Editing Economy of Sri Lanka (section)

===Fiscal Developments===

'''Budget deficit 2019: -6.8%/9.4%, 2020:11.1%/14%, 2021f: -9.4%'''

Sri Lanka is expecting a budget deficit of 9.4% of GDP in 2021 after the nominal output for the year was revised down following a Coronavirus pandemic in 2020.<ref name="CBSL20-chap1">{{cite web |title=CBSL Annual Report Chapter 01 |url=https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2020/en/5_Chapter_01.pdf |publisher=Central Bank of Sri Lanka |access-date=29 May 2021}}</ref>  A budget submitted to parliament originally expected a deficit of 8.9% in 2021 with a Coronavirus pandemic slowing growth, compounded by tax cuts.<ref>{{cite news|url=https://economynext.com/sri-lanka-2021-budget-deficit-targeted-at-8-9-pct-of-gdp-76083/|title=Sri Lanka 2021 budget deficit targeted at 8.9-pct of GDP|newspaper=[[EconomyNext]]|access-date=9 January 2021}}</ref> Concerns were raised that the targets were too ambitious given Coronavirus pandemic uncertainties as well as global economic weakness with Fitch Ratings projecting a deficit of 11.5%.<ref>{{cite web |url=https://www.fitchratings.com/research/sovereigns/fitch-downgrades-sri-lanka-to-ccc-27-11-2020 |title= Fitch Downgrades Sri Lanka to 'CCC' |publisher=[[Fitch Ratings]] |website=fitchratings.com |access-date=9 January 2021}}</ref>

The Finance Ministry has countered saying a lower interest bill, a gradual recovery in 2021, and stronger foreign direct investments to the Port City will strengthen economic activity and state finances. The Treasury also hopes to borrow more domestically instead of from abroad.<ref>{{cite web |url=https://www.treasury.gov.lk/news/article/27112020 |title=Rating Action by Fitch Ratings based on Uncorroborated Facts sans due Consideration Given to Recent Economic and Policy Developments. |publisher=[[Ministry of Finance]] |website=treasury.gov.lk |access-date=9 December 2020 |archive-date=4 December 2020 |archive-url=https://web.archive.org/web/20201204065142/https://www.treasury.gov.lk/news/article/27112020 |url-status=dead }}</ref>

Sri Lanka's national debt has been gradually rising amid weak growth and policy gridlock. Following the steep rise in the deficit in 2020, central government debt rose to 101% of GDP.<ref name="CBSL20-chap1"/> The debt to GDP ratio rose to 86.8% in 2019 from 77.9% in 2017.<ref name="fiscalCB">{{cite web |url=https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2019/en/10_Chapter_06.pdf |title= CBSL 2019 Annual Report - Fiscal Policy and Government Finance |publisher=[[Central Bank of Sri Lanka]] |website=cbsl.gov.lk |access-date=30 December 2020}}</ref>

'''Budget deficit data controversy'''

Sri Lanka's Ministry of Finance in 2020 changed its cash-basis accounting convention and charged some payment arrears to the previous year, reporting an 11.1% of GDP deficit for 2020 and revising up the 6.8 deficit in 2019 to 9.6%.<ref name="CBSL20-chap1"/> Sri Lanka's main opposition charged that it was accounting fraud since arrears are always charged to the year it was paid under the country's cash-basis accounting convention. The deficit that was financed in 2020 was 14.0% of GDP.<ref>{{cite news |title=Fiscal deficit 14% in 2020: Harsha |url=https://www.ft.lk/front-page/Fiscal-deficit-14-in-2020-Harsha/44-717280 |access-date=29 May 2021 |publisher=FT.lk |date=4 May 2021}}</ref> A Sri Lanka-based fact-checking portal, FactCheck.lk said the shift in numbers to 2019 "cannot be validated by an accounting standard."<ref>{{cite web |title=MP Harsha de Silva highlights national accounting fraud |url=http://factcheck.lk/claim/harsha-de-silva-6 |website=Factcheck.lk |publisher=Fact Check |access-date=29 May 2021 |archive-date=2 June 2021 |archive-url=https://web.archive.org/web/20210602212522/http://factcheck.lk/claim/harsha-de-silva-6 |url-status=dead }}</ref>

'''Credit rating and commercial borrowing'''

Sri Lanka applied for credit ratings from international agencies in its efforts to apply for loans from international markets in 2005 after the election of Mahinda Rajapakse as president. Standard and Poor's gave Sri Lanka a "B+" speculative rating, four levels below investment grade and Fitch "BB−", three grades below investment grade. Standard and Poor's maintained Sri Lanka was constrained by providing widespread subsidies, a bloated public sector, transfers to loss-making state enterprises, and high interest local and international burdens [https://web.archive.org/web/20070927004240/http://www.lankabusinessonline.com/fullstory.php?newsID=1370696445&no_view=1&SEARCH_TERM=1]. Standard and Poor's estimates public sector debt has reached 95% of GDP [https://web.archive.org/web/20070927004240/http://www.lankabusinessonline.com/fullstory.php?newsID=1370696445&no_view=1&SEARCH_TERM=1], in comparison to CIA estimates of 89% of GDP [https://www.cia.gov/the-world-factbook/countries/sri-lanka/]. Sri Lanka in mid-2007 sought to borrow $500 million from international markets to shore up the deteriorating exchange rate and reduce pressure on repayment of the domestic debt market [https://web.archive.org/web/20070927004240/http://www.lankabusinessonline.com/fullstory.php?newsID=1370696445&no_view=1&SEARCH_TERM=1]. The head of the opposition UNP, Ranil Wickremasinghe has warned that such intense borrowing is unsustainable and will not repay these loans if elected to power [http://www.sundaytimes.lk/070819/News/nws13.html].
Sri Lanka's credit rating was progressively downgraded following a series of currency crises and output shocks. In December 2018 Fitch downgraded Sri Lanka to 'B' <ref>{{cite web |url=https://www.fitchratings.com/research/sovereigns/fitch-downgrades-sri-lanka-to-b-outlook-stable-03-12-2018 |title= Fitch Ratings Commentary |publisher=[[Fitch Ratings]] |website=fitchratings.com |access-date=28 November 2020}}</ref> and in April 2020 to 'B−' amid a global Coronavirus pandemic.<ref>{{cite web |title=Fitch downgrades Sri Lanka to B- |url=https://www.fitchratings.com/research/sovereigns/fitch-downgrades-sri-lanka-to-b-outlook-negative-24-04-2020 |website=fitchratings.com |publisher=Fitch Ratings |access-date=17 April 2022}}</ref>
Moody's downgraded Sri Lanka to Caa1 in September 2020,<ref name="MoodysCaa1">{{cite news|url=https://economynext.com/sri-lanka-sovereign-rating-downgraded-two-notches-to-caa1-by-moodys-74239/|title=Sri Lanka sovereign rating downgraded two notches to Caa1 by Moody's|newspaper=[[EconomyNext]]|access-date=28 November 2020}}</ref> which was disputed by the Finance Ministry.<ref>{{cite news|url=https://island.lk/moodys-downgrade-unwarranted-erroneous-suggesting-reckless-reaction/|title=Moody's downgrade 'unwarranted, erroneous suggesting reckless reaction'|newspaper=[[The Island (Sri Lanka)|The Island]]|access-date=28 November 2020}}</ref> In November 2020, Fitch Ratings also downgraded Sri Lanka to CCC citing fiscal and external concerns.<ref name="FitchCCC">{{cite web |url=https://www.fitchratings.com/research/sovereigns/fitch-downgrades-sri-lanka-to-ccc-27-11-2020|title= Fitch Ratings Commentary |publisher=[[Fitch Ratings]] |website=fitchratings.com |access-date=28 November 2020}}</ref> In December 2020, Standard and Poor's followed, downgrading to 'CCC+', citing high fiscal deficits and excessive domestic liquidity, which was also protested by the Finance Ministry.<ref>{{cite news|url=https://economynext.com/sri-lanka-says-sp-downgrade-to-ccc-ignores-policy-framework-76810/|title= Sri Lanka says S&P downgrade to 'CCC' ignores policy framework|newspaper=[[EconomyNext.com]]|access-date=13 December 2020}}</ref>

'''Investments'''

Sri Lanka's investment-to-GDP ratio is around 31%, made up of about 24% private and 5% public investment. The private savings rate is about 24% and the government is a net dis-saver leaving a domestic savings investment gap of around 7% of GDP. In 2019 investment fell to 27.4% of GDP from 30.4% a year earlier with the domestic savings rate also falling to 21.3% of GDP from 23%.<ref name="savingsCB">{{cite web |url=https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2019/en/6_Chapter_02.pdf |title= CBSL 2019 Annual Report - National Output Income and Expenditure |publisher=[[Central Bank of Sri Lanka]] |website=cbsl.gov.lk |access-date=9 January 2021}}</ref> Sri Lanka's savings rate is undermined by government dis-saving (the revenue deficit), which rose from 1.2 to 2.7% in 2019.<ref name="fiscalCB"/>

There are attempts to improve Sri Lanka's "Ease of Doing Business index' (Sri Lanka stood at 111 for 2018 down from 85th in 2014) and the overall tariff structure. In 1992, Sri Lanka's exports were on par with countries like Vietnam and Bangladesh (at US$2bn), which has only grown to US$12bn by the end of 2017 compared to Vietnam's US$214bn and Bangladesh's US$36bn for 2017.