• Tue. Feb 20th, 2024

Budget 2021 is unlikely to provide a meaningful boost to the economy – Moody’s

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.

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