Tensions in Middle East likely to pose risks to economy and fiscal operations: Finance Ministry

The Ministry of Finance outlined that recent tensions in the Middle East are likely to pose risks to the Sri Lankan economy and fiscal operations.

“… recent tensions in the Middle East are likely to pose risks to the Sri Lankan economy, including a potential uptick in petroleum prices which could weigh down on economic activities with the possible escalation of inflation and resultant implications for interest rate,” the Ministry of Finance said in a recent report.

It pointed out that  high global commodity prices particularly, petroleum prices could adversely affect the import cost, domestic consumer prices, production costs as well as budget costs, while also potentially affecting the external demand for Sri Lankan goods.

 “High adjustment costs to external shocks may impact domestic production, international trade, domestic prices and overall growth,” it noted.

The government also remains cautious of risks associated with natural disasters and unfavourable weather conditions which could adversely affect agriculture, hydropower generation and government budget. 

In addition, impediments and delays in administration and procurement also remains an area of concern. 
The Ministry outlined that these external shocks and risks could pose challenges to each medium term primary balance target of 2.3 percent of GDP by end 2025 under the IMF programme.

“The combined effect of these factors could slow down revenue generation and implementation of development/operational activities, increase recurrent expenditure, affect fiscal deficits and the level of government borrowings,” it elaborated.  (NF)