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Sri Lanka budget deficit at 6.1-pct of GDP in March

ECONOMYNEXT – Sri Lanka has run budget deficit of 6.1 percent of gross domestic product or 180 billion rupees in the first quarter of 2016, sharply lower than the gap a year earlier, provisional data show.

The government has earned revenues of 345 billion rupees in the first quarter up 21 percent from a year earlier.

Monthly revenues are now in the range of 115 to 117 billion rupees, achieved in the last quarter of 2015, up from around 90 billion rupees in the beginning of 2015.

Current spending grew at a slower 4 percent to 426.5 billion rupees, with no wage or pensions increase, allowing revenue to catch up.

Sri Lanka’s state finances were severely damaged by a revised budget in 2015, and a failure to raise interest rates in time and money printing led to a balance of payments crisis, with spooked foreign investors also selling out after a rate cut in April 2015.

Under a program with the International Monetary Fund, revenues are expecting to pick up further in 2016, with an increase in value added tax. However import tax revenues may fall, with credit now directed to imports which may bring lower tax revenues.

The larger number of cars on the road can potentially bring more fuel taxes with higher incomes making people travel more. Petrol taxes are a key source of revenue which keeps up with incomes and economic activity.

Diesel however underperforms due to lower taxation.

The government ran a revenue deficit of 80.9 billion rupees in the first quarter, sharply down from 125.3 billion rupees a year earlier. Capital expenditure was 21 percent higher at 99.8 billon rupees.

But with a smaller current account deficit, the overall deficit was contained at 180.7 billion rupees or about 6.1 percent of the estimated GDP for the quarter.

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The government repaid a net 24.3 billion rupees in foreign borrowings (down from a net repayment of 71.6 billion rupees a year earlier. Domestic borrowings were at 205 billion rupees, down 27 percent from 279 billion rupees.

With market interest rates also higher this year, there is less need to print money. However in June pressure has emerged in forex markets, along with liquidity shortages. (Colombo/June23/2016).


 

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