FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com


Join the forum, it's quick and easy

FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com
FINANCIAL CHRONICLE™
Would you like to react to this message? Create an account in a few clicks or log in to continue.

Encyclopedia of Latest news, reviews, discussions and analysis of stock market and investment opportunities in Sri Lanka


Submit PostSubmit Post
ශ්‍රී ලංකා මූල්‍ය වංශකථාව - සිංහල
Submit Post



Latest topics

» GLAS will be winner with Super Gain.
by vijay singh Today at 3:22 am

» Lets try to understand what is happening in the market right now
by celtic tiger Today at 1:56 am

» EXPOLANKA HOLDINGS PLC (EXPO.N0000)
by Gowri123 Today at 12:05 am

» Anyone attended AGM?
by Vishwanarth Yesterday at 11:17 pm

» Is ASPI Overvalued now or heavily undervalued ?
by EquityChamp Yesterday at 11:12 pm

» A Strong bounce back of ASI is on the cards
by samaritan Yesterday at 6:17 pm

» Prominent Investors of the colombo stock market
by samaritan Yesterday at 6:06 pm

» DIPD/HAYC/HAYL
by Eranga87 Yesterday at 5:55 pm

» ACL post share split trading and the future potential
by sheildskye Yesterday at 3:27 pm

» Current 2021 Februray Unit Trust/Unit Fund Per Annum percentages
by N W Yesterday at 2:44 pm

» WindForce (WIND) IPO Overview
by EquityChamp Yesterday at 10:09 am

» Norway -> biggest shareholder of NDB
by shihan 93 Yesterday at 9:56 am

» Many positives for Next week
by Vishwanarth Sat Mar 06, 2021 12:29 pm

» Maldives records over 100,000 tourist arrivals in first 35 days of the year
by samaritan Sat Mar 06, 2021 9:59 am

» Kind of behavior traders engage in when they are frustrated and want their money back from the market. Stock market for beginners
by lal62 Sat Mar 06, 2021 7:40 am

» EXPO EXPO EXPO
by Gowri123 Sat Mar 06, 2021 12:35 am

» still I believe this
by 100Bill Fri Mar 05, 2021 9:21 pm

» SUNSHINE HOLDINGS PLC (SUN.N0000)
by ErangaDS Fri Mar 05, 2021 8:19 pm

» Investor sentiment - will there ever be a recovery?
by xhunter Fri Mar 05, 2021 7:49 pm

» Let's have a stop-loss strategy to maximize investment returns in stock market
by EquityChamp Fri Mar 05, 2021 7:19 pm

EXPERT CHRONICLE™

ECONOMIC CHRONICLE

GROSS DOMESTIC PRODUCT (GDP)


CHRONICLE™ YouTube

CHRONICLE™ NEWS PRODUCTS

FINANCIAL CHRONICLE™

Views & Reviews, Analysis, Evaluations, Discussions, Gossip and Hot Tips relating to Sri Lankan companies listed on the Colombo Stock Exchange (CSE)
Contribute




DAILY CHRONICLE™

Latest news and articles published in Newspapers, Websites, Blogs and other online news sites relating to business and investments in Sri Lanka
Contribute



ECONOMIC CHRONICLE™

This is a section that provide news, views, analysis, predications relating to Political and Socio-Economic factors and how such activities affect the Stock Market and other economic activity of the Country.

Contribute




EXPERT CHRONICLE™

This is an exclusive section for Expert Articles which will help member to share knowledge through comments and responses of the members. All members are allowed to reply and make comments to these articles.

Contribute


Submit Post


CHRONICLE™ YouTube

Youtube Videos and other visual presentations relating Stock market and other investment advise submitted by members or other contributors.

Contribute


Submit Post


කොළඔ කොටස් වෙළඳපොළේ වංශකථාව
කොළඔ කොටස් වෙළඳපොළේ ලැයිස්තුගත සමාගම් කොටස් ගැන තොරතුරු¸විශ්ලේෂණ¸සාකච්ඡා¸ කටකතා¸රසකතා යන සියල්ල අපේම සිංහලෙන් කතා කළ හැකි ‘කතා මණ්ඩපය’

Contribute

Twitter Feeds
POPULAR COMPANIES
A

ABANS ELECTRICALS PLC

ACCESS ENGINEERING PLC Hot

ACL CABLES PLC

ACL PLASTICS PLC

ACME PRINTING & PACKAGING PLC

AGSTAR PLC

AITKEN SPENCE HOTEL HOLDINGS PLC

AITKEN SPENCE PLC

ANILANA HOTELS AND PROPERTIES PLC

ARPICO INSURANCE PLC

ASIA ASSET FINANCE PLC

ASIA CAPITAL PLC

B

BAIRAHA FARMS PLC

BALANGODA PLANTATIONS PLC

BIMPUTH FINANCE PLC

BLUE DIAMONDS JEWELLERY WORLDWIDE PLC

B P P L HOLDINGS PLC

BROWNS BEACH HOTELS PLC

BROWNS INVESTMENTS PLC

C

CARGO BOAT DEVELOPMENT COMPANY PLC

CENTRAL INDUSTRIES PLC

CEYLON COLD STORES PLC

CEYLON GRAIN ELEVATORS PLC Hot

CEYLON TEA BROKERS PLC

CEYLON TOBACCO COMPANY PLC

CHEVRON LUBRICANTS LANKA PLC

COLOMBO FORT LAND & BUILDING PLC

COMMERCIAL BANK OF CEYLON PLC

CITRUS LEISURE PLC Hot

COMMERCIAL CREDIT AND FINANCE PLC

D

DANKOTUWA PORCELAIN PLC

DFCC BANK PLC

DIALOG AXIATA PLC

DIALOG FINANCE PLC

DIPPED PRODUCTS PLC

DISTILLERIES COMPANY OF SRI LANKA PLC

DUNAMIS CAPITAL PLC

E

EAST WEST PROPERTIES PLC Hot

EASTERN MERCHANTS PLC

EXPOLANKA HOLDINGS PLC

E-CHANNELLING PLC

F

FIRST CAPITAL HOLDINGS PLC

G

GALADARI HOTELS (LANKA) PLC

GUARDIAN CAPITAL PARTNERS PLC

H

HATTON NATIONAL BANK PLC

HAYLEYS PLC

HAYLEYS FABRIC PLC

HAYLEYS FIBRE PLC Hot

HEMAS HOLDINGS PLC

HIKKADUWA BEACH RESORT PLC

HNB ASSURANCE PLC

HVA FOODS PLC

J

JANASHAKTHI INSURANCE COMPANY PLC

JOHN KEELLS HOLDINGS PLC Hot

JOHN KEELLS HOTELS PLC

L

LANKA ASHOK LEYLAND PLC

LANKA IOC PLC

LANKEM CEYLON PLC

LANKEM DEVELOPMENTS PLC

LAUGFS GAS PLC

LAUGFS POWER LIMITED

LOLC FINANCE PLC

LOLC HOLDINGS PLC

LUCKY LANKA MILK PROCESSING COMPANY PLC

M

MELSTACORP PLC

N

NATIONAL DEVELOPMENT BANK PLC

NATION LANKA FINANCE PLC

NESTLE LANKA PLC

O

ORIENT FINANCE PLC

OVERSEAS REALTY (CEYLON) PLC

P

PANASIAN POWER PLC

PEOPLE'S LEASING & FINANCE PLC

PIRAMAL GLASS CEYLON PLC

PRIME FINANCE PLC

R

RAIGAM WAYAMBA SALTERNS PLC

RENUKA AGRI FOODS PLC

RENUKA CAPITAL PLC

RENUKA HOLDINGS PLC

RICHARD PIERIS AND COMPANY PLC

RICHARD PIERIS EXPORTS PLC Hot

ROYAL CERAMICS PLC

S

SAMPATH BANK PLC

SEYLAN BANK PLC

SIERRA CABLES PLC

SINGHE HOSPITALS PLC Hot

SMB LEASING PLC

SOFTLOGIC HOLDINGS PLC

SOFTLOGIC LIFE INSURANCE PLC

SRI LANKA TELECOM PLC

SWISSTEK (CEYLON) PLC Hot

T

TEEJAY LANKA PLC

TESS AGRO PLC

THREE ACRE FARMS PLC

TOKYO CEMENT COMPANY (LANKA) PLC Hot

U

UNION BANK OF COLOMBO PLC

V

VALLIBEL FINANCE PLC

VALLIBEL ONE PLC Hot

VALLIBEL POWER ERATHNA PLC

W

WASKADUWA BEACH RESORT PLC


You are not connected. Please login or register

FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Increasing fiscal deficit threat to economic stability

Increasing fiscal deficit threat to economic stability

Go down  Message [Page 1 of 1]

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Written by Arthika Vishleshaka

The slowdown in economic growth and the widening trade deficit and balance of payments problem are what have drawn most attention. The deteriorating fiscal position is now seen as a serious threat to economic stability and economic development. If the fiscal deficit reaches higher proportions, the inflationary pressures it generates would destabilize the economy and the economic growth momentum adversely affected even after the current global recession passes away.

The current economic downturn in most sectors is making it hard to achieve this year’s ambitious fiscal deficit target of 6.2 percent of GDP. While public expenditure is increasing, revenue has fallen below budgeted amounts thereby widening the fiscal deficit. The widening fiscal deficit could pose serious repercussion to the economy. It is, therefore, of utmost importance that measures are taken to increase revenue and reduce expenditure so that the deficit will not rise again to high proportions and threaten economic stability and growth.

Fiscal target
Realizing the importance of keeping the fiscal deficit to reasonable proportions, the Treasury is intent in containing the fiscal deficit to its target of 6.2 percent of GDP. However, the adverse economic developments are making it difficult to achieve it. The budget deficit has doubled in the first four months of 2012, with current spending growing at twice the rate of tax revenues. While revenues grew by 7.2 percent to Rs.305.5 billion, current spending increased by 23.4 percent to Rs.445.3 billion rupees. The fiscal deficit, that is the gap between total revenues and current expenses, rose 86 percent to Rs.139.8 billion equal to 1.8 percent of projected gross domestic product.

The treasury is of the view that the fiscal operations in the year as a whole are expected to remain consistent with the targeted deficit of 6.2 percent of GDP. It is difficult to understand how the fiscal deficit could be contained as revenues have fallen and will continue to decline as the economy is not faring well with several sectors that contribute tax revenue likely to decrease output, thereby, decreasing revenue. The lower growth in imports and internal trade is an instance of such lower activity. Exports are also declining. Furthermore, the drought that destroyed food crops and tea production would add to reduced economic activity and hence lower revenue collection from indirect taxes.

Fiscal outturn
The budget for 2012 hoped to collect a trillion rupees in taxes. This was up 23.6 percent higher from that of 2011. As it turned out, revenue during the first four months of this year was 4.4 percent less than during the first four months of last year. Tax revenues grew 10.7 percent to 276.4 billion rupees and non-tax revenues fell 17.5 percent from a year earlier to 29.0 billion rupees. As to be expected tax revenues were below the target owing to the current economic conditions. Total revenue and grants grew 7.49 percent year-on-year to Rs.307.7 billion.

Public expenditure
In contrast to revenue collection, public expenditure increased significantly. Current expenditure increased substantially by 23.4 percent to Rs.445.3 billion rupees. This was due to fertilizer subsidies doubling, interest expenses ballooning to Rs.173.6 billion from 142.2 billion rupees in 2011 and other recurrent expenditures increasing. The fertilizer subsidy had more than doubled to 13.0 billion rupees from 5.6 billion rupees in the first four months of this year compared to the same period last year. Recurrent expenditure reached 5.9 percent of GDP, up from 5.6 percent in 2011 and public investment reached 2 percent of GDP from 1.6 percent. The finance ministry had also stepped up net capital expenditure by 46 percent to 143.8 billion rupees.

Fiscal deficit
The budget deficit during this period amounted to 3.8 percent of GDP, up from 2.7 percent year earlier. The gap between total revenues and current expenses rose 86 percent to 139.8 billion rupees equal to 1.8 percent of projected GDP that is also likely less than the projected figure.
The Finance Ministry explained the fiscal performance: “The first four months outcome reflects the impact of revenue lags and expenditure leads and higher revenue and moderation of expenditure is expected in the second half of the year. Hence, the fiscal operations in the year as a whole are expected to remain consistent with the targeted deficit of 6.2 percent of GDP. The measures taken to provide support for local industries such as the reduction of duty waiver on milk powder imports, increase of Special Commodity Levy (SCL) on sugar, etc. in the wake of declining commodity prices in the international market that required local economy safeguard and commitment controls are conducive for fiscal consolidation.”

Growing fiscal deficit
Among the reasons for the large fiscal deficits over the years are the limited revenue base of only about 15-17 percent of GDP, huge expenditure on public service salaries and pensions, big losses in public enterprises, wasteful conspicuous state consumption expenditure, subsidies and welfare costs and the large debt servicing cost itself. The large public debt has itself led to a massive debt servicing burden. A large proportion of current revenue is used to meet the costs of servicing this debt. Therefore, the government has to resort to further borrowing to meet its recurrent as well as capital expenditure. This results in further increases in debt servicing costs. The economy is caught up in this vicious cycle of a debt trap. In 2002, the public debt was 105 percent of GDP. In subsequent years it was brought down as a proportion of GDP. In 2007, it was 85 percent of GDP; in 2008, it was 81 percent of GDP and in 2009 it was 86 percent of GDP. In 2011, the public debt as a proportion of GDP was brought down to 78.5 percent.

Although the public debt has increased substantially, the debt to GDP ratio has declined owing to increases in the GDP. There is a possibility that the debt:GDP ratio would increase again owing to the deficit increasing due to shortfalls in revenue and increased expenditure. Apart from the increases in expenditure that have already occurred, there is possibility of wage increases, higher losses in public enterprises, drought relief and government expenditure increases owing to the provincial council elections.

An increase in the fiscal deficit would have serious repercussions on inflation and increase the public debt significantly. The reduction of the public debt and its servicing cost is a prerequisite for economic stabilization and growth.
The containment of the fiscal deficit to a reasonable level is recognized as essential. In December 2002, the Fiscal Management Responsibility Act (FMRA) made it mandatory for the government to take measures to ensure that the fiscal deficit is brought down to 5 percent of GDP in 2006 and kept at that level thereafter. As it turned out, the fiscal deficit was 8 percent of GDP that year and averaged 8 percent of GDP in the five years (2004-2008). In each of the two years (2007 and 2008) the fiscal deficits were 7.7 percent of GDP and reached 9.8 percent of GDP in 2009. Since then it was brought down and the target for this year was 6.2 percent of GDP. Will this be realized?

Repercussions
Containing the fiscal deficit is vital for the country’s economy. A large deficit means that it would generate inflationary pressures. This in turn would increase the costs of production and erode the country’s competitiveness in international markets. This necessitates the depreciation of the Rupee to remain competitive with other countries’ lower rates of inflation. Otherwise, the lesser export earnings would increase the trade deficit that would be a strain on the balance of payments. Reduced export earnings imply loss of employment and lower incomes to workers in the industries affected, as has been experienced recently in the e garments industry when exports decreased owing to the global recession.

Conclusion
In the first four months of 2012, the budget deficit doubled with current spending growing at twice the rate of tax revenues. The shortfall in revenue is understandable in a context of economic downturn. Expenditure is what was expected to be contained in the face of the adverse economic performance, However, government expenditure continued to increase beyond the levels originally anticipated. The adverse economic developments and increased government expenditure would undoubtedly increase the fiscal deficit this year unless the resolve of the Finance Ministry to contain it to 6.2 percent of GDP ensures a curtailment of government expenditure.
http://www.nation.lk/edition/opinion/item/8223-increasing-fiscal-deficit-threat-to-economic-stability.html

Hawk Eye

Hawk Eye
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
We dodnt have Mahathir Mahammeds or Lee kwan yews. we have Alibaba and the 40 thieves.

Whitebull


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
How fast some of our people forget the past.......

Sponsored content


Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum