Sri Lanka’s growth-oriented budget is unlikely to provide a meaningful boost to output, according to Moody’s Investors Service.
“Despite the growth focus of the budget, we do not expect it to provide a meaningful boost to output, while increased spending will add to fiscal pressures, a credit negative,” the rating agency said in a latest report.
The budget calls for Rs. 3.6 trillion ($19.5 billion, 23.7% of 2020 forecast GDP) in expenditure, a 26% increase from its estimate for 2020.
The Rating Agency predicted that the domestic demand is likely to remain sluggish given still-subdued business and consumer confidence, and ongoing import restrictions affecting industries such as construction and manufacturing.
It expects the budget deficit to remain above 8% of GDP through 2023 in light of persistently adverse fiscal dynamics and a slow economic recovery.
The budget targets a 2021 fiscal deficit of 8.8% of GDP, compared with a revised 2020 estimate of 7.9% of GDP.
“The dilemma between delivering on ambitious fiscal consolidation targets and supporting economic recovery will continue to weigh on Sri Lanka’s credit profile ahead of significant and recurring external debt-servicing requirements through 2025,” Moody’s said.
Moody’s expects Sri Lanka’s debt burden to increase to around 100% of GDP over 2020-21 and above the Caa-rated median of 88% of GDP.