Sri Lanka deficit exceeds target, tax revenues could fall, IMF warns

COLOMBO (EconomyNext) – Sri Lanka’s tax revenues in 2016 are likely to fall as one-off tax hikes in the last budget expire while increased recurrent spending pushes the deficit higher, raising its borrowing risks, the International Monetary Fund has warned.

“Recent macroeconomic performance has generally been strong but risks appear to be on the rise,” the IMF said in a statement following an assessment after talks with the government by a recent monitoring mission.

“Preliminary data indicate the 2014 fiscal deficit exceeded the budget target by about 1 percent of GDP, as spending cuts were unable to compensate for a further decline in the tax revenue-to-GDP ratio,” it said.

“This is the first year since 2009 that the deficit was not reduced as a share of GDP.”

The IMF said the government’s fiscal deficit is a “key concern” for 2015 and the medium-term.
“The 2015 deficit target will likely be very difficult to reach even with relatively optimistic assumptions regarding revenue gains,” it said following the conclusion of its third ‘Post Program Monitoring Discussion’ with Sri Lanka after a previous bailout package.

“In the absence of new measures to create a more durable increase in tax collection, revenues in 2016 will drop as the one-off measures expire, while the permanent increase to recurrent spending from the revised 2015 budget will likely push the deficit higher—raising the level of risk to debt sustainability.”


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