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Monday, 25 January 2021 13:23

Government struggles to drive economic growth amidst fiscal woes

The recession-hit Sri Lanka Treasury is grappling to drive economic growth towards 5 to 6 per cent of GDP this year amidst current fiscal woes, Finance Ministry sources said.

The main task at hand is to raise funds to repay loans and for finance development activities from local and foreign borrowings as revenue is not sufficient to meet rising expenditure, a senior official disclosed.

The anticipated actual expenditure is expected to rise to around Rs. 5 trillion exceeding the estimated expenditure of Rs. 3.52 trillion indicated in 2021 budget estimates, provisional data showed.

Tourism, foreign remittances and trade-dependent economy have been stumbling from the major impacts of the deadly 2019 Easter bombings and the fallout from the corona virus pandemic.

Gross borrowing limit of Rs. 2.9 trillion will be utilised for the repayment of loans amounting to Rs. 1.25 trillion and Rs. 1.74 trillion to finance development projects and interest payments in 2021.

Domestic borrowings will mainly consist of the issuance of Treasury bills, Treasury Bonds and Sri Lanka Development Bonds (SLDBs).

In 2021, the total debt service payment is estimated to be US$6865 million and $1514 million as interest payments, according to a memorandum of financing the Budget 2021 formulated by the Finance Ministry recently.

Interest payments and capital repayment of Foreign Currency Banking Unit loans (FCBUs) and SLDBs are estimated at $2664 million.

During 2021, it is expected to raise $2000 million through the issuance of SLDBs.

In addition $1170 million worth of FCBUs raised from the Bank of Ceylon and the People’s Bank will mature this year and the Treasury will raise loans to repay it from the same channel.

The government will also be appealing for international investors to roll over bonds maturing this year, a further sign of the island nation’s grim financial situation.

“If bond auctions fail and bills are purchased by new rupees expanding reserve money and excess liquidity there will be forex shortages,” it said.

The Treasury expects net FDI will finance about 40 per cent of the current account deficit in 2021, and the rest will be wholly covered by official multilateral and bilateral borrowings as well as commercial funding.

A sum of $2.5 billion is an achievable FDI target for 2021 as commitments made for the Port City alone amount to $1 billion, a senior official of the ministry said,

The Hambantota tyre factory should generate $300 million with at least $175 million expected in 2021 while investment estimates in pharmaceuticals and education will be in the range of $200 million.



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