hit by the sudden increase in oil prices. as of now, the gross official reserves have been sufficient to meet about 3 months of average imports in the recent years despite the rising expenditure on oil imports. we also note that according to the overall policy vision announced in the “ mahinda chintana ”, the government ’ s commitment to reduce the budget deficit to a sustainable level in the medium term has been made clear. in that context, the fact that the total revenue during the first nine months of 2006 increased, and thereby led to an improved revenue / gdp ratio is laudable. in addition, it was noted that several measures were introduced by the government to rationalise recurrent expenditure, especially adjusting domestic fuel prices to reduce the burden on the government. nevertheless, the government has had to resort to borrowings from the banking sector to meet shortfalls in the face of many challenges, and in order to avoid such a situation in the future, it would be highly desirable to further improve the revenue generation and collection process in 2007 and beyond. another key fiscal indicator, namely recurrent expenditure as a ratio of gdp recorded a value of 14. 0 per cent during this period. capital expenditure and net lending also increased by 28. 2 per cent during this period. the main contributors to this increase were the acceleration of infrastructure development and tsunami related reconstruction activities. all in all, the overall budget deficit in the first nine months of 2006 reached 6. 0 per cent of gdp, while the budget deficit in 2006 is estimated to be 8. 7 per cent of gdp. in relation to the outstanding debt stock of government, we note with satisfaction that it is expected to decline to 93. 1 per cent of gdp by end 2006 from 93. 9 per cent as at end 2005. the outstanding government debt to gdp ratio is also expected to decline in the medium term in line with the path enunciated in fiscal management ( responsibility ) act. we could also report that the tight monetary policy stance adopted from end 2004 was further firmed in 2006 to curtail high growth in monetary and credit aggregates to contain rising inflationary pressures. accordingly, the central bank raised its policy interest rates by 25 basis points in june 2006, 12. 5 basis points in july 2006, 50 basis points in september 2006, and a further 37. 5 basis points in december 2006 : a total of 125 basis points during the year. this is in addition to the increase of policy rates by 175 basis points during 2004 and 2005.

share capital. a revised format for publication of banks ’ financial statements in their annual reports will be introduced so as to improve disclosure requirements and provide more information to market participants. the central bank will also facilitate the adoption of the internationally accepted accounting and reporting standards such as ias 32, ias 39 and ifrs 7 by banks. a continuous dialogue will be maintained with the external auditors and other relevant institutions with respect to the operations of banks, the publication of accounts and adoption of international accounting standards. the central bank ’ s currency management policies are also being formulated to ensure that sri lankan rupee notes and coins are available to the public in required denominations upon demand. in achieving this, the bank will forecast the currency demand and maintain a buffer stock of currency to meet the seasonal and any contingent demand. as in the past, the currency management policy of the central bank will be focused on maintaining quality standards. in this effort, continuous upgrading of security features mainly in high denomination notes, conducting aggressive public awareness programmes, especially for cash handlers of commercial banks, counterfeiting aspects and clean note policy will be the main tools in achieving the quality standards. advocating the clean note policy, the central bank presently withdraws unserviceable banknotes from circulation regularly and issues new or serviceable notes through the banking system. another matter of some concern is the steadily rising outstanding and overdue balances on credit cards. in this regard, the central bank intends to introduce prudential guidelines on the issuance and the minimum repayment requirements on credit cards so as to ensure that credit card operations do not threaten financial system stability. at the same time, the central bank has noted with satisfaction that the imposition of the 50 per cent margin on da term imports is deriving its desired results. if this trend continues and the desired outcome is achieved, this measure will be withdrawn by 31st march 2007. in addition to the initiatives and programmes as already enunciated we also believe that the appropriate legal and regulatory framework supporting financial system stability needs to be further strengthened if we are to address potential future issues in a timely manner. accordingly, suitable amendments are to be proposed to the existing legislation pertaining to banking. a summary of such proposed revisions are : • debt recovery law : to expedite the recovery process and create a creditor friendly environment • asset management company law : to enable the speedier resolution of non performing loans of a failed bank • credit information bureau act : to widen the scope of the credit