A think tank in Sri Lanka has commended the 2013 budget as a step in the right direction since the budget presented by President Mahinda Rajapaksa as the Finance Minister "has not succumbed to the temptation of providing large-scale hand-outs that are unaffordable."

The Pathfinder Foundation in a statement said the government has sought to stick to its medium- term fiscal consolidation program that reduces the budget deficit to expectable level of GDP this year and has projected to continue the trend next year.

Explaining that in the past 30 years an unsustainable fiscal deficit has been the main source of instability in the system and there has not been a stable macroeconomic framework to support a higher growth trajectory over a sustained period of time, the statement said it is a "welcome development" that the government has resisted demands that would merely serve to continue this history of weak fiscal management.

"If the government is able to maintain the fiscal discipline implied in this budget, a new era of sustainable budget deficits, lower inflation, lower interest rates and stable but competitive exchange rates is not beyond our reach," the Foundation noted.
"Such a macroeconomic framework is essential to create an environment that is conducive for accelerated growth over a sustained period of time," it emphasized.

The think tank pointed out that the need for greater fiscal discipline is even more important now since Sri Lanka as a lower middle income country is no longer eligible for concessional assistance.

A failure to understand the implications of this would lead to a major financial crisis, Pathfinder Foundation warned.

The Foundation pointed out that the challenge is to maintain fiscal discipline in the face of populist pressures that may well arise. This needs to be supported by prudent monetary policies and a realistic/competitive exchange rate, it advised.

The Pathfinder Foundation reiterated that it will not be possible to achieve the government's growth target of 7.3 percent without supporting the macroeconomic adjustment by structural reforms.

Reform of State-Owned Enterprises, particularly the elimination of the losses of Ceylon Petroleum Corporation (CPC), Ceylon electricity Board (CEB), and SriLankan Airlines should be at the top of the list, the Foundation suggested.