Budget out of control, major price increases coming soon, warns Harsha

By Dharisha Bastians

The UNP yesterday warned that people are likely to see major price increases in the weeks ahead as the Government grapples with a widening budget deficit for 2012.

MP and Consultant economist Dr. Harsha De Silva yesterday said the Finance Ministry targeted a budget deficit of 6.2% of GDP in the current year, but in actual terms it had already reached 5.7% by July. “Sri Lanka’s budget deficit doubled in the first four months of the year,” he added.

“To manage the deficit, the Government would be compelled to do several things – first to increase revenue by way of increasing taxes and tariffs as we have already seen with the water tariffs,” Dr. De Silva said, during a media conference, adding that the public could expect an increase in electricity tariffs again soon.

The Opposition Legislator said the Government would also be compelled to reduce expenditure, predominantly capital expenditure at a time when much of the capital spending is already stalled or on a go slow.

Referring to the agitation by the academics demanding increased spending in the education sector, Dr. De Silva charged that despite Government claims that it was spending well above the 1.9% allocation on education, it slashed 48% of the higher education budget only last year.

A slowing economy due to inconsistent policy and poor macro-economic variables have resulted in a dramatic drop in the country’s growth rate from 8.3% to 6.2%, the UNP MP added.

“Growth is falling, exports are declining every month. Interest rates have doubled. The rupee’s value has fallen close to 20%. Cost of production is increasing – in fact all the macro variables are looking just like they did during the war,” he charged.

He warns that unless radical changes are made to the policy mix and attention is focused on sustainable growth, Sri Lanka’s economic growth rate could be less than it was in the war years. “The front and centre of this change should be policy consistency and governance,” he added.

The Government had failed to capitalise on Sri Lanka’s unique advantage of coming out of 30 years of conflict, Dr. De Silva claimed.

“All the fizz seems to be gone. Three years after the war, we should have been looking at an accelerated growth rate of about 10%. But a lack of investment and confidence in the Government’s policies has hindered growth,” he said.