Sri Lanka ruling party popularity could help budget: S&P

June 10, 2009 (LBO) – The electoral popularity of President Mahinda Rajapaksa could help improve Sri Lanka's budget by reducing the clout of smaller extremist parties, Standard & Poor's rating agency has said. "With slowing growth, sharply falling imports and much lower inflation, official revenue goals and the deficit target of 7.5 percent of GDP (gross domestic product) are unlikely to be met."

S & P is forecasting an 8.0 percent budget deficit for 2009, higher than the 7.5 percent official forecast. Inflation was expected to be low at around 6.0 percent.

The rating agency said the national debt burden which had fallen to 81 percent could rise due to low inflation and high real interest rates as well as rupee depreciation.

Sri Lanka's foreign reserves have also fallen further in the first quarter and a 1.9 billion US dollar International Monetary Fund bailout has been delayed.

"Likewise, questions surround the timeliness of other expected foreign inflows, which are needed in addition to the IMF funds to mitigate chances of near-term payment difficulties," S & P said.

Sri Lanka however floated the rupee in late March 2009 and has since collected 160 million dollars from forex markets