Monday, 25 November 2013 00:00
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By First Capital Equities
The Government unveiled a relatively uneventful 2014 Budget this week aiming to achieve an economic growth of 8.0% in 2014 and a budget deficit target of 5.2% in 2014 (compared to 5.8% in 2013), reducing further to 4.5% in 2015 and 3.8% in 2016.
While these targets are encouraging, we believe that they may also be somewhat ambitious. Our forecast is for a 2014 GDP growth of 7.5% and a budget deficit of 5.5% in 2014, still outperforming most emerging/frontier markets in the world.
Furthermore, we believe that the Government’s 2014 inflation target may be somewhat understated at 6.0% given the cost push nature of Sri Lanka’s inflation as our expectation of a rise in global commodity prices next year could result in domestic inflationary pressures.
While we had hoped for greater subsidies and tax concessions for the manufacturing sector, we expect the 2014 Budget to have only a limited impact on key economic sectors and sub-sectors including the stock market. Consequently we will not be revising our economic forecasts significantly on any major economic parameter.
Key announcements
Real GDP growth targeted at 7.0%+ in 2013 and 8.0% in 2014
Budget deficit targeted at 5.2% of GDP in 2014, 4.5% in 2015 and 3.8% in 2016
Inflation targeted at 6.0% in 2014
2014 total revenues forecast at Rs. 1.47 trillion, 2014 total expenditures forecast at Rs. R1.99 trillion (compared to 2013 total revenues of Rs. 1.20 trillion and 2014 total expenditures of Rs. 1.71 trillion
2% Nation Building Tax to be imposed on banks.
Finance companies held by a holding company to be merged with their parent firm. Finance firms held by banks also to be merged.
Banks, finance, insurance and manufacturing companies now charged 28% corporate tax will get partial tax holiday for three years on listing. Depreciation allowance on used car imports will be tightened to increase Customs revenues.
New Port Development to be in conjunction with Dehiwala-Mount Lavinia beach conservation.
