Sri Lanka budget gap down in first half 2016, on target

ECONOMYNEXT – Sri Lanka’s budget deficit narrowed 18 percent in absolute Rs328.8 billion in in the first half of 2016 from a year earlier, with revenue up 22 percent, official data show.

The budget deficit as a share of gross domestic product was at 2.7 percent, on track with a year-end target of 5.4 percent.

Tax revenues rose 22 percent to Rs741.8 billion by June, Treasury data showed. Tax as a share of projected GDP was up to 6.1 percent from 5.4 percent in 2015.

Non-tax revenues were also up 19 percent to Rs48 billion.

Current spending rose 9 percent to Rs835.5 billion driven largely by a rise in interest costs and some increase in salaries.

Most key expenses including salaries, pensions and Samurdhi spending was effectively frozen this year, helping the budget, as forecasted by analysts.

Capital spending was flat at Rs235 billion in the first half, against Rs283.3 billion last year, also helping the budget.

Revenue also gained from inflation, after the rupee collapsed from Rs131 to Rs145 to the US dollar amid money printing last year.

Domestic borrowings in the first half was Rs278.9 billion, sharply down from Rs443.5 billion last year.

In 2015, domestic borrowings came from Central Bank liquidity releases, which helped keep rates low. Releases of liquidity tied up in term repos, and outright printing of money by acquiring Treasury bills (debt monetizing) has the same effect.





Such actions push domestic demand, credit and imports up, and require foreign reserve rundowns to maintain the peg when the excess money is ‘mopped up’ in forex markets.

That liquidity releases and Treasury bill purchases of the Central Bank are similar to the Treasury appropriating Central Bank foreign reserves for the budget is not widely understood. (Colombo/Sept11/2016)

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