Sri Lanka’s budget deficit overshot to 7.2 percent of gross domestic product (GDP) in 2015, against a revised target of 6.0 percent, swelled by unexpected payments for contractors, Finance Minister Ravi Karunanayake said.
The minister had revised the 2015 target to 6 percent of GDP on Nov. 20 from the original 4.4 percent, due to unexpected spending and a revenue fall.
But yesterday, Karunanayake told Reuters “Last year’s budget deficit was 7.2 percent.”
The new figure puts the deficit much higher than the 5.5-6.0 percent the International Monetary Fund had estimated it would be.
The accountant-turned-politician said the government had to spend heavily on contractual payments for infrastructure projects started by the previous government led by Mahinda Rajapaksa, who was defeated in polls in January 2015.
Also, the new government implemented some populist policies. “We ensured that all that was to be paid was put in the last year’s budget,” the minister said. “Why should we put it in this year?” For 2016, Sri Lanka aims for a budget deficit of 5.9 percent of GDP.
The IMF has warned Sri Lanka not to have loose monetary and fiscal policies, and urged structural reforms to safeguard economic stability.
Amid heavy borrowing to cover the budget deficit, Sri Lanka’s rupee has hovered around record lows since the Central Bank floated it on Sept. 4. It has fallen around 6.6 percent since then.
Karunanayake said the floating rupee has not helped boost exports.
“To be very frank, an approach will be looked at. We will control (the rupee),” the Finance Minister said when asked the steps government is contemplating to ease pressure on the rupee.
A decline in foreign reserves may limit the government’s attempt to defend the rupee, analysts say. Sri Lanka has already decided to seek an IMF loan to support its balance-of-payments.
Sri Lanka last year borrowed US $1.5 billion from an Indian currency swap, US $2.15 billion through two 10-year sovereign bonds and more than US $1.7 billion from development bonds to repay foreign loans while defending the currency.
Karunanayake admitted that the balance of payments will face pressure if there is a reduction in worker remittances, which totalled more than $7 billion in 2014. He said the government is looking to get US $ 3 billion-US $4 billion in deposits from foreigners to help “overcome” balance of payments problems.
Sri Lanka’s domestic banks have already received around US $1.5 billion through such deposits, he said. (Reuters)