ECONOMYNEXT – Sri Lanka has repaid the equivalent of 352 billion rupees (about 1.9 billion US dollars) in foreign borrowings up to October 2020, according provisional data and domestic financing exceeded to overall deficit, official data showed.
Sri Lanka overall budget deficit grew 59 percent to 1,317 billion rupees up from 829 billion rupees a year earlier, data shows.
Meanwhile foreign financing of 230 billion rupees in 2019 had turned into a 352 billion rupee net repayment (about 1.9 billion US dollars at an exchange rate of 185 to the dollar) amid downgrades triggered by a tax cut and money printing.
As a result domestic financing of the deficit expanded from 599 billion rupees to 1,669 billion exceeding the overall budget deficit of 1,317 billion rupees in the period.
Sri Lanka last ran into a crisis of being unable to get foreign financing for the budget in 2008.
At the time then Governor of the Central Bank Nivard Cabraal and his deputy W A Wijewardene kept liquidity short, minimized sterilization of outflows and borrowed rupees aggressively to crowd out the external current account and generate dollars by killing consumption and imports, analysts say.
Sri Lanka had printed record volumes of money in 2020, and lost 1.9 billion US dollars in reserves for the full year, despite a boost from a swap with the Reserve Bank of India.
However fiscal authorities had kept total spending to around 2.4 trillion rupees up to October 2020, unchanged from a year earlier. Capex was cut by 41 percent to 292 billion rupees.
Tax revenues which fell to 87 billion rupees in the month of March from 138 billion rupees a year earlier, recovered remarkably to 143 billion rupees by August 2020 (173 billion rupees in 2019) as pent up economic activity recovered with Coronavirus control.
However by October tax revenues had fallen to 104.7 billion rupees, down from 162 billion rupees last year, data show.
Sri Lanka has controlled imports and in addition to a cut in value added tax, import duties which went to the Treasury last yaer are being chanelled to going to so-called ‘import substitution’ firms as extraordinary profits (rents), analysts say.
The current administration suspended salary hikes given to state workers by the last administration and also tightened spending in some other ways.
In 2020 there is also a controversy over budget data and comparisons with previous periods.
In November the Finance Ministry res-stated the 2019 deficit claiming that there were 372 billion rupees in arrears, triggering a controversy over fiscal data transparency.
Critics pointed out that arrears happened every year and cherry picking 2019 distorted the time series data.
It is not clear how the data will be reconciled. (Colombo/Feb05/2021)