Sri Lanka expects global slowdown to hit its economy next year

COLOMBO, Oct 7 (Reuters): Sri Lanka plans to cut its budget deficit to 6.2 per cent of gross domestic product (GDP) in 2012 from this year's estimated 6.8 per cent and is aiming for 8 per cent economic growth despite expectations of sluggish global growth, the government said Friday. The 2012 growth target is below the 9 per cent target estimated in March this year. Next year's budget deficit target is the lowest since 1992, but much higher than the 5.2 per cent originally estimated early this year, central bank data showed. The government has agreed to reduce its fiscal deficit to an 18-year low of 6.8 per cent of GDP under the terms of a $2.6 billion International Monetary Fund (IMF) loan, from 7.9 per cent in 2010. The IMF programme ends in the first half of 2012 and the central bank said there has been no specific IMF budget deficit target for the next year. "It (growth in 2012) is slightly less than what we were targeting to achieve with the global recession," government spokesman Keheliya Rambukwella told reporters in Colombo. "But if you compare it with other countries in the region, it will still be higher." Government expenditures in 2012 are estimated to increase by 8.5 per cent year-on-year to 2.22 trillion rupees ($20.1 billion), with public investment to be raised by 19.4 per cent to 541 billion rupees, he said. Recurrent expenditures will be raised by 7.8 per cent to 1.1 trillion rupees and capital expenditures are to be increased by 18.4 per cent to 1.11 trillion. Total government revenue is estimated at 1.115 trillion rupees. Public investment will be increased by 19.4 per cent to 541 billion rupees from 453 billion rupees as the island nation expedites an ambitious $6 billion in infrastructure projects to revive its economy after the end of a 25-year civil war in 2009. In July, Central Bank Governor Ajith Nivard Cabraal said Sri Lanka will continue to maintain fiscal prudence after the $2.6 billion IMF loan is fully disbursed. "It is not realistic to achieve a 5.2-per cent budget deficit target next year," TKS Securities Research Head Danushka Samarasinge said. "It would be wonderful if the government could really achieve 6.2 per cent deficit target next year." The IMF last month said Sri Lanka is on a fiscal consolidation path and the fiscal and monetary policies have been appropriate but it was concerned over external sector. The global lender asked the central bank to limit its intervention in foreign exchange market and allow the rupee currency flexibility due to after a steady decline in non-borrowed foreign reserves. However, the central bank, said it would intervene to maintain the rupee stability as there will be more inflows.