further cut down to 3.5 percent of the GDP by 2020. The International Monetary Fund (IMF) is providing US$ 1.5 billion in balance of payments relief to Sri Lanka based on such commitments.

Colombo-based think tank, Verite Research, had late last year pointed out that Sri Lanka’s budget process was one of the worst in the world, and that regular budget reports and audited reports were required to make fiscal policy more transparent, since what is said and what is done by the government sometimes does not match up.
The think tank also noted that budget transparency had been better than usual in 2008 and 2010 when the government was attempting to woo the IMF, following which, standards had fallen back to 
usual levels.