By Nishel Fernando
A minimum of 5 percent economic growth during 2019-2020 is a must for Sri Lanka to curtail the fiscal deficit to envisaged 3.5 percent of GDP by 2020, a senior Finance Ministry official said, recently.
“Unless the economy is able to grow at least by 5 percent year-on-year during the period of 2019-2022, it’s likely that the realisation of the envisaged budget deficit will be delayed,” Finance and Mass Media Ministry External Resources Department Director Visakha Amarasekera said.
She was addressing the Annual Conference of Chartered Public Finance Accountancy and Association of Public Finance Accountants of Sri Lanka, held at the CA Sri Lanka auditorium, last week.
Amarasekera stressed that Sri Lanka needs to adopt significant reforms to see itself out of the low-growth, high-debt regime it
has got into.
Since 2015, Sri Lanka’s GDP has been growing below 5 percent. Most recently, the World Bank tipped Sri Lanka’s economy to grow 3.5 percent this year.
Amarasekera elaborated that the government needs to reform the public sector to meet the expectations of the millennials and support the growing ageing population.
She said the fiscal sector stability cannot be achieved only through revenue enhancing-driven policies and emphasized that the expenditure rationalisation measures need to be looked at also.
She recommended the government to focus on imposing expenditure restraining policies in the recurrent expenditure side.
“It appears that big ticket items such as the expenditure on salaries and wages and social safety nets could be areas that could introduce expenditure restraining polices.
Public sector salaries and wages in particular are the easiest to increase, almost irreversible and will impact the budget deficit immediately in any particular year once committed, unlike capital expenditure although committed will be incurred often times over more a period of time,” she said.
Amarasekera warned that any increase in the salary and wage bill would be a serious threat to reducing the fiscal deficit and the debt to GDP ratio.She said it would also adversely impact the growth by taking away the moneys that would otherwise go for public investment.She noted that access to low-cost financing with long-term tenures in the future would depend on how Sri Lanka achieve its fiscal targets and manage its budgets.
“Strong efforts would be necessary to maintain fiscal targets to ensure medium-term fiscal and debt sustainability while supporting the growth process,”