{"id":246772,"date":"2025-10-28T17:21:08","date_gmt":"2025-10-28T17:21:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/246772\/"},"modified":"2025-10-28T17:21:08","modified_gmt":"2025-10-28T17:21:08","slug":"sri-lanka-budget-current-account-in-surplus-by-sept-as-central-bank-misses-inflation-target","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/246772\/","title":{"rendered":"Sri Lanka budget current account in surplus by Sept as central bank misses inflation target"},"content":{"rendered":"

ECONOMYNEXT \u2013 Sri Lanka has run a surplus in the current account of the budget in the nine months to September 2025, as total revenues exceeded current spending, a fiscal rule easily achieved before positive inflation targeting known as the \u2018golden rule\u2019 of budgeting.<\/p>\n

Tax revenues increased 32.5 percent to 3,563 billion rupees by September 2025, and non-tax revenues rose 14.8 percent to 264 billion rupees, Finance Ministry data showed.<\/p>\n

Total revenues grew 31.1 percent to 3,827 billion rupees.<\/p>\n

Recurrent spending grew 11.2 percent to 3,821 billion rupees, including salary hikes given to Sri Lanka\u2019s public sector overstaffed with unemployed graduates and with a high military budget despite the war ending in 2009.<\/p>\n

Sri Lanka has also sharply increased welfare spending under a so-called \u2018Aswesuma\u2019 scheme to help people who were suddenly impoverished in the last currency crisis triggered by inflationary rate cuts (monetary accommodation or eased monetary policy) in 2020.<\/p>\n

Current Account Surplus<\/p>\n

Despite these spending, as well as interest costs, Sri Lanka ran a marginal 6 billion surplus in the current account of the budget compared to the usual deficit of several hundred billion rupees by the third quarter.<\/p>\n

Download September Fiscal Report from here Fiscal Report Jan-September 2025-ENX<\/a>.<\/p>\n

Sri Lanka lost the ability to run current account surpluses where total revenues exceed current spending and only part of the capital budget is financed by borrowings in the 1980s, amid steep currency depreciation as well as a war.<\/p>\n

East Asian export powerhouses which had fixed exchange rates or appreciated their currencies retained the ability, also benefiting from better US policy after Paul Volker was appointed Fed chief.<\/p>\n

Before the collapse of the Bretton Woods, and positive inflation targeting made current (and also capital spending) an uncontrollable moving target, budgets could be easily fixed by raising taxes as other expenses were controllable.<\/p>\n

After the collapse of the Bretton Woods and out-of-control commodity prices and wages which follow, from badly anchored floating exchange rates, most countries including the US and UK, and later Singapore lost the ability to run overall budget surpluses.<\/p>\n

Inflation Bias<\/p>\n

Budget deficits were usually limited to wartime before badly anchored money and before aggressive \u2018macro-economic policy\u2019 to boost growth were promoted by Keynesians and Mercantilists in the second half of the last century.<\/p>\n

If there is no inflation, nominal interest rates also fall to low levels over time, as domestic savings and capital builds up.<\/p>\n

\u201cDeliberate inflation created by macro-economists without war led to a concept called real interest rates,\u201d says EN\u2019s economic columnist Bellwether. \u201cBut far more damage was done to non-interest costs of governments and companies.<\/p>\n

\u201cMacro-economists made historical cost accounting a joke. By the 1970s accountants had to come up with standards for inflation accounting including FAS 33 and SSAP 16 under so-called GPLA and CCA methods.<\/p>\n

\u201cThey fell out of favour after Paul Volcker and the Thatcher administration got inflation under control defeating full employment policy.\u201d<\/p>\n

Sri Lanka also had 21-26 year government securities with interest rates under 3 percent when the central bank with money printing powers was created soon after independence.<\/p>\n

Interest rates and current spending started to shoot up especially in the 1980s under \u2018competitive exchange rates\u2019 (basket-band-crawl policy\/REER targeting), after the IMF\u2019s Second Amendment to its articles shattering budgets in Sri Lanka and triggering social unrest.<\/p>\n

With high inflation targets which make current and capital spending moving targets, and nominal interest rates rise to double digits, complex statistical formulae (R-G etc) are now used to project deficits.<\/p>\n

Meanwhile, deficits are now measured in \u2018primary surpluses\u2019, excluding interest, not through the current account of the budget, as was done under better monetary standards.<\/p>\n

US Policy Impact<\/p>\n

Sri Lanka 2025 budget is also helped by better Federal Reserve policy which has kept commodity prices including food and energy prices under check and allowed energy utilities to run profits even as prices are cut.<\/p>\n

Sri Lanka budgets deteriorated in 1952 as Fed purchases of Liberty Bonds to keep rates down fired a commodity bubble (known as the Korean war bubble) as the US and European economies recovered from World War I pushing up subsidy costs in the then Ceylon budget.<\/p>\n

Before the Liberty Bond\/Korean war bubble the Ceylon government had kept the (three quarter measure) rice subsidy without any problem. But now central bankers with an inflation bias, exclude commodity prices from what they call \u2018core\u2019 inflation.<\/p>\n

Sri Lanka in 1953 hiked taxes and ran an overall budget surplus in the following year under a fixed exchange rate with the US.<\/p>\n

Sri Lanka\u2019s central bank has broadly kept the exchange rate and missed its 5-7 percent inflation target over the past two years, helping bring unusual monetary stability to the country to recover, drawing praise from classical style economists in parliament.<\/p>\n

RELATED : Sri Lanka central bank \u2018exceptionally great\u2019 in achieving deflation: legislator<\/a><\/p>\n

However the rupee has started to depreciate amid a record current account surplus amid flaws in the operating framework which usually emerge when the country recovers from a currency crisis and private credit picks up, eventually shattering budgets as happened to J R Jayewardene in 1980.<\/p>\n

Analysts have warned that in Sri Lanka \u2013 especially after the end of a 30-year civil war \u2013 bad policy had tended to start and stability is denied to market participants by \u2018monetary accommodation\u2019 as soon the country recovers from the previous crisis about the middle of the IMF program.<\/p>\n

Capital Spending<\/p>\n

Meanwhile in 2025, capital spending was kept at 455 billion rupees, marginally down from 463 billion rupees last year. The overall budget deficit was 441 billion rupees after grants of 8 billion rupees, down 55 percent from last year.<\/p>\n

Sri Lanka\u2019s capital spending is under-budget, which has come under fire from macro-economists who still believe state spending is required for \u2018growth\u2019.<\/p>\n

Other analysts say that the Keynesian belief that that a country can \u2018spend their way into prosperity\u2019 has been shown to be false in the 1970s and after 2008 (Western nations are in deep trouble now after 15+ years of stimulus and the single policy rate) and capital projects must be strictly evaluated to fill only the absolutely needed priority areas.<\/p>\n

However, repairs and maintenance of roads and other infrastructure must be carried out promptly on a pre-arranged schedule to prevent further deterioration which will push up repair costs un-necessarily.<\/p>\n

Though Sri Lanka has run a surplus in the current account of the budget by September, which is a remarkable achievement by itself given past trends, it is not clear whether the island will run a surplus by the year end, which would be the first such achievement since 1987.<\/p>\n

November and December in particular tend to see finalized adjusted costs, which leads to widening of the deficits as final data comes.<\/p>\n

(Colombo\/Oct28\/2025 \u2013 Updated\/ Corrected last current account surplus in 1987)<\/p>\n","protected":false},"excerpt":{"rendered":"ECONOMYNEXT \u2013 Sri Lanka has run a surplus in the current account of the budget in the nine…\n","protected":false},"author":2,"featured_media":246773,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-246772","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/246772","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=246772"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/246772\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/246773"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=246772"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=246772"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=246772"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}