Sri Lanka warned early on 2015 budget fallout by IMF.odt

7/23/2019 Sri Lanka warned early on 2015 budget fallout by IMF.odt

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Sri Lanka warned early on 2015 budgetfallout by IMF

Dec 15, 2015

ECONOMYNEXT - Sri Lanka was warned early on about the negative fallout on

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eono!i stability fro! a revised budget in "anuary #$%&' an (nternational Monetary)und re*ort whih had been released after being su**ressed for !onths' showed+

,The fisal situation onstitutes Sri Lankas single biggest !arofinanial vulnerabilityand should be addressed e.*editiously', the (M) has warned in a Marh/0*ril #$%&re*ort' whih was su**ressed for al!ost nine !onths and was only released in

1ee!ber+,The boost to onsu!*tion fro! the interi! budget will s*ill over into i!*orts andould be larger than e.*eted+

,The inrease in onsu!*tion !ay s*ur growth' but da!*ening effets ould o!efro! delays in *ubli and *rivate invest!ent' and wavering onfidene should *oliyunertainty ontinue+,

The revised budget shar*ly hiked s*ending s*eially on state worker salaries and*ensions' while ordinary *eo*le were already finding it diffiult to finane the e.istinge.*enditure of the state and revenue to gross do!esti *rodut was weaker than

earlier+

There are however onerns that the 213 itself has been bloated and the atualrevenue to 213 is !uh higher than lai!ed+

The (M) bailed out Sri Lanka in a #$$4 balane of *ay!ents risis' and the ountrysli**ed into another balane of *ay!ents risis in #$%%/#$%# after a bout of reditfinaned fuel subsidies+

(n #$%& the Central 5ank again *rinted !oney heavily to !ani*ulate interest ratesdown and finane higher state worker6s salaries' *ensions and other subsidies'

e.*anding all redit+

Energy *ries were also ut by the Treasury' inreasing dis*osal ino!es at the handsof all onsu!ers and driving non-oil i!*orts u*+

The (M) e.*eted so!e benefit fro! lower oil *ries' but low interest rates and !oney*rinting whih boosted redit and onsu!*tion generally' kee*ing non-oil i!*orts u*'even as e.*orts and finanial inflows also slowed+

Sri Lanka6s entral bank has a tendeny to *rint !oney and kee* rates down whileloan de!and goes u* re7uiring stee* orretions to avert balane of *ay!ents

trouble' whih generate a 6hard landing6 and a urreny olla*se when the redit risisintensifies+

Sri Lanka has again lost foreign reserves this year a!id a state and *rivate reditboo! finaned by e.ess li7uidity 8uns*ent inflows au!ulated during a *eriod ofnegative redit9 and outright *rinting of !oney by the Central 5ank+

Though borrowings fro! the (M) has fallen below a #$$ *erent threshold usuallyre7uired for *ost-*rogra! !onitoring' the ageny is ontinuing lose !onitoring

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beause of weak state finanes and e.ternal *osition+

Sri Lanka started *ublishing (M) ountry re*orts regularly fro! the !id-%44$s after 0S "ayewardene' a to* *ubli servant who was o!!itted to *rudent !onetary *oliybea!e Central 5ank 2overnor and refor!ed the ageny to so!e degree+

:owever during the ousted ;a<a*aksa ad!inistration' (M) re*orts were delayed foryears' hel*ing strengthen a view that the regi!e was !ani*ulating data' hiding thetruth and !isre*resenting real eono!i onditions+

The urrent ad!inistration whih a!e to *ower in "anuary also did not *ublish (M)!ission staff re*orts' ontinuing the *raties of the ;a<a*aksa ad!inistration+ 5ut hasnow *ublished a Marh-0*ril re*ort after a delay+

(n Se*te!ber to* entral bank offiials defended the !ove to su**ress (M) re*ortswhen 7uestioned by re*orters+

They said there was no re7uire!ent to *ublish !ission staff re*orts' that Sri Lankanauthorities have to 6agree with the language6' or ould not release re*orts before theyare sub!itted to the (M)6s e.eutive board+

There was also a lai! that the (M) ould not ondut a *ro*er staff study before thebudget for #$%=+

The latest ountry re*ort has been sub!itted to the (M)6s e.eutive board this !onth'but it has not yet been released+ (n a *ress release the (M) again warned about the#$%= budget and its nu!bers' while also warning about !onetary *oliy+

Taking early ation an hel* avoid greater *roble!s ahead+

 0nalysts say for Sri Lanka to go forward' the false belief that *eo*le as a whole willso!ehow be better off with higher state s*ending or greater ta.ation has to end+ Thebelief' has allowed so-alled 6*o*ulist6 !oves whih har! the *oor !ost' to bei!*le!ented to general a**lause+

5udget defiits baked by *rinted !oney only generate boo! bust yles andurreny olla*se whih har! the *oor the !ost+ >hen false dotrine is glorified' italso !akes it !ore diffiult to eventually i!*le!ent orretive !easures+

E.er*ts fro! a Se*te!ber #$%& relating to su**ressed (M) re*orts is re*roduedbelow?

Question: 2overnor' related to the earlier 7uestions also' the (M) staff re*orts havenot been *ublished reently+ >hen are they going to be *ublished@Deputy Governor: ( think what we *ublished last ti!e was the 0rtile (A onsultationre*ort+ Then after that we had this *ost-*rogra! !onitoring+ Those are basially ( thinkusually they are not *ublished+ Only the annual artile (A re*orts are the one theyreo!!end us' enourage us to *ublish+

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So the ne.t 0rtile (A onsultation' ( think will ha**en early ne.t year+

Question: 5ut staff re*orts were *ublished earlier+ 0nd when they were sto**ed fro!ti!e to ti!e that was a regression+Deputy Governor ? 0rtile (A so!e of the re*orts were not *ublished in the *ast+Question: 0nd the !ission staff re*orts were *ublished+

Deputy Governor: ( think so!e of those are *ublished with a ti!e lag+ 0s you an seelast year three re*orts were *ublished at the sa!e ti!e+ 3revious ti!e+ )ro! ti!e toti!e when we have onsultations *roesses we disuss the re*ort with eah other andthen o!e to a onsensus' then only we give our onsent to *ublish+ So that *roessis going on+Question: So whenBDeputy Governor: >hat ha**ens usually when we give the onsent we give the!onsent to release all the *revious ones they have sub!itted to the board+So what we e.*et ne.t ti!e' the annual re*ort is the key one that would be sub!ittedto the board ne.t ti!e+ One we see that and !ost *robably we will look at the *ast

re*orts and those will be released at the sa!e ti!e+

Questions: So this deision not to *ublish the staff re*ort is a onsious deision@Deputy Governor: No' the first thing is they have to sub!it it to the board+ That hasnot ha**ened yet+ They will be going to the board in Nove!ber+ One it goes to theboard+Question: ( don6t !ean the new one+ The *revious !issionBDeputy Governor: The *revious one we are still working on it+ They have not beengiven onsent+ 0lso there is no suh re7uest fro! the board also+ There is no kindre7uire!ent for all these re*orts to be *ublished+5ut the )und says only the 0rtile (A onsultation re*ort that for !e!bers to be

*ublished+ 0ll others are interi! re*orts+ 0nd you know the !a<or re*ort whih willinlude all other observations will be in the 0rtile (A re*ort+ That is why the annualre*ort is !ainly *ublished+

Question: )orgive !e for arguing+ (n that ase' there no reason to even to *ublishthat on that basis+Deputy Governor: Certainly' in the ase of all the ountries' the authorities have togive onsent+ (t has to have we have to have disussions with the staff+ 0nd we haveto have agree!ent with the language they *ublish+ (f there is agree!ent' onsent onthe language then only both *arties will agree and then *ublish+ So that *roess is

going on+ One we o!e to a onsensus+So!eti!es it has ha**ened in one year' two year' three years+ So!eti!es it ha**ensin three !onths+ So ( would say' it is not that we do not *ublish it+ (t will take so!e ti!efor us to o!e to a onsensus and we will *ublish it+

Question: So where does good governane and trans*areny o!e in@Deputy Governor: This is all based on the rules and regulations with the (M) andalso with the authorities+ Nothing is violated+ (t is all within the rule of the )und and its!e!ber ountries+ The )und !e!ber ounties have the kind of authority to disuss

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with eah other and *ublish+ (t is not one sided+Question: >e understand all that+ 5ut you have a new govern!ent whih is !oreo!!itted to trans*areny+ So shouldn6t there be new thinking@Governor: You also have to view this way+ >e all know that there is an urgent needfor fisal onsolidation in Sri Lanka+ The new govern!ent has not had enough ti!e too!e u* with a o!*rehensive set of *ro*osals+ There was a !ini-budget in "anuary

whih i!*osed so!e one-off ta.es but you know it did not address the !ediu! ter!needs of onsolidation+That is known+ 0nd the (M) has said that in *ress state!ents in Marh and last week+To that e.tent there is a lot of e.*etations about the budget that is o!ing out inNove!ber will ho*efully set out road !a* for the !ediu! in ter!s of how how SriLanka is going to gra**le with the basi *roble! of revenues as a *erentage of 213has shrunk in the last deade+

That ( think that is so!ething one has to find a solution+ ( think until that is the ase (do not think even the (M) will do a *ro*er staff study of the eono!y+ They are waiting

for those details' before they are o!e out+ 0nd they have *ut out *ress state!ents (think that is the usual *ratie+

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