ECONOMYNEXT – Sri Lanka’s has recorded a budget deficit of 540 billion rupees, or around 4.8 percent of gross domestic product in the eight months to August 2015 as current spending of the state raced ahead of revenue collected from the people.
The government collected 773.7 billion rupees in tax and 6.35 billion rupees as non-tax revenues, taking total revenues to 837 billion rupees or 55.6 percent of a highly optimistic planned 1,504 billion rupees of revenues for the year, official data show.
Non-tax revenues and some other taxes also go up in the last quarter.
In 2015 however more revenues from punitive retrospective taxes that damage the environment of rule of law and predictability for people who invest in businesses is also expected.
Some exprorpriationary taxes which are expected could put some firms out of business have also been passed by the parliament, without recourse to judicial review.
Sri Lanka’s ousted Rajapaksa administration expropriated several businesses, using the parliamentary majority to take over assets without recourse to courts, helping undermine the safety of peoples’ property.
The effects of the damaging law is expected to be mitigated by the currency administration.
The new administration has boosted taxes collected from the people each month from about 90 billion rupees in January to about 115 billion rupees by August. But it is not enough to keep pace with high state spending, with a bloated public sector taking 60 cents out of every tax rupee home.
Salaries and wages have soared from about 41 billion rupees in January to about 49 billion rupees in August, while pensions have moved up from 11 billion rupees a month to over 14 billion rupees a month.
Total current spending was 1,377 billion rupees up to August, leaving a revenue deficit of 247.1 billion rupees, higher than the full year over-optimistic target of 47 billion rupees.
Capital spending and net lending was about 290 billion rupees, giving an overall deficit of about 540 billion rupees (about 4.8 percent of GDP) or higher than the full year target of 499 billion rupees.
Out of the deficit 528 billion rupees was financed from domestic borrowings, including central bank credit and liquidity releases, which generated balance of payments trouble and currency depreciation.
Foreign financing was 11.7 billion rupees up to August after repaying debt in January.
But up to October this year Sri Lanka sold a record 2.15 billion rupees worth sovereign bonds, though there were also outflows from the rupee bond market.