Business Times

Govt. needs to cut deficit amidst rising inflation

The government needs to make every effort to control the budget deficit during the second half of 2010 if it were serious about achieving the budget deficit target of 7% of GDP as outlined in the terms for the US$2.6 billion standby arrangement with the International Monetary Fund (IMF), a senior economist said.
Economist Sirimal Abeyratne, who is also a senior lecturer at the Economics Department at the University of Colombo, told the Business Times this week that with the 2009 budget deficit coming in at 9.7% of GDP, even the IMF should have earlier proposed ways on keeping the figure in control. “We haven’t seen anything like that at the implementation level.”

Dr. Abeyratne pointed out that the President’s election manifesto outlined further increases in government expenditure but with the economic recovery in 2010, government revenue should increase as well. “Along with this, there should be some reforms in public sector expenses to contain the budget deficit even at a 7% to 8% level,” he said.

IMF Resident Representative Koshy Mathai said that according to a report from the Treasury released this week, the budget deficit was 9.7% of GDP for 2009. The report also mentions a budget deficit of 7.5% of GDP projected for 2010. “However, we want to wait and discuss the government’s full year budget in which will be presented their comprehensive fiscal plans for this year and beyond before coming to an assessment of whether their intentions remain in line with the objective they laid out in the programme with us,” Dr. Mathai said. He added that the original target for this year was 6% plus some provision for reconstruction-related spending.

Inflation
Dr. Abeyratne said the government’s considerable expenditure commitments for 2010 will most likely drive inflation levels up in the months to come. He said the future inflation rate will respond to two factors, the first being the increase in world prices due to the anticipated economic recovery and the second being domestic policy, particularly in relation to government spending. If there is a serious attempt at the policy level to limit government spending as expected by the IMF, Dr. Abeyratne said the impact of domestic factors on inflation can be lowered.

The Department of Census and Statistics announced last week that annual average inflation as measured by the Colombo Consumers’ Price Index (CCPI) stabilized at 3.1% in February 2010 but that point to point inflation increased to 6.9%. Point to point inflation in January 2010 was recorded at 6.5%. Dr. Abeyratne explained that the difference between the annual average and point to point rates is a technical matter.

“As we know, world prices fell sharply during 2009,” he said. “This had a significant impact on domestic price level. As the inflation rate was over 22% in 2008, the 2009 increase was marginal as reflected by the average annual rate. Point-to-point rate is calculated on monthly basis so that the monthly inflation has increased by 6.9% compared to the price level 12 months ago.”

Top to the page  |  E-mail  |  views[1]
SocialTwist Tell-a-Friend
 
Other Business Times Articles
New US GSP term amidst labour rights row
Mobile broadband to drive Dialog’s growth
Court reprimands MBSL chief Ratnayake over Ceylinco share issue
Hayleys sets up special leisure unit
Treasury guarantees billions of rupees in loans to state orgs
Eran quits, NDB appoints new CEO
Innovative advertising as mobile market battle heats up
Comment - Business with Jaffna: Walk before you leap
IMF loan suspension won’t affect Lankan finances
Why women are better investors than men
Economics of Poor Property Rights
'FH Studio Collection' to Czech Republic after Colombo Fashion Week success
Lankem to export agriculture crops
Ceylinco Shriram depositors to get relief
Jaffna trade fair to draw Indian exhibitors too
IT for 30 small businesses in remote villages
Jaffna BPO programme draws 4,000 students
GSP+ loss may result in South Asia becoming Lanka’s preferred partner – top economist
Corporate foundation appeals to politicians to ‘stop wasting money’
Easing trade, investment barriers can unlock South Asia's vast potential - report
Corporate response to sustainability insufficient
Windows 7 sells 30 million copies in 2 months
GSK completes acquisition of Stiefel in Sri Lanka
SMB to change name SMB Holdings
Virtusa holds ‘software testing festival’
SEC CEO Channa planning to quit
Kumar Sangakkara becomes Viva brand ambassador
350 undergrads attend Moratuwa University soft skills workshop
35 teams compete in 'CX Chinese New Year Challenge'
Commercial Bank profits grow despite tough 2009
Colombo Dockyard’s profit to stabilise
Govt. needs to cut deficit amidst rising inflation
Comprehensive Sri Lanka promotion in Europe launched in Brussels
Growth through Sri Lanka’s bond market
Issues over new ICASL President, PBJ as Chief Guest at inauguration
Ceylinco Insurance says over 65% customers ‘returning home’
Budget deficit above 2009 targets - report
Major Sri Lankan tourism campaign in New York
Janashakthi ready to exploit potential in North and East
Asiri to invest Rs 600 million in Matara Medi House
WaveNET offers 3G video calls to GSM
CCC trade mission to Indian cities
Audit firm KPMG re-starts Jaffna Branch
London Stock Exchange in new deal
IT industry body elects new board
Pioneering the web
Russel’s new outlet at APIIT
Insurance progress in North and East needs time
CBB helps drive business with Britain
Another eco-tourism property as Sri Lanka moves big-time in boutique hotels

 

 
Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 2010 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved.| Site best viewed in IE ver 6.0 @ 1024 x 768 resolution