The Ceylon Petroleum Corporation (CPC) has a total of Rs.32.625 billion of capital outstanding to Bank of Ceylon for a bank guarantee issued by the Treasury Department in January 2008. According to statistics in the Fiscal Management Report 2009 presented to parliament by the Ministry of Finance and Planning, the total value of outstanding treasury guarantees issued up to September 2008 was Rs.81.4 billion or 1.8% of GDP. A further 95% of these guarantees are risk free. Other institutes which also have capital outstanding are the Ceylon Electricity Board, the Cooperative Wholesale Establishment and Mihin Lanka (Pvt) Ltd amongst others.
The report said government debt operations indicated a total domestic gross of Rs.343.8 billion from January to September 2008 including Rs.36.1 billion raised in the domestic market through Sri Lanka Development Bonds. The repayments of domestic debt including foreign currency denominated domestic debt amounted to Rs.180.8 billion, thus limiting net domestic borrowings from Rs.163.0 billion. Foreign loan repayments amounted to Rs.83.7 billion indicating that the government had utilized 60% of the approved annual borrowing limit for the current year. This borrowing, said the report, is well within and consistent with the approved limit for 2008.
The Sri Lankan economy is expected to record a strong performance in 2008, boosted by the expansion of the services sector and encouraging performance of the agriculture and industry sectors. The report said the growth rate is well above 6% for the fourh consecutive year for the first time since independence, demonstrating that Sri Lanka has now geared to a growth economy. Signifying this positive growth momentum in all sectors, the GDP grew by 6.9% in the first three quarters of 2008 surpassing the 6.6% growth achieved in 2007. This was achieved amidst a number of challenges such as escalating petroleum prices and high commodity prices, fight against terrorism, the world economic and financial downturns in the United States and the European Union and high inflation in the world economy. According to data provided in the report, the cost on petroleum imports for 2008 is US$3,735 million, an increase from US$2,497 million the previous year.
Cost on Petroleum Imports
Year Cost on Petroleum Imports (US$ million)
The report said there has been buoyant growth in income tax revenue. Income tax which is made up of Corporate Tax, Personal Income Tax, Tax on Interest Income and Economic Service Charge (ESC) amounted to Rs.95,084 million up to September 2008. Personal and corporate income tax recorded a growth of 19.2% as against the same period of 2007. ESC and Tax on Interest increased by 13.7% and 10.6% respectively over the same period in 2007.
Income tax, as a percentage of GDP, is expected to increase to 3.1% in 2008. According to the report, this notable achievement was due to the policy measures taken by the government to broaden the tax base, rate revisions and other administrative measures.
Allocations made to 321 ministries and government departments from January to September 2008 total over Rs.7.558 billion in recurrent expenditure and over Rs.13.422 billion in capital expenditure. This includes payments, compensations, fuel allowances, personal emoluments, the purchase of furniture and office equipment, restructuring, rents and maintenance of vehicles amongst others. In 2007, recurrent expenditure for 321 ministries and government departments was just over Rs.34 billion while capital expenditure totaled just over Rs.33.513 billion.
During the first eight months of 2008, worker remittances have increased by 22% to US$1,975 million in comparison with the same period of 2007 and foreign direct investments have realized US$425 million, by June 2008 also registering an increase. Exports in US$ terms record a significant increase of 12% as opposed to the same period last year where non traditional exports such as fruits and vegetables recorded an increase of around 40% in comparison to the same period last year. It is expected that exports will grow by 10% and reach US$8,507 million in 2008 in comparison to US$7,740 million in 2007.
The report said the value of imports in 2008 is expected to increase by US$2,974 million to US$14,275 million, mainly due to the higher cost of imports on petroleum, fertilizer and increased demand from investment on goods emanating from several major infrastructure projects. The oil import bill is expected to increase from US$2,497 million in 2007 to US$3,736 million in 2008. With these developments, the trade gap is expected to be around US$5,767 million. Despite the higher trade deficit, surplus in savings accounts for US$242 million, inward remittance of US$3,020 million, foreign direct investment of US$800 million coupled with increased foreign funds for development projects of around US$1,600 million, the overall balance of payments in 2008 could be managed in a surplus position of around US$300 million. The report said that amidst a high import bill, the exchange rate remained stable with the rupee appreciating against most major currencies, despite the Central Bank's intervention in favour of absorption of foreign exchange from the market. Higher foreign remittances, suppliers credit extended to the CPC mainly contributed to the stability of the exchange rate.
The report stated that another noteworthy development was the continuous declining trends observed in Debt/GDP ratio. The Debt/GDP ratio reached 85.8 in 2007, a decline from 102 in 2004, reflecting that the government has kept a moderate growth in debt financing together with high economic growth in excess of 6% with stability in the exchange rate. It is expected that the Debt/GDP ratios would further decline to 78.2 in 2008.
The GDP growth projections for 2008 are 6.5% with GDP increasing to 6.8%, 7.5% and 7.9% in 2009, 2010 and 2011 respectively. GDP at market prices is expected to be Rs.4,420 billion for 2008 and Rs.5,217 billion, Rs.6,085 billion and Rs.7,058 billion for 2009, 2010 and 2011 respectively.
Foreign Financing Commitments
The total commitment made by donor agencies and lenders to Sri Lanka during the period of January to September 2008 was US$1,658 million. Of the total commitments, project loans accounted for US$1,502.1 million and grants accounted for US$155.9 million.
The report stated that the government of Iran has committed US$450 million for Uma Oya Hydro-Electric and Irrigation Project. This was in addition to trade credit provided to the CPC serving up to seven months. The government of India agreed to provide US$209 million including a grant component of US$9 million.
According to the report, a total of US$780.9 million has been disbursed. Of the total disbursement, project loans accounted for US$644.7 million (86.2%) and grants US$136.2 million (17.4%). The Asian Development Bank, the government of Japan and the World Bank were the three main donors who made the highest disbursement during the period from January to September 2008, totaling US$476.8 million or 61% of the total disbursement. (NG)