Sri Lanka budget deficit narrows in May 2016, revenues up 24-pct

ECONOMYNEXT – Sri Lanka’s budget deficit has narrowed 10 percent in absolute terms to Rs280.5 billion in the five months to May from Rs310.4 billion, with revenues up 25 percent, official data show.

Tax revenues rose to Rs568 billion in the five months to May from Rs467 billion a year earlier, rising to 5.0 percent of gross domestic product from 4.4 percent a year earlier, Finance Ministry data showed.

A large number of small vehicles and motorcycles imported to the country in 2015 had increased living standards of the people, especially people who are not super rich, and they are now contributing to tax revenues through petrol usage.

Diesel users, however, are not paying their share to government coffers.

Inflation and a currency collapse has also pushed the nominal price structure in the economy up, giving more nominal taxes to meet higher salaries for state workers and an increase in subsidies in 2015.

Government current expenditure rose 7 percent to Rs700.3 billion, almost in line with inflation, amid an effective wage and subsidy freeze after last year’s steep increase, but there is a higher interest bill in 2016.

Capital expenditure up to May was up 19 percent to Rs190.6 billion, generating an overall deficit of Rs280 billion with negligible grants of Rs0.457 billion.

The nominal deficit was down 10 percent from Rs310 million a year earlier. In terms of estimated GDP for 2016, the deficit was down 2.3 percent.

The entire deficit was financed through domestic means in the first five months of the year. But total domestic borrowings were down to 279 billion rupees from 367 billion rupees last year.

Last year, interest rates were suppressed by the central bank, which released liquidity mopped up through term repo deals, triggering a balance of payments crisis.

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Rates were only raised after the rupee collapsed, a familiar strategy that analysts call ‘rawulath ne kendath ne’.

In May 2016, there was also a net Rs17 billion payback of central bank credit. With higher interest rates now, banks are generating deposits to finance their credit instead of using central bank credit. (Colombo/Aug15/2016 – Corrected – Sri Lanka budget deficit narrows 10 percent in absolute terms. An earlier version of this story said 18 percent )
 

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