Annual Report 2008 - Ministry of Finance and Planning

1. Macro Economic Perspectives
24
Oil Prices Peaked in Mid 2008 and Exerted Pressure on
Balance of Payments
Oil prices reached US$ 147/bbl in July 2008 and Sri Lanka’s
oil import bill rose to US$ 3,368 million in 2008 from US$
2,501 million in 2007.
Chart 1.5
Table 1.2
Budget Deficits of selected Countries (% of GDP)
2007 2008 2009 2010
USA -2.9 -6.1 -13.6 - 9.7
Euro Area -0.7 -1.8 - 5.4 - 6.1
Japan -2.5 -5.6 - 9.9 - 9.8
UK -2.6 -5.4 - 9.8 -10.9
Canada 1.4 0.4 - 3.4 - 3.6
India - 9.3 - 7.3 - 5.1 - 6.5
China 13.0 9.0 6.7 8.0
Source: IMF- World Economic Outlook
Fiscal Stimulus Packages Raises Budget Deficits in Many
Countries
There was an unprecedented injection of liquidity in
the form of massive fiscal stimulus and financial sector
support measures in many countries. In the Group of 20
(G20) countries, the overall fiscal expansion due to both
discretionary action to support economic activity and other
fiscal developments have been estimated at 5.5 percent
of GDP in both 2009 and 2010. In addition, the financial
sector support measures including guarantees issued, have
been estimated at 32 percent of their GDP, although upfront
government spending on these is estimated at 3.5 percent
of GDP.
Despite an Increase in Public Spending the Sharp
Reduction in Fixed Capital Formation Globally would
Result in Slow Progress in Economic Recovery
While witnessing a growth in public spending in advanced
countries in addition to spending to support economic
revival, the projection in the April 2009 World Economic
Outlook of the IMF indicates a 2.3 percent decline in fixed
capital formation in advanced countries and a 2.7 percent
decline in newly industrialized countries. With the easing
of the oil price boom, the construction industry in oil rich
countries has also experienced a contraction. The fixed
capital formation in advanced countries is predicted to
decline by 12.6 percent in 2009 and by a further 2.7 percent in
2010, while those in newly industrializing Asian economies
a sharper contraction of 17.9 percent is predicted for 2009
with a marginal contraction predicted in 2010.
Ministry of Finance and Planning Sri Lanka
Annual Report 2008