Sri Lanka's revised budget could stoke inflation and further economic imbalances, warned rating agency Moody's Investors Service.
The 47 percent hike in public sector wages can boost consumption and growth but it would also boost inflation, a historic problem in Sri Lanka according to Moody's.
"Given that public sector employees make up 15 percent of the work force, the 47 percent increase in nominal wages will boost consumption, thus supporting growth," Moody's said.
"However, it could also have the effect of reviving inflation which has historically been high in Sri Lanka, but moderated to an average 3.3 percent in 2014."
According to Economy Next, analysts warned that higher expenditure, in an environment of recovering credit would hit the balance of payments first.
The budget also revealed central government guaranteed contingent liabilities which would add 14.5 percent of GDP to Sri Lanka's national debt of 74.4 percent.
"However, it is silent on the future debt trajectory, which was originally projected to moderate to 63 percent by 2017," Moody's said.
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