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POSTED AT 04:58 PM 07-01-2019

Budget 2019 targets 3.5% deficit

- Aims to increase public revenue to 17% of GDP
- Capital expenditure 3.5%, recurrent expenditure 25% of GDP
- Sets out ambitious target to reduce debt-to-GDP to 70%
- Appropriation Bill to be presented to Cabinet this week, to be placed before Parliament on 5 Feb.  
- Budget 2019 to be presented on 5 March, vote on 4 April

The Finance Ministry has outlined ambitious targets for the delayed Budget 2019 with plans to increase public revenue to 17% of Gross Domestic Product (GDP) and shrink the Budget deficit to 3.5% of GDP, with the Appropriation Bill expected to be presented to Cabinet this week.

Finance Minister Mangala Samaraweera’s second Budget will have some ambitious targets, including maintaining the debt-to-GDP ratio to just 70% and limiting recurrent expenditure to 15% of GDP. Capital expenditure will also be limited to only 3.5% of GDP, the Finance Ministry said in a statement.

“Since government expenditure will be limited in 2019, the Ministries have been instructed to limit their expenditure proposals to projects with active plans,” the statement added.  

The deficit target is in line with the Government’s plans, which were announced by Prime Minister Ranil Wickremesinghe in 2017. However, the Government has failed to hit deficit targets since 2017 with the 2018 target of 4.6% likely to be about 5%, according to the Central Bank.

The deficit target for 2018 was missed largely due to weather problems, and the International Monetary Fund (IMF) had indicated that it would accept the revised target. Therefore, reducing the Budget deficit to 3.5% in an election year is likely to be challenging, according to experts.

“Government revenue was 13.3% in 2015, which rose to 14.2% in the subsequent year before dipping to 13.8% in 2017,” the Finance Ministry said in the statement. Figures for 2018 are expected to be higher after the new Inland Revenue Act came into law earlier this year, but the Government has already indicated it may loosen some of the clauses to help local producers after the IMF program concludes in June.  

Sri Lanka’s debt-to-GDP ratios are likely to be closer to 80% as the Government will have to borrow to repay about $ 2.9 billion in 2019. Ratings agencies had earlier indicated that Sri Lanka’s debt-to-GDP ratios will remain higher than its peers in the short term as high debt repayments are likely to continue till 2022. Currently, Sri Lanka’s debt-to-GDP is about 78%, according to the Central Bank.

“The Appropriation Bill will be presented to Parliament by Finance Minister Mangala Samaraweera on 5 February, and the Budget will be presented on 5 March. After the third reading, the Budget vote will be taken on 4 April,” the Finance Ministry said.