Key finding of the study

The findings showed that both in the long run and the near term, Sri Lanka’s fiscal deficit had a positive and significant link with inflation.

Authors

Tyrone De Alwis, University of Colombo

Narayanage Jayantha Dewasiri, Sabaragamuwa University of Sri Lanka

Kiran Sood, Chitkara University, India

Summary 

The goal of this study is to look into the connection between Sri Lanka’s fiscal deficit and inflation. Sri Lanka is currently experiencing one of the worst inflation crises in its history, necessitating an investigation into how fiscal deficit affects inflation, as it has been experiencing an ever-increasing fiscal deficit for the last four decades. The quantitative methodology is employed in this study using annual data from 1977 to 2019 following the ARDL technique in the analysis. The findings showed that both in the long run and the near term, Sri Lanka’s fiscal deficit had a positive and significant link with inflation. The policymakers should increase the revenue through taxes in order to bridge the fiscal deficit. As a developing country, it cannot afford to continue with the ever-increasing fiscal deficit which has become a burden to country. Also, it is the responsibility of each government to think carefully to reduce its massive expenditure which has become a common feature in the country for the last four decades. Cutting down government expenditure can improve the economic growth and well-being of the citizens too. The government should, therefore, concentrate on short-term investment programmes that will benefit the country while doing the same in the long run.

Published in

Book Title:  Digital Transformation, Strategic Resilience, Cyber Security and Risk Management

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