S.Lanka's budget deficit, foreign debts mounting: Treasury

Sri Lanka's overall budget deficit is growing due to increased public investment and foreign debt is mounting, the country's Treasury department said on Friday.

The budget deficit has risen 25.7 percent in the first four months of 2008 compared with last year, the department's mid year fiscal position report said.

"The overall deficit increased to 93.4 billion rupees ($867.4 million) from 74.3 billion rupees due to increased public investments," the treasury said in the report.

The government's external debt totalled $15.3 billion at the end of May, a $180 million increase from end 2007, the report showed, while its total debt rose to 3,328.8 billion rupees by the end of April, up 18.1 percent from a year earlier.

Credit rating agency Standard and Poor's warned Sri Lanka last month it was at risk of a downgrade from its current B+ rating, while Fitch Ratings said it was concerned over Sri Lanka's increasing foreign commercial borrowings.

"The government should curtail its spending," said Chirantha Caldera, a currency dealer at Commercial Bank of Ceylon.

"If your revenue is coming down, and your defence expenditure is escalating, then curtailing spending on capital expenditure like infrastructure should be there," Caldera said, adding the government risked further stoking inflation which was running at an annual 28.2 percent in June.

The government has allocated around 18 percent of its 925.1 billion rupees budget this year to defence spending, after pledging to finally crush Tamil Tiger rebels in a war that has killed more than 70,000 people since 1983.

Sri Lanka has also been struggling to pay high global oil prices, which have hit levels above $145 this month compared with the island's 2008 budget estimate of $85 per barrel.

The central bank this week said the oil price alone would increase the country's trade deficit by $500 million to $4.47 billion this year.

Central Bank Governor Ajith Nivard Cabraal told Reuters on Tuesday that inflation would be no higher than 20 percent at the end of 2008 and stuck with an economic growth forecast of 7 percent. [ID:nCOL98109].

The fiscal report showed revenue increased by 23.5 percent to 210.4 billion rupees, while expenditure rose 24.2 percent to 303.8 billion rupees in the first four months.

Public investment spending increased by 15.1 billion rupees, while current government spending rose by 23.5 percent or 43.6 billion rupees to 229.2 billion rupees.

The treasury said the deficit from its operating activities in the first five months had surged to 23.4 billion rupees ($217.3 million) from last year's 11.62 billion rupees. "The main reason for the deviation was the shortfall of revenue receipts," it said.

Source: reuters