The 2019E fiscal deficit would be 4.9% of GDP or Rs. 764 billion, higher than the Government’s target of 4.4% or Rs. 675 billion which would be the lowest since 1977, according to leading stockbroking firm CT CLSA Securities. The fiscal deficit for 2018E was 5.3% of GDP or Rs. 761 bn, higher than the initial target of 4.8% or Rs.675 billion announced in the 2018 budget speech, due to lower taxes owing to the delayed implementation of certain tax proposals. In its Impact Analysis report on Budget 2019 the firm adds that the expected increase from some revenue raising proposals may be missed slightly due to prevailing weak consumer sentiment and significant increase in some duties. It adds that the Government would need to strengthen the administration and collection mechanism in achieving these revenue targets. It also emphasized on the importance of following established procedures to prevent any delays or major challenges. Total revenue and grants are expected to rise 22% YoY to Rs. 2,464 billion in 2019E, with an increase in taxes on goods and services expected to be the main contributor, rising 22% YoY to Rs. 1,293 billion or 52% of total revenue. Tax revenue is expected to rise 21% YoY to Rs. 2,027 billion, whilst non-tax revenue is expected to increase to Rs. 265 billion or 28% YoY. Major revenue raising proposals include Rs. 48bn from Motor vehicles excise duty and luxury tax on luxury vehicles, Rs.37bn from excise duty revisions on cigarettes, liquor and selected goods and Rs. 20bn from revision on customs duty on selected goods, tobacco and liquor. On the expenditure front total expenditure is estimated to rise 13% YoY to Rs. 3,149bn in 2019E, with recurrent expenditure to rise 11% YoY to Rs. 2,415bn and Public Investment to rise +21% YoY to Rs.756bn. Major expenditure proposals include interim allowance for public sector employees at a cost of Rs. 20bn and pension revisions at a cost of Rs. 12bn to drive consumer expenditure ahead of key elections. CT CLSA believes the Government may overshoot its slated recurrent expenditure targets slightly due to higher salaries and wages and may cut down some public expenditure to reach overall deficit targets. Further, expenditure targets will have to be closely monitored with 2019 being a major election year. The firm adds that the Government’s plan to opt for more domestic financing in a bid to reduce dependency on foreign debt may result in a crowding out effect. The Budget deficit is expected to be funded 08:92 by foreign: local borrowings in 2019E. CT CLSA Securities adds that the increase in public sector salaries and pensions may lead to demand driven inflationary pressure in the medium term but that this is expected to be somewhat mitigated by the inflation targeting framework being adopted by the Central Bank of Sri Lanka. Budget 2019E shift the Government’s focus on to human capital and infrastructure development to a greater extent and extra emphasis has been placed on rural, SME and skills development, with changes in labour laws to improve female participation in the workforce. With debt servicing expected to increase to historically high levels over the next few years, the Government is planning to bring down the currently high Debt to GDP ratio, expected to be 84% in 2018E to 61% by 2023E. Overall, the Government is expecting GDP growth at 3.5% in 2019E and 4.0% in 2020E. However, appropriate drafting of legislature and attentive implementation would be vital in achieving this and other targets in a timely manner, according to CT CLSA.