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Sri Lanka 2014 fiscal deficit rises to 6% of GDP: CB

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The Annual Report being presented by Central Bank Governor Mahendran to the  Minister of Finance Ravi Karunanayake The Annual Report being presented by Central Bank Governor Mahendran to the Minister of Finance Ravi Karunanayake

The Central Bank of Sri Lanka today said that despite the government’s announced commitment towards fiscal consolidation, the overall fiscal deficit in 2014 had increased to 6.0 per cent of GDP in 2014 from 5.9 per cent of GDP in the previous year, mainly as a result of the continued shortfall in revenue collection.

“Some reversal in the fiscal consolidation process was observed during the year, with the overall fiscal deficit as a percentage of GDP increasing for the first time in the post conflict period. The government aimed to reduce the fiscal deficit to 5.2 per cent of GDP in 2014 from 5.9 per cent of GDP in the previous year. This was to be achieved by improving revenue to 14.5 per cent of GDP in 2014 from 13.1 per cent in 2013, and reducing recurrent expenditure to 13.4 per cent of GDP in 2014 from 13.9 per cent in 2013, while maintaining public investment at a high level of 6.7 per cent in 2014 compared to 5.5 per cent in 2013. However, contrary to expectations, the continued decline in revenue as a percentage of GDP led to an increase in the overall fiscal deficit to 6.0 per cent of GDP in 2014 ," the Central Bank said releasing its sixty fifth Annual Report for the year 2014 today.

"Although unexpected expenditure due to extreme weather conditions added pressure on government finances, recurrent expenditure as a percentage of GDP remained broadly on target at 13.5 per cent, mainly as a result of the decline in interest cost of the government. A large deviation of public investment from the envisaged levels was observed due to rationalising the public investment programme in response to the revenue shortfall," the Central Bank said adding that public investment was 5.0 per cent of GDP in 2014.

Nevertheless, the Central Bank Annual Report states that public debt as a percentage of GDP has declined to 75.5 per cent by end 2014 from 78.3 per cent by end 2013.

"Meanwhile, the current account deficit as well as the primary deficit deteriorated to 1.3 per cent and 1.6 per cent of GDP, respectively, in 2014, in comparison to the deficit of 0.8 per cent of GDP recorded in both the current account and the primary account in 2013. In the meantime, with the increase in nominal GDP at a higher rate than the debt stock, the government debt to GDP ratio continued to improve, recording 75.5 per cent in 2014 compared to 78.3 per cent in 2013. As a percentage of GDP, domestic debt and foreign debt of the government stood at 43.7 per cent and 31.8 per cent, respectively, at end 2014."

According to the Annual Report, Sri Lanka’s economy that was initially projected to grow in real terms by 7.8 per cent, has recorded a growth of 7.4 per cent in 2014, in comparison to the growth of 7.2 per cent in 2013. In nominal terms, GDP amounted to Rs. 9,785 billion (US dollars 74.9 billion) in 2014, compared to Rs. 8,674 billion (US dollars 67.2 billion) in 2013.

GDP per capita increased to US dollars 3,625 in 2014 from US dollars 3,280 in the previous year. Inflation remained at single digit levels for the sixth consecutive year, with year-on-year and annual average inflation declining to 2.1 per cent and 3.3 per cent, respectively, by end 2014, from 4.7 per cent and 6.9 per cent, respectively, at end 2013.

On the other hand, going forward, the Central Bank noted that the Sri Lankan economy is projected to reach upper middle income levels in terms of per capita GDP, and sustain the favourable high growth and low inflation nexus in the medium term, supported by appropriate economic policies.

“The new government formed in January 2015, is expected to uphold policies of good governance and transparency which would support a high growth path through improved investor sentiment and also lead to a more equitable distribution of benefits of economic growth. In addition to balancing the tradeoff between growth and equity, the new government faces the enormous task of articulating a coherent medium term policy framework, which addresses possible shortcomings of previously announced policies as well as the challenges already identified. Addressing such challenges would be essential to realise the projected growth path as envisaged in the medium term, enabling the economy to achieve its full potential while maintaining macroeconomic stability in a more equitable environment.”

According to the Annual Report, the growth of the Agriculture sector was 0.3 per cent in 2014, compared to 4.7 per cent recorded in the previous year while the share of the Industry sector within GDP increased further to 32.3 per cent, with a sectoral growth of 11.4 per cent in 2014 compared to 9.9 per cent in the previous year.

The Services sector, which represents 57.6 per cent of GDP, grew by 6.5 per cent in 2014 compared to the growth of 6.4 per cent in 2013, with significant contribution from Wholesale and Retail Trade, Transport and Communication, and Banking, Insurance and Real Estate sub sectors.

The Central Bank said that unemployment rate remained low at 4.3 per cent during the year compared to 4.4 per cent in the previous year. On the external sector, as a percentage of GDP, the deficit in the trade account improved to 11.1 per cent in 2014 from 11.3 per cent in 2013.

However, in nominal terms, the trade deficit increased to US dollars 8.3 billion in 2014 from US dollars 7.6 billion in the previous year, as a result of a higher increase in the expenditure on imports compared to the increase in earnings from exports.

With the considerable improvement in service exports as well as increased workers’ remittances, the current account deficit narrowed to US dollars 2.0 billion in 2014 from the deficit of US dollars 2.5 billion in the previous year. As a percentage of GDP, the current account deficit was 2.7 per cent in 2014, a notable improvement from 3.8 per cent of GDP in 2013.

 

Click links below to view:

Central Bank’s Annual Report 2014 

An overview of the Sri Lankan economy in 2014 as reflected in the Annual Report


Arjuna Mahendran, the Governor of the Central Bank of Sri Lanka presenting the Annual Report 2014 to Ravi Karunanayake, the Minister of Finance. B.D.W.A.Silva and P.Samarasiri, Deputy Governors of the Central Bank, C.P.A.Karunatilake, Assistant  Governor of the Central Bank, and D.Kumaratunge, Acting Director of Economic Research of the Central Bank are also in the photo.

Last modified on Wednesday, 29 April 2015 22:23

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