Sri Lanka’s 2016 budget fails to tackle risk of further deterioration in the fiscal deficit said Fitch Ratings last week.
The ratings agency found that Sri Lanka’s new budget relied on the presumption of a strong global trade environment, warning that Sri Lanka’s growth assumptions may be overly optimistic.
Noting structural weakness in Sri Lanka’s tax and administration processes, the ratings agency added that Sri Lanka’s new budget provides no clear plan for fiscal consolidation over the medium term. Fitch stressed that the absence of such a framework allows the risks of further deterioration in the fiscal deficit to remain.
The ratings agency noted that the new proposed budget would mean that Sri Lanka would exceed its deficit plan of 4.4% by a wide margin and underscore its track record of missing its fiscal targets.
“Inability to raise general government revenues are related to structural weaknesses in tax administration and collection. As such, it is notable that income tax collections are estimated by government to decline by 6.4% in 2016. The government does expect total tax revenue relative to GDP to rise in 2016 and overall revenues to jump by 38% versus 17% in 2015, but a large share of this increase comes from non-tax revenues,” said the organisation in a press release.
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