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Budget’s fiscal discipline facilitates CB’s monetary policy: Deputy Governor

25 November 2015 03:45 am - 0     - {{hitsCtrl.values.hits}}

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The ambitious fiscal discipline observed in the 2016 Budget will allow the Central Bank to maintain an easy monetary policy, while facilitating private sector growth, a top official said.

“These are ambitious measures. The fiscal imbalance as a percentage of GDP has declined. The government has put in place strong revenue measures, and this budget has a revenue surplus than recurrent expenditure,” Central Bank Deputy Governor Dr. Nandalal Weerasinghe said.

In recent budgets, the state revenue had fallen short of recurrent expenditure, which had skyrocketed due to repayments of commercial borrowings from China.
“So this government can cover their recurrent expenditure from their own revenue. The government believes that the capital investments will generate revenue on their own,” Dr. Weerasinghe added.

Finance Minister Ravi Karunanayake confirmed, saying that foreign loans which were taken to cover the recurrent expenditure will be rerouted to capital investments.

“What we have seen in past budgets is that governments failed to meet targets. So the governments had to borrow, leading to further economic impacts, but now we have space,” Dr. Weerasinghe said.

He said that the key to maintaining the targets is to collect revenue using technology, which leads to less leakage and corruption as the current regime has promised.

According to Dr. Weerasinghe, the government not borrowing as much as it did before due to such increases in revenue would allow the country to maintain an easy monetary policy with less ill effects.

The Central Bank had nonetheless maintained an easy monetary policy in the past, with money printing, forced low interest rates and a floated rupee which was allowed to depreciate recently.

“Now the monetary policy can be handled better without overheating,” Dr. Weerasinghe said.

He also added that since the government has to borrow less from the domestic banking system, such cash can be freed up for private sector credit growth.
“If there’s a revenue surplus, the government will have to borrow less from banks. So that’s good, because it means that banks can lend more to the private sector,” he noted.

Dr. Weerasinghe said that this will also have a spin off effect, since the growth of the private sector means for tax collection for the government.

The private sector is also envisaged to be the engine of growth in Sri Lanka going forward.

Meanwhile, Dr. Weerasinghe said that since the Budget has planned out for the country’s foreign reserves to be US$ 10 billion by June 2016, US$ 1.5 billion will be raised from international capital market, while the rest will be funded through gains from exports and other activities.

He also welcomed the repealing of the Exchange Control Act, saying that the top officials of the Central Bank and the Exchange Control Department had lobbied for it. 
(CW)
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