Annual Report 2010 - Ministry of Finance and Planning

1 | DEVELOPMENT PERSPECTIVESMeanwhile, efforts to implement publicinvestment programme in excess of 6percent of GDP were also continued.Revenue on TrackTotal revenue of the Government in2010 grew by 16.8 percent toRs. 817 billion, therby meeting thebudgetary target. In particular, therevenue from Value Added Tax(VAT) and excise duties increasedto 3.9 percent and 2.3 percent ofGDP, respectively reflecting mainlythe recovery of domestic economicactivities. However, the revenue fromimport duties declined to 1.1 percentof GDP reflecting the concessionsgranted on various imported items.As a percentage of GDP, total revenueincreased marginally to 14.6 percent in2010 from 14.5 percent in the previousyear.Managed OperationalExpenditureIn 2010, the recurrent expenditureincreased by 6.5 percent to Rs. 937billion over that of 2009. However, as apercent of GDP, recurrent expenditureindicated a significant decline to16.7 percent from 18.2 percent in theprevious year. Interest payments,as a percentage of GDP declinedmarginally to 6.3 per cent. However,domestic interest payments declinedconsiderably to 5.3 percent of GDP,particularly reflecting the favorableimpact of low interest rate regime.Meanwhile, the non interest recurrentexpenditure declined significantly to10.4 percent of GDP from 11.8 percentin 2009.Committed PublicInvestmentsThe Government continued its publicinvestment programme in 2010despite many challenges faced infiscal management. This reflectedthe high level of commitment of theGovernment in resolving infrastructurebottlenecks to facilitate private sectorinvestment to achieve a sustainablehigh growth and reduce regionaleconomic disparity. Accordingly, publicinvestment was maintained at 6.4percent of GDP (Rs. 356,519 million) in2010 while continuing both the megainfrastructure development projectsand projects in the emerging regions.Deficit Financing andGovernment DebtThe budget deficit in 2010 was financedthrough both domestic and foreignfunds. There was a net repayment ofRs. 1.9 billion to the banking systemcompared to the net borrowing of Rs.49 billion in 2009. This will reduce thedemand pressures in the economy whilefreeing more resources to the privatesector. Meanwhile, the Government debtto GDP ratio resumed its declining trendin 2010 from the high level of 105.6percent recorded in 2002 and reached81.9 percent.Medium Term DirectionThe Government has clearly expressedits commitment to strengthen thefiscal consolidation process further inthe medium term. In this context, farUSD/bbl140120100806040200reaching measures, particularly thebroad-based tax reforms, which werein Budget 2011, have already beenintroduced.Major ChallengesChart 1.1 > Monthly Average Crude Oil (Brent)Prices 2007 - 2011 April2011201020072009International Petroleum PriceMovements and Continuation ofHigh Prices: Sri Lanka, being a countrywhich is largely dependent on oilimports, presently spends about USD3 billion on importation of oil, whichis about 40 percent of its exportearnings. This makes the country vulnerablein terms of the performanceof balance of payments and othermacroeconomic variables. Therefore,making both supply side and demandside adjustments with appropriatemeasures, including the followings, toface this situation is a major challenge.a. Making an early shift towards alternativeenergy use to reduce relianceon fuel based power consumptionb. Enhancing energy conservationthrough proper demand managementpolicies to eliminate hiddensubsidies on private transportc. Improving systematic traffic managementto cut wasted. Creating an efficient urban publictransport system2008Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec28