IPS Chief welcomes fiscal deficit focus in 2019 Budget

Institute of Policy Studies (IPS) Executive Director Dushni Weerakoon commenting on macroeconomic stability and growth post-Budget said the focus on deficit despite an election year was welcome.  

Following is her statement on 2019 Budget.

The 2019 Budget offered some pre-election ‘relief’ as anticipated; a consistent downward trend in current spending is set to reverse for the first time since 2015. 

However, the overall direction is clearly one of restraint in order to retain the fiscal consolidation gains made since mid-2016, most notably a surplus on the primary account. 

Nonetheless, the 2019 Budget estimates will test macroeconomic stability in the months ahead. Space to manoeuvre has been carved out by setting overly ambitious revenue and public investment targets. A similar exercise in 2018 saw a revenue forecast of 15.6% of GDP materialise to an actual 14%, with public investment spending cut as a result to 4.4% of GDP from a forecast of 5.4%. 2019 is likely to be a repeat of this familiar exercise. 

Thus, tighter macroeconomic conditions expected in 2019 – following a spike in public debt to 84% of GDP and low growth of 3% in 2018 – will leave little room for missteps in setting monetary and exchange rate policies in tandem with fiscal policy. With domestic financing of the fiscal deficit set to double to 4% of GDP in 2019, tight monetary policy conditions will keep the overall growth outlook to a modest 3.5%.