The Finance Ministry in its latest report has revised the projected economic growth for 2020 from the previous 4 percent to 1.0 to 1.5 percent of Gross Domestic Product (GDP) owing to the COVID-19 outbreak.
However, a gradual pick up is expected in 2021, according to the Ministry’s ‘Annual Report 2019’ released last week.
“The ramification effects on the COVID-19 to the production and employment have prompted to provide fiscal and monetary stimulus to micro, small and medium enterprises, low-income earners and other entrepreneurs, particularly tourism operators, covering all spectrum of the society.
The fiscal deficit is expected to expand to 8.5 percent of GDP in 2020 with the slowdown of economic activities triggered in the second quarter of 2020, a slump in revenues, increased expenditure due to the spill over spending from 2019 and increased spending on the control of COVID-19 which has increased the additional financing needs by about 2 percent of GDP,” the report explained. In a bid to restrain the expenditure, the Government has also taken a decision not to commence any new construction of building for state institutions for a period of two years.
As per the report, the slowdown of economic activity and disruptions are expected to result in a contraction in government revenue to 9.3 percent of GDP in 2020.
“During the first quarter of 2020, the total expenditure incurred amounted to Rs.1,229 billion, including the spillovers from 2019. Rs. 360 billion had been allocated for the loan repayment.
The estimated government revenue for the respected period is Rs. 420 billion,” the report said.
“In 2019, a 17-year low of 2.3 percent GDP growth registered after a serious setback with the misalignment of the economy, partly due to the impact of Easter Sunday attacks coupled with tight fiscal and monetary policy undertakings,” the report highlighted.
The report pointed out that the budget deficit expanded to 6.8 percent of the GDP in 2019 excluding the unpaid claims. “Total unpaid claims are estimated at 2.2 percent of GDP. The actual deficit for 2019 would be 9 percent of GDP with the inclusion of all unpaid claims,” the report revealed.