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* Sri Lanka budget deficit suffered a setback in 2009, but economy is recovering Finance Ministry report
Wed, Mar 3, 2010, 01:07 am SL Time, ColomboPage News Desk, Sri Lanka.

Mar 03, Colombo: Sri Lanka's budget deficit suffered a setback in 2009 due to the decline in projected revenues and increase in total expenditures, a report released by the Finance Ministry said.

In the Pre-Election Budgetary Position Report presented by the Secretary, Ministry of Finance and Planning, Dr. P.B. Jayasundara on Monday says that the budget deficit of nearly 470 billion rupees turned out to be 9.7 percent of GDP in 2009, below the target of 7.0 percent.

The underperformance has been attributed to the decline in projected revenue by Rs. 23.6 billion or 0.5 percent of GDP, rise in interest payments by Rs.38.5 billion or 0.8 percent of GDP and increase in public investments by Rs. 48 billion or 1.0 percent of GDP over the projected level for 2009. At the same time the total expenditure increased by nearly Ra. 106 billion or 22 percent.

The overall debt to GDP ratio which continued to decline from over 100 percent prior to 2005 to below 82 percent by 2008, increased to 86.3 percent in 2009 owing to more than planned borrowings during the year and less than projected nominal growth in GDP, the report pointed out.

The report noted that the goal set for the budget deficit by the International Monetary Fund to disburse the third tranche of the US D 2.6 billion Stand-by Arraignment had not been met.

However, on a positive note, the IMF review team visited Sri Lanka last month has noted further positive developments of the country's economy with a continued recovery of the economic activity.

The team also noticed the improved balance of payments position with improvement in inflows of remittances, improved prospects from tourism and gross foreign reserves that are remaining at a comfortable level.

While, the short-term economic stabilization aspect of the program has been achieved, the Government continues to remain engaged with the IMF to address medium term economic recovery programme in the context of post war economic prospects and global economic recovery, the Finance Secretary said in his report.

Accordingly the release of the third tranche will be delayed till the review is completed as at this stage there is no urgent requirement to further strengthen external finance.

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