Sri Lanka will face a challenge in meeting this year’s budget deficit target as the recent monetary and fiscal tightening measures may hurt revenue growth, the island nation’s central bank chief said on Monday.
The $59 billion economy has agreed with the International Monetary Fund (IMF) to target a budget deficit of 6.2 per cent of the gross domestic product, the lowest since 1992 and down from last year’s 6.9 per cent, to continue a $2.6 billion loan.
“The challenge now is to ensure that the fiscal deficit of the government is in line with what was budgeted for and that the government’s borrowings were budgeted for,” Central Bank Governor Ajith Nivard Cabraal said in an interview.
“The government needs to work out carefully as to what internal adjustment they carry out whether some expenditure is reduced or revenue is increased or the both.”
Sri Lanka has taken some drastic policy decisions to avert a balance-of-payment crisis after the IMF withheld disbursement of a loan following the monetary authority’s failure to heed its repeated request for a flexible exchange rate.
On the monetary front, the central bank stopped intervening in the currency market, raised policy rates to two-year highs and limited commercial banks’ credit to 18 per cent from last year’s 34 per cent.