ECONOMYNEXT – Sri Lanka’s domestic borrowings rose 74 percent from a year earlier to 339.5 billion rupees in the first four months of 2015 topping the overall deficit of 271.5 billion rupees amid net foreign loan repayments, official data showed.
Revenues rose 15 percent from a year earlier to 395.1 billion rupees, with tax revenues rising 16.1 percent helped by a crackdown on illegal alcohol and rising vehicle imports driven by low interest rates.
Current expenses rose at a slower pace of 4.7 percent to 522.5 billion rupees, narrowing the revenue deficit to 127.4 billion rupees from 153.9 billion rupees a year earlier.
Capital expenditure and net lending was also slashed 25 percent to 144.2 billion rupees, allowing the overall deficit to narrow 21 percent to 271.5 billion rupees from 347.0 billion rupees.
The ousted Rajapaksa regime had a habit of running payment arrears in the last quarter of a year and settling them with a sovereign bond in the first quarter
The current regime however had a repay a 500 billion US dollar bond. The Treasury had repaid a total of 107 billion rupees and borrowed 39.2 billion rupees resulting a net repayment of 68.02 billion rupees.
In 2014 the state had borrowed 151 billion rupees from abroad.
As a result Sri Lanka was in an somewhat unusual situation of having of borrowing 339 billion rupees on a net basis from domestic markets in the first four months of the year which was higher than the overall budget deficit of 271 billion rupees.
Sri Lanka was able to borrow heavily from domestic market as there was excess liquidity in money markets generated from Central Bank dollar purchases up to the second quarter of 2014.
Analysts had warned late last year that the allowing 350 billion rupees of excess liquidity to remain unsterilized was a monetary policy error.
In April policy rates were cut even as state spending and private credit was rising setting off a typical unsustainable Keynesian consumption boom, which increase imports and generates foreign reserve losses and balance of payments trouble.
When bond borrowers are spooked pressure can worsen.
Deputy Economic Policy Minister Harsha de Silva told parliament that revenues had picked up pace in May. However there are also some rising expenses, a pension anomaly originally estimated at 5 billion rupees had increased to 24 bllion Finance Minister Ravi Karunanayake said.
However the governemnt had stepped up foreign borrowings in the second quarter.