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Friday March 1st, 2024

Sri Lanka budget deficit to April 2023 widens amid external stability: analysis

ECONOMYNEXT- Sri Lanka’s budget deficit up to April 2023 expanded 57 percent from a year ago to 824 billion rupees, driven by interest costs, data showed as exchange rate appreciated amid complementary money and exchange policies.

Measured as a share of debt to projected nominal GDP, the deficit expanded from 2.2 percent to 2.7 percent.

Tax revenues surged 37 percent to 820 billion rupees, amid higher value added and income tax rates.

Current spending grew 46 percent to 1,485 billion rupees.

Current spending before interest went up only 12.6 percent to 666 billion rupees from 590 billion as the Treasury contained the wage bill and increased welfare payments after a currency collapse worsened poverty.

The current account deficit of the budget or total revenues less current spending grew 72 percent to 664.9 billion rupees, largely driven by interest costs.

Capital spending and net lending grew 16 percent to 160.5 billion rupees but was down as a share of GPD to 0.5 percent from 0.6 percent.

The overall budget deficit after grants was 824.3 billion rupees (2.7 percent of GDP) up 57 percent from 524.1 billion rupees a year ago.

Interest costs surged 92 percent to 819 billion rupees in the four months to April 2023.

Interest costs generally go up under an International Monetary Fund program as the central bank abandons artificially low policy rates maintained by liquidity injections which triggered the currency crisis.

As a result, the IMF tracks a primary balance, excluding interest costs in stabilization programs.

In this currency crisis, which ended in default, interest costs rose more than they usually do, due to a flaw in the IMF’s default framework, where a cut-off date for domestic debt restructuring is not given.

As a result, bond yields rose close to 28-30 percent compared to around 20 percent in previous money printing crises.

The primary deficit before interest costs was only 5.26 billion rupees down from 97 billion rupees last year as non-interest spending was contained.

The entire deficit was financed domestically.

The equivalent of 77 billion rupees was repaid on foreign borrowings.

Despite the deficit expanding, despite foreign debt being repaid on a net basis the rupee appreciated, amid deflationary open market operations, especially after a surrender rule was lifted, ending money and exchange policy conflicts.

Sri Lanka and other countries with monetary instability usually print money to keep interest rates low, buying maturing debt (monetizes the gross financing need) and macro-eocnomists blame the budget deficit for inflation and currency trouble.

However, rolling over interest is a paper transaction as long they are sold to real buyers and not the central bank. In the absence of a policy rate enforced by open market operations budget deficits perfectly crowds out the private sector keeping external sector stable.


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Sri Lanka’s RAMIS online tax collection system “not operatable”: IT Minister

ECONOMYNEXT – Sri Lanka’s online tax collection system RAMIS is “not operatable”, and the Ministry of Information Technology is ready to do for an independent audit to find the shortcomings, State IT Minister Kanaka Herath said.

The Revenue Administration Management Information System (RAMIS) was introduced to the Inland Revenue Department (IRD) when the island nation signed for its 16th International Monetary Fund (IMF) programme in 2016.

However, trade unions at the IRD protested the move, claiming that the system was malfunctioning despite billions being spent for it amid allegations that the new system was reducing the direct contacts between taxpayers and the IRD to reduce corruption.

The RAMIS had to be stopped after taxpayers faced massive penalties because of blunders made by heads of the IT division, computer operators and system errors at the IRD, government officials have said.

“The whole of Sri Lanka admits RAMIS is a failure. The annual fee is very high for that. This should be told in public,” Herath told reporters at a media briefing in Colombo on Thursday (29)

“In future, we want all the ministries to get the guidelines from our ministry when they go for ERP (Enterprise resource planning).”

President Ranil Wickremesinghe’s government said the RAMIS system will be operational from December last year.

However, the failure has delayed some tax collection which could have been paid via online.

“It is not under our ministry. It is under the finance ministry. We have no involvement with it, but still, it is not operatable,” Herath said.

“So, there are so many issues going on and I have no idea what the technical part of it. We can carry out an independent audit to find out the shortcomings of the software.”

Finance Ministry officials say IRD employees and trade unions had been resisting the RAMIS because it prevents direct interactions with taxpayers and possible bribes for defaulting or under paying taxes.

The crisis-hit island nation is struggling to boost its revenue in line with the target it has committed to the IMF in return for a 3 billion-dollar extended fund facility. (Colombo/Feb 29/2024) 

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Sri Lanka aims to boost SME with Sancharaka Udawa tourism expo

ECONOMYNEXT – Sri Lanka is hosting Sancharaka Udawa, a tourism industry exhibition which will bring together businesses ranging from hotels to travel agents and airlines, and will allow the small and medium sector build links with the rest of the industry, officials said.

There will be over 250 exhibitors, with the annual event held for the 11th time expected to draw around 10,000 visitors, the organizers said.

“SMEs play a big role, from homestays to under three-star categories,” Sri Lanka Tourism Promotion Bureau Chairman, Chalaka Gajabahu told reporters.

“It is very important that we develop those markets as well.”

The Sancharaka Udawa fair comes as the Indian Ocean island is experiencing a tourism revival.

Sri Lanka had welcomed 191,000 tourists up to February 25, compared to 107,639 in February 2023.

“We have been hitting back-to-back double centuries,” Gajabahu said. “January was over 200,000.”

The exhibition to be held on May 17-18, is organized by the Sri Lanka Association of Inbound Tour Operators.

It aims to establish a networking platform for small and medium sized service providers within the industry including the smallest sector.

“Homestays have been increasingly popular in areas such as Ella, Down South, Knuckles and Kandy,” SLAITO President, Nishad Wijethunga, said.

In the northern Jaffna peninsula, both domestic and international tourism was helping hotels.

A representative of the Northern Province Tourism Sector said that the Northern Province has 170 hotels, all of which have 60-70 percent occupancy.

Further, domestic airlines from Colombo to Palali and the inter-city train have been popular with local and international visitors, especially Indian tourists. (Colombo/Feb29/2024)

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Sri Lanka rupee closes at 309.50/70 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 309.50/70 to the US dollar Thursday, from 310.00/15 on Wednesday, dealers said.

Bond yields were slightly higher.

A bond maturing on 01.02.2026 closed at 10.50/70 percent down from 10.60/80 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.10 percent from 11.90/12.00 percent.

A bond maturing on 01.07.2028 closed at 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.30/45 percent up from 12.20/50 percent.

A bond maturing on 15.05.2030 closed at 12.35/50 percent up from 12.25/40 percent.

A bond maturing on 01.07.2032 closed at 12.55/13.00 percent up from 12.50/90 percent. (Colombo/Feb29/2024)

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