Sri Lanka missed the budget deficit targets for 2009 set by the International Monetary Fund as a condition for a $2.6 billion loan, according to data published by the finance ministry.
Meanwhile, following an assement, the IMF announced it would delay a third tranche of the financing until it sees the budget after April 8 parliamentary elections.
The south Asian island failed to achieve the December quarter budget deficit target of reducing the end-2009 deficit to 7 percent of GDP set by the IMF. The deficit instead stood at 9.7 percent.
The IMF had approved the loan in a 20-month programme aiming for prudent fiscal management with certain quarterly targets after identifying
"The budget deficit of 469,627 million rupees turned out to be 9.7 percent of the GDP," the Ministry of Finance said on its website www.treasury.gov.lk. This is the worst fiscal deficit since the country hit 10.8 percent in 2001.
According to the the ministry, it will again miss the target for this year as it expectes the deficit will be around 7.5 percent of gross domestic product, versus a target of 6 percent.
"It is expected that the revenue deficit will decline to 1.5 percent of GDP and the budget deficit to around 7.5 pct of GDP in 2010," the ministry stated.
The report estimated 2010 budget revenue at 825 billion rupees and expenditure at 1,263 billion. It expects to finance the 2010 deficit through 102 billion rupees of foreign borrowing and the rest via domestic borrowing.
Announcing the delaying of the third tranche of the loan, Koshy Mathai, Sri Lanka's resident IMF representative, told Reuters: "We just want to see their plans once they are ready for the budget. That's the stage when really they will be in a position to enunciate their overall comprehensive plan,".
“For end-December, the government has met the targets agreed under the program for net international reserves and reserve money. Final data for the overall budget balance are not yet available, but the ceiling on domestic budget borrowing -- consistent with the government’s overall deficit target of 7 percent of GDP -- was exceeded by a substantial amount," the IMF noted.
"This mainly reflects faster-than-expected infrastructure project implementation, higher interest payments, and sluggish fourth-quarter revenue growth."
Sirimal Abeyratne, a senior economics lecturer at the University of Colombo, said the government will have to take serious steps to continue the IMF loan, which boosted foreign investor confidence after the end of a 25-year war in May.
"I haven't seen any serious government efforts to reduce the deficit last year in line with IMF target. If it continues without reforms in expenditure and revenue sides, I don't think we could achieve 7.5 percent target this year."
Full suspension of the IMF loan could lead to rating downgrades, volatility in macroeconomic fundamentals, withdrawal of foreign funds from government securities, and increased borrowing, according to media reports.
