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

» Amana Takaful ATL & ATLL
by apphunter Today at 6:09 pm

» SEMB SEMB
by RJ1010 Today at 5:22 pm

» Blossom March
by vijay singh Today at 5:16 pm

» TRUE VALUE OF LANKA ALUMINUM INDUSTRY (LALU)
by Jana Today at 5:10 pm

» SANASA DEVELOPMENT BANK PLC (SDB.N0000)
by Jana Today at 5:09 pm

» DIPD/HAYC/HAYL
by Jana Today at 5:00 pm

» TILE / LWL / RCL
by subash81 Today at 4:56 pm

» RICH or TKYO
by subash81 Today at 4:56 pm

» LALU.N0000
by Jana Today at 4:48 pm

» LANKA ALUMINIUM INDUSTRIES PLC (LALU.N0000)
by Jana Today at 4:45 pm

» BROWNS INVESTMENTS PLC (BIL.N0000)
by stockchaser Today at 4:33 pm

» UNHCR Fear is over 21 countries speak for us only 15 against
by Equityinvestor Today at 4:06 pm

» CSE Crossings for the week
by Pradeep90 Today at 12:16 pm

» Leading brokers causing market downturn
by dhanushkacse Yesterday at 10:18 pm

» පෙබරවාරි මාසේ කොළඹ කොටස් වලට මොකක්ද වුනේ - බැසුවාද ? බැස්සාද ?
by Nishan Cooray Yesterday at 9:42 pm

» NATIONS TRUST BANK PLC (NTB.N0000)
by chathura123 Yesterday at 3:53 pm

» Daily Foreign Transactions
by Mithooshan Yesterday at 7:31 am

» SOFTLOGIC HOLDINGS PLC (SHL.N0000)
by suku502 Yesterday at 12:58 am

» DFCC will be receiving Rs.594,538,285.50
by Wonderer Fri Feb 26, 2021 7:49 pm

» UNHCR එකේ ලොකූ ටෝක දැම්මට සමහර ඔස්තාර් ලා කියන ආර්තික සම්භාදක අරවා මේවා මුකුත් එන්නේ නැ
by Vishwanarth Fri Feb 26, 2021 6:27 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™ »  Budget 2013 goals: Let’s walk the talk

Budget 2013 goals: Let’s walk the talk

Go down  Message [Page 1 of 1]

Malika1990

Malika1990
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
It is encouraging that the Budget Speech 2013 sets out a fiscal framework that seeks to continue the trajectory of much-needed fiscal consolidation. If successful, it will address a perennial problem that has plagued macroeconomic management in Sri Lanka for over four decades. The budget also announced several measures to strengthen the supply-side of the economy (i.e. boost domestic production) in relation to SMEs, agriculture, other import substitutes and capital markets. The capital account of the balance of payments was also liberalized further. Despite these measures, the prospects of achieving the following two outcomes that are built into the budgetary framework are likely to prove extremely challenging:

1 The overall budget deficit of 5.8% of GDP
2 The growth


target of 7.5%
These two targets are inter-linked as higher growth will make it easier to achieve the desired budget deficit through its impact on revenue and fiscal consolidation is a crucial element of a growth-friendly macroeconomic environment.


Challenge 1: A Budget Deficit of 5.8% of GDP
It is noteworthy that this year’s budget (2012) has come under severe pressure due to a revenue shortfall arising from the sharp slowdown in growth. The budget deficit for the period January to August 2012 was 6% as against a target for the whole year of 6.2%. As a result, it has become necessary to cut expenditure, particularly capital expenditure, drastically in the last four months of the year. It is likely that there will be the same pressures on revenue and ultimately the budget deficit next year, if one assumes that the budget has been framed on the basis of an unlikely 7.5% growth rate for 2013 (see below for discussion of growth prospects in 2013).
This raises the question as to what can be done by way of a mid-course correction during the course of 2013 to improve the prospects of meeting the deficit target of 5.8% of GDP. The options are:

1. Cut recurrent expenditure
2. Reduce capital expenditure
3. Increase revenue
4. A combination of the above.
There is considerable rigidity downwards built into the government’s recurrent expenditure. Almost 90% is accounted for by:
1. Interest payments on public debt (35%)
2. Public service emoluments (33%)
3. Subsidies and transfers (21%)




Interest payments cannot be reduced as they are payable on debt that has already being incurred. In fact, they can increase as monetary conditions could tighten further, in 2013, as the Budget has announced a significant increase in borrowing from domestic non-bank sources to finance the deficit. This will inevitably exert upward pressure on interest rates (see below). In addition, public service emoluments can only be reduced through either a reduction in the number of public servants or cuts in their pay and/or pensions. Such a course of action is politically challenging, particularly for a government whose development framework has seen the public service grow from 600,000 to 1.3 mn during its stewardship. Furthermore, cuts in transfers and subsidies are also politically very difficult, particularly if major elections are to be held in early 2014 as permitted by the Constitution.

This leaves some combination of revenue increases and capital expenditure cuts as the means for achieving the desired outcomes in respect of fiscal consolidation. However, both these options will have a contractionary impact on the economy through their restrictive implications for aggregate demand. They would be strongly pro-cyclical at a time when there is an increasing growth deficit.



Challenge 2: Achieving 7.5% growth
Growth, which was 7.9% in 1Q 2012, is unlikely to be much above 5.5% in the last quarter of this year in the wake of the much needed robust stabilization measures introduced in February/March 2012. It had already decelerated to 6.5% in 2Q 2012. Since then the kicking-in of the credit ceiling and the sharp reduction in Government capital expenditure would have squeezed growth even further.

The Budget 2013 has been framed on the basis of 7.5% growth next year. This assumes a sharp acceleration in growth from the figure recorded in 4Q 2012. The prospects of achieving the growth target in the Budget will be determined by whether the supply-side measures introduced in the Budget 2013 are sufficient to off-set the powerful contractionary effects that will emanate from the macroeconomic policy stance which will have to be adopted during the course of next year. There is little scope to relax fiscal and monetary policies over the next 6-12 months at least.

The fiscal consolidation anticipated in the Budget is necessary. However, it will have a negative impact on growth, particularly as capital expenditure is being reduced from the 6.6% of GDP allocated in 2012 to 5.8% next year. If growth is significantly below 7.5%, one is likely to see a repetition of this year’s fiscal cycle with a revenue shortfall and further cuts in expenditure, particularly capital expenditure, with its concomitant stifling of growth.

As mentioned above, the prospects for relaxing monetary policy have been significantly reduced by the increased recourse to domestic non-bank financing to fund the budget deficit next year. It is encouraging that the government will not be undertaking any further foreign commercial borrowing, given the negative net external gross reserve position and the concerning trend in the debt service ratio. However, the anticipated increase in borrowing from domestic non-bank sources will tighten monetary conditions and reduce significantly the prospects of a reduction in interest rates from current levels. The scope for reducing interest rates will also be constrained by the price increases which will stem from budgetary measures, such as the increase in the guaranteed price of rice, changes in tariffs to promote import substitution (cheaper imported goods will no longer be competitive) and the increases in VAT and Nation Building Tax on large retailers (which constitutes a positive step in widening the tax base by).

These measures will be limited to a one-off effect on the price level unless they result in wage rises which would then trigger the secondary effects of boosting inflationary pressures in the economy. This would call for a further tightening of the already restrictive monetary policy stance.



How to Walk the Talk
One may conclude that monetary and fiscal policies will have to continue to exert contractionary pressures on the economy. The trends in the current account of the balance of payments and inflation do not, as yet, provide any room to maneuver on the macroeconomic policy front. It is unlikely that the supply-side measures introduced in the Budget 2013 will be sufficient to override the powerful effects of continued restrictive monetary and fiscal policies. Developments in the world economy are also likely to mean that external demand will continue to be muted though one is beginning to see an upturn in China, India and the US. All this implies that a wave of more fundamental reforms is necessary to strengthen the overall growth framework (particularly for export expansion) if the country is to achieve the growth target in the Budget. This is even more important for attaining 8% growth in the medium to long-term. These reforms could include, inter alia, the following: SOE reforms (CPC and CEB operating at breakeven point would eliminate their losses from the balance sheets of the state banks and serve to mitigate the liquidity squeeze generated by increased government borrowing from non-bank sources); PPPs for maintaining the momentum of infrastructure development; further implementation of the recommendations of the Tax Reform Commission; better design and targeting of subsidies and transfers; land and labour market reforms; tariff reform; further improvements in the investment climate; and confidence-building regarding the consistency and predictability of policies, including the sanctity of contracts and the rule of law in the commercial sphere.

It would be wholly inadvisable to opt for short-cuts by relaxing the restrictive macroeconomic policy stance before the economy achieves its equilibrium, particularly on the balance of payments front. Premature easing would merely trigger another round of stop-go policies. It should be noted that the next cycle would start from a more unsustainable external position (current account deficit and debt) and the risks would, therefore, be significantly greater of there being a major Greece-like payments crisis. The Finally, it is important to reiterate that it is easier to achieve the fiscal deficit targets with higher growth. Equally, accelerated growth on a sustained basis cannot be achieved without fiscal balance.
http://www.dailymirror.lk/business/features/23667-budget-2013-goals-lets-walk-the-talk.html

Back to top  Message [Page 1 of 1]

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