Speculation was rife yesterday that the government would call off its three-year Stand-by Arrangement (SBA) with the IMF as prescribed budget deficit targets would be hard to keep with the 2010 budget being further delayed.
However, Central Bank Governor Ajith Nivard Cabraal said the targets were on track and the IMF deal was not under threat.
“We are on track. Yes there is another Vote-on-Account and a mini budget taking place, but we are confident of keeping to the deficit targets,” he told the Sunday Times by telephone from Washington where he is attending, with other senior Central Bank officials, the annual Spring meetings of the IMF.
“The Fund (IMF) is sending a mission next month and that schedule is unchanged and since we have fulfilled all the targets up to March as per the agreement, we are obliged to get this money,” he said.
Other Central Bank (CB) officials in Colombo said two more tranches out of three tranches of more than $300 million each, would soon be received with the visit of the IMF team next month.
“Furthermore, we have successfully negotiated (with the IMF) to adjust the 2010 deficit target to 7.5% which we can maintain this year,” one senior official said.
Under the IMF agreement, the budget deficit is to be brought down to 5% of GDP in 2011 from 7% in 2009 and 6% in 2010. However the government overshot the 2009 target – essentially due to high election-related spending and falling revenues – resulting in the deficit rising to 9.7%.
This led to the IMF suspending the third tranche and saying it would send a mission to Sri Lanka in May to discuss the proposed post-election budget and maintenance.
On Friday the government announced that the budget had been further delayed and would only be presented in July, and that a second Vote-on-Account would be presented instead, to cover expenditure for the next few months.
The senior CB official explained that the next Vote-on-Account would cover three months -- May to July -- and the mini budget would cover spending for the next five months to December. “This will not be the normal budget. It will not have the usual wage hikes, cigarette taxes or revenue raising measures but more like an expanded Vote-on-Account,” he said.
This was confirmed yesterday by Treasury officials who however were taken by surprise by the ‘budget of sorts’ announcement as they had up to Friday morning been preparing for a May-June presentation of the budget. The officials said the changes in the budget schedule were being discussed at a much higher level.Mr. Cabraal said revenues were also increasing and showing similar signs across the year.
“Revenues are recovering in a strong manner and a deficit of 7.5 % is well within reach. The fact that all targets including the net borrowing targets of the government were met by March 31 is strong evidence of our ability to achieve the agreed benchmarks (in the SBA) and our commitment to the programme. In that background we are convinced that the IMF will soon release the tranches that are due.”
The IMF’s Sri Lanka Representative Koshy Mathai was also away in Washington but responded on email to the new developments. Asked to comment on the new budget calendar, he said: “We haven’t yet discussed this with the government and look forward to doing so.”
But he noted that the IMF continued to see budget deficit reduction as ‘critical to ensuring stable economic conditions and strong growth over the medium term’.
Economists say the whole budgeting exercise has gone haywire and economic management is becoming an issue with Friday’s announcement.
Other government sources say even the new cabinet and the appointment of a new Prime Minister are likely to be temporary until November when the President is sworn in for his second term.
“The 2011 budget to be presented in November will be an actual reflection of the new government’s economic and socio-economic focus for the next few years. Until then the focus will be on constitutional reforms and selling them to the people,” one source said.
Economists say the changes in the usual budget calendar are not a good precedent and do not give parliament an opportunity for a frank and open discussion on the economy.
|
E-mail
