Lanka remains fiscal outlier – IMF Res. Rep

Though Sri Lanka has recorded GDP growth rates of 8 and 8.3 percent during 2010 and 2011, the country still remains far too distant from the other emerging markets in terms of both fiscal balance and public debt as a percentage of GDP, an International Monetary Fund official showed.

“Sri Lanka’s fiscal deficit and public debt as a percentage of GDP remained at 6.9% and 78% respectively based on 2011 data. This is far too high compared with other emerging markets such as Brazil with 2.5% & 65%, China with 1.1% &25%, Thailand with 1.5% & 42%, Malaysia with 5.3% & 53%, said the IMF Resident Representative for Sri Lanka and Maldives, Dr. Koshy Mathai last week.

However neighbors, India and Pakistan remain slightly closer to Lankan fiscal figures with 4.6% & 68% and 6.6% & 60% respectively.

“On the opposite end of the spectrum, we have Russia and Chile with fiscal surpluses in 2011 while their public debt as a percentage of GDP remained below 10% and 12% respectively”, he remarked.

Addressing the 5th consecutive Bank Directors’ Symposium held last week, Dr. Mathai illustrated with comparisons that Sri Lanka still remains a high inflationary country along with Malaysia, Chile, Thailand, Philippines, Indonesia, China and Bangladesh. Nevertheless inflation in Russia, India, Argentina and Pakistan remained higher than us with Vietnam recording the highest at 18.7% in 2011.

The YoY inflation in Sri Lanka rose to 9.5% in November 2012 from 8.9% a month earlier while the annual average inflation measured on a 12 month moving average rose to 7.2% in November from 6.8% in October.

“I think this is reasonably high and the country has further room to go. The excellent yet late policy package which was adopted by the Central Bank in early 2012 could push the inflation up due to the upward energy price revision which we saw as a result of fiscal tightening coupled with monetary tightening and flexible exchange rate policy,”he said.

Despite measures being painful due to slow growth, he was of the view that these were much needed to improve the Balance of Payment, safeguard the reserves and to ensure sustainable growth and economic progress.

In a surprise move, Central Bank last week reduced the policy rates by 25 basis points and announced the lifting of the 18% credit ceiling on the banking sector, demonstrating government's ambition to focus on growth despite higher single digit inflation.