Sri Lanka budget deficit wider in 2019 as monetary instability hits taxes

ECONOMYNEXT – Sri Lanka’s budget deficit widened in the first four months of 2019 as private credit and imports fell, slashing revenues, official data shows following a collapse of a soft-peg with the US dollar, official data shows.

Tax revenues fell 3.3 percent in absolute terms to 551.5 billion rupees up to April from a year earlier, as revenues from imports fell, the finance ministry said.

Sri Lanka’s central bank printed money in 2018 just as the economy recovered from an earlier balance of payments crisis in a bid to push up inflation and close a gap between actual and perceived potential growth denoted by econometrics.

The rupee collapsed from 153 to 182 by the end of 2018, but has since recovered to 176 to the US dollar after private credit fell. Monetary instability was worsened by a political crisis in October 2018.

Non-tax revenues also fell 10 percent to 46.6 billion rupees, because there were no central bank profits.

The central bank made a record 134 billion rupee profit from the currency collapse, but the profit it is not a transferable profit under its governing law.

Meanwhile state current expenses grew 9.4 percent to 759.5 billion rupees up to April, pushing the current account deficit up 140 percent to 152 billion rupees.

Capital spending grew 12.8 percent to 211.3 billion rupees, giving an overall deficit or 363.4 billion rupees, or about 2.3 percent of gross domestic product.

The Treasury has asked for a 15 percent cut in capex and also asked for cuts in some current spending, though subsidies and salary hikes announced in a budget for 2019 are going ahead.

The so-called primary balance, before interest costs, slipped into the red. The primary deficit hit 66.4 billion rupees by April reversing from a positive 20.9 billion rupees. (Colombo/July01/2019)