The Budget deficit in 2018 dropped to 5.3 percent of GDP from 5.5 percent of GDP in the previous year due to the reduction in capital expenditure during the year, the Central Bank’s Annual Report for 2018 released last week stated.
The government aims to slash the budget deficit to 4.5 percent this year and 3.5 percent next year. The budget deficit averaged around 7.3 percent of the GDP from 1990 to 2018.
However, the decline in the budget deficit fell short of the 4.8 percent target envisaged in the 2018 Budget.
The government’s outstanding debt increased to 82.9 percent last year from 76.9 percent of the GDP in the previous year, due to the depreciation of the rupee that affected the rupee value of foreign debt, relatively low nominal GDP and higher net borrowings.
Central Bank sources said the rollover risks can be contained to a great extent through the implementation of the Active Liability Management Act and the Medium Term Debt Management Strategy which would help manage the debt obligations of the government, with the support of continued commitment towards revenue based fiscal consolidation. The rupee which depreciated by around 16 percent last year has been appreciating since the beginning of this year. The currency has appreciated by around four percent.
The total outstanding external debt for this year stands at US$ 5.9 billion of which US$ 2.6 billion was paid in the first quarter of the year. The financial sector continued to expand in 2018, supported by the moderate but stable growth of the banking sector. However, the profitability of the banking sector declined during the year mainly due to some deterioration in asset quality, a rise in operating costs and higher taxes, the report noted.
The Central Bank strengthened the prudential policy measures, including the implementation of Basel III requirements and the adoption of Sri Lanka Accounting Standard - SLFRS 9 during the year.
The Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) sector also recorded moderate growth amidst a challenging environment, and the Central Bank took measures to resolve distressed finance companies and to address the lingering concerns in the sector. Disruptions from fintech, digital applications and regulatory needs have exerted pressure on the banking sector across the globe.
The Colombo Stock Exchange recorded another year of poor performance due to adverse developments on the domestic and global fronts, which affected investor sentiments.
The Central Bank noted that for the country to obtain a higher income economy status and improve the well-being of its people, it needs to address the root causes for continued low economic growth by expediting structural reforms focusing on improving productivity and efficiency of the economy.
Real GDP growth was 3.2 per cent in 2018, compared to 3.4 per cent the previous year.
This growth was largely supported by services activities that expanded by 4.7 per cent and the recovery in agriculture activities, which recorded a growth of 4.8 per cent. Industry activities slowed down significantly to 0.9 per cent during the year, mainly as a result of the contraction in construction.
The total volume of the Sri Lankan economy was estimated at US $ 88.9 billion, while per capita GDP was recorded at US $ 4,102 in 2018, which was marginally lower than in the previous year. Amidst the moderate growth in economic activity, a marginal increase in the unemployment rate and a decline in the labour force participation rate was observed during the year.