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The fiscal deficit is expected to decline this year and meet the 6.8 percent of GDP target, the Central Bank says.
"The key fiscal balances witnessed a favourable improvement during the first eight months of 2011, with the overall budget deficit as a percentage of GDP declining to 5.3 per cent during this period from 5.6 per cent in the same period in 2010," the Central Bank said yesterday morning in a report ahead of the 2012 Budget speech.
"However, in nominal terms the overall budget deficit increased to Rs. 349.6 billion during the first eight months of 2011 from Rs. 314.5 billion during the corresponding period of 2010. Further, the current account deficit as a percentage of GDP declined to 1.8 per cent in the eight months to August 2011 from 2.5 per cent in the corresponding period of the previous year, while the primary deficit (overall deficit net of interest payments) increased marginally to 1.4 per cent of GDP during the year to August 2011 from 1.3 per cent of GDP in the corresponding period of 2010.
"According to budget estimates, the overall fiscal deficit is expected to decline to 6.8 per cent of GDP from 8.0 per cent of GDP in 2010. In nominal terms, the overall deficit is estimated to decline to Rs. 433.7 billion from Rs. 446.0 billion in 2010. The current account deficit and primary deficit are also expected to improve in 2011. Accordingly, the current account deficit is expected to decline to 0.8 per cent of GDP from 2.1 per cent of GDP in 2010 and the primary deficit is expected to decline to 1.3 per cent of GDP from 1.7 per cent of GDP in 2010.
"During the first eight months of 2011, the overall fiscal deficit was mainly financed by domestic sources. Accordingly, the contribution from domestic sources to financing the overall budget deficit amounted to Rs.229.5 billion compared to Rs. 290 billion envisaged in the budget for 2011. Further, the move away from bank sources to non bank sources to finance the deficit as witnessed in 2010 reversed during the first eight months of 2011. During this period, bank borrowings increased to Rs. 138.2 billion from Rs.42 billion as estimated in the budget and a net repayment of Rs. 1.9 billion in 2010. Accordingly, the contribution of bank financing to total domestic financing increased to 60.3 per cent during the first eight months of 2011 from 14.5 per cent originally expected in the budget and 26.5 per cent during the corresponding period of 2010. Borrowings from the Central Bank and commercial banks amounted to Rs.18.6 billion and Rs.119.6 billion, respectively, compared to Rs. 4.7 billion and Rs. 57 billion, respectively, during the corresponding period of 2010. On the other hand, non bank financing amounted to Rs. 91.3 billion during the first eight months of 2011 compared to Rs. 248 billion expected for the year as a whole and Rs.171.0 billion in the first eight months of 2010. Net borrowing by way of Treasury bills and Treasury bonds were Rs. 103.9 billion and Rs. 128.4 billion, respectively, during the first eight months of 2011, compared to Rs. 129.9 billion and Rs. 91.9 billion during the same period in 2010. There was a net repayment of Rs. 2.9 billion to other borrowing sources with the repayment of Rupee loans and the settlement of a part of the government’s outstanding overdraft with the two state banks.
Net Foreign Financing (NFF) during the first eight months of 2011 amounted to Rs. 120.1 billion (34.4 per cent of the total net borrowing requirement) compared to Rs. 143.8 billion (33 per cent of the total net borrowing requirement) expected in the budget for 2011. The issue of an International Sovereign Bond mainly contributed to the increase in foreign borrowings during this period. The net contribution of the bond issue to foreign financing as at August 2011 was US dollars 500 million (Rs. 54.7 billion). Net foreign project loans amounted to Rs. 47 billion up to August 2011 compared to Rs.84.2 billion expected in the budget for 2011 due to delays in project loan disbursements. Foreign investments in Treasury bills and Treasury bonds also declined during this period as the ceiling on foreign investments in government securities was reached.
An International Sovereign Bond of US dollars 1 billion (Rs. 109.5 billion) with a maturity period of 10-years was issued in July 2011 at a yield rate of 6.25 per cent. Half the proceeds of the bond issue was utilised to settle high cost domestic debt reducing the domestic financing. Accordingly, US dollars 496.5 million (Rs.54.7 billion) were utilised to settle outstanding dues with the two state banks on account of the importation of fertilizer, the early retirement of Rupee loans and the repayment of Treasury bonds maturing on 01 August, 2011. The balance proceeds will be utilised to service the government’s future debt obligations," the Central Bank said.
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"The key fiscal balances witnessed a favourable improvement during the first eight months of 2011, with the overall budget deficit as a percentage of GDP declining to 5.3 per cent during this period from 5.6 per cent in the same period in 2010," the Central Bank said yesterday morning in a report ahead of the 2012 Budget speech.
"However, in nominal terms the overall budget deficit increased to Rs. 349.6 billion during the first eight months of 2011 from Rs. 314.5 billion during the corresponding period of 2010. Further, the current account deficit as a percentage of GDP declined to 1.8 per cent in the eight months to August 2011 from 2.5 per cent in the corresponding period of the previous year, while the primary deficit (overall deficit net of interest payments) increased marginally to 1.4 per cent of GDP during the year to August 2011 from 1.3 per cent of GDP in the corresponding period of 2010.
"According to budget estimates, the overall fiscal deficit is expected to decline to 6.8 per cent of GDP from 8.0 per cent of GDP in 2010. In nominal terms, the overall deficit is estimated to decline to Rs. 433.7 billion from Rs. 446.0 billion in 2010. The current account deficit and primary deficit are also expected to improve in 2011. Accordingly, the current account deficit is expected to decline to 0.8 per cent of GDP from 2.1 per cent of GDP in 2010 and the primary deficit is expected to decline to 1.3 per cent of GDP from 1.7 per cent of GDP in 2010.
"During the first eight months of 2011, the overall fiscal deficit was mainly financed by domestic sources. Accordingly, the contribution from domestic sources to financing the overall budget deficit amounted to Rs.229.5 billion compared to Rs. 290 billion envisaged in the budget for 2011. Further, the move away from bank sources to non bank sources to finance the deficit as witnessed in 2010 reversed during the first eight months of 2011. During this period, bank borrowings increased to Rs. 138.2 billion from Rs.42 billion as estimated in the budget and a net repayment of Rs. 1.9 billion in 2010. Accordingly, the contribution of bank financing to total domestic financing increased to 60.3 per cent during the first eight months of 2011 from 14.5 per cent originally expected in the budget and 26.5 per cent during the corresponding period of 2010. Borrowings from the Central Bank and commercial banks amounted to Rs.18.6 billion and Rs.119.6 billion, respectively, compared to Rs. 4.7 billion and Rs. 57 billion, respectively, during the corresponding period of 2010. On the other hand, non bank financing amounted to Rs. 91.3 billion during the first eight months of 2011 compared to Rs. 248 billion expected for the year as a whole and Rs.171.0 billion in the first eight months of 2010. Net borrowing by way of Treasury bills and Treasury bonds were Rs. 103.9 billion and Rs. 128.4 billion, respectively, during the first eight months of 2011, compared to Rs. 129.9 billion and Rs. 91.9 billion during the same period in 2010. There was a net repayment of Rs. 2.9 billion to other borrowing sources with the repayment of Rupee loans and the settlement of a part of the government’s outstanding overdraft with the two state banks.
Net Foreign Financing (NFF) during the first eight months of 2011 amounted to Rs. 120.1 billion (34.4 per cent of the total net borrowing requirement) compared to Rs. 143.8 billion (33 per cent of the total net borrowing requirement) expected in the budget for 2011. The issue of an International Sovereign Bond mainly contributed to the increase in foreign borrowings during this period. The net contribution of the bond issue to foreign financing as at August 2011 was US dollars 500 million (Rs. 54.7 billion). Net foreign project loans amounted to Rs. 47 billion up to August 2011 compared to Rs.84.2 billion expected in the budget for 2011 due to delays in project loan disbursements. Foreign investments in Treasury bills and Treasury bonds also declined during this period as the ceiling on foreign investments in government securities was reached.
An International Sovereign Bond of US dollars 1 billion (Rs. 109.5 billion) with a maturity period of 10-years was issued in July 2011 at a yield rate of 6.25 per cent. Half the proceeds of the bond issue was utilised to settle high cost domestic debt reducing the domestic financing. Accordingly, US dollars 496.5 million (Rs.54.7 billion) were utilised to settle outstanding dues with the two state banks on account of the importation of fertilizer, the early retirement of Rupee loans and the repayment of Treasury bonds maturing on 01 August, 2011. The balance proceeds will be utilised to service the government’s future debt obligations," the Central Bank said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=39520
