‘Rationalise expenditure for higher economic growth’

Managing the fiscal deficit is a critical issue for Sri Lanka to sustain a high economic growth rate, said Asian Development Bank (ADB), Resident Mission Head, Richard Vokes at the launch of the Asian Development Outlook (ADO) 2010 in Colombo on Tuesday.

He said, measures taken to secure high capital expenditure to bridge the trade deficit in the budget would be crucial to sustain an economic growth in the country.

The ADO drew the attention to increase government expenditure led to a sharp increase in fiscal deficit.

Revenue was below the target due to the slowdown in external trade and domestic demand.

The ADO forecasts that the deficit will decrease to around 8 percent this year and 7 percent in 2011 provided revenue enhancing measures are implemented and complemented by moves to rationalise expenditure.

Vokes said taxation reforms focused on broadening the tax base is vital to enhance revenue.

Reduction in tax holidays and exemptions and widening the public sector tax net are important to increase revenue.

Lead Economist ADB, Narhari Rao said the government is expected to introduce tax and fiscal reforms in the 2010 budget.

The country’s fiscal deficit last year had overshot the GDP which was a reason for the IMF to delay the third tranche of the Stand By Agreement.

The Outlook stated that one of the most difficult targets of fiscal reform is to achieve a break even in the Ceylon Electricity Board and the Ceylon Petroleum Corporation.

Rao said with the recovery of the global economy and high domestic and foreign investment Sri Lanka is poised to record a 6 percent growth rate this year and 7 percent in 2011. Economic Officer ADB, Hasitha Wickremasinghe said major investments are needed to improve infrastructure facilities and create more jobs for people in the North.

Agriculture and fisheries are the primary occupations of people in the North and the East. Storage facilities, seed processing, developing the irrigation system and renovation of public buildings are urgent needs in the two provinces.

The ADB approved an emergency loan of US$ 150 million for reconstruction of infrastructure and to generate employment in the North.

The bank also approved US$ 50 million to enhance efficiency in fiscal management.

Vokes said there is no reason for delay in the breakwater which is well in schedule.

ADB is funding the breakwater of the Colombo South Harbour Expansion Project now in progress. The ADB loan for the project is US$ 300 million.