ECONOMYNEXT – Sri Lanka’s budget deficit has topped 690 billion rupees by November 2015, higher than a revised out-turn of 675 billion rupees presented to parliament in November but monthly revenue collections have seen steady gains, official data shows.
In a budget for 2016 presented in November, the 2015 out-turn forecasted a deficit 6.0 percent of gross domestic product, far higher than the 499 billion rupees (4.4 percent of GDP) originally planned in a revised budget by the new administration which was viewed as too optimistic.
The deficit up to November is about 6.1 percent of projected GDP. Finance Minister Ravi Karunanayake had said the deficit could touch 7.2 percent of GDP. The final GDP estimate could however change the number.
The January budget projected tax revenue to raise to 1,337 billion rupees, up from 1,050 billion rupees in 2014.
The November budget number shows 1,152.2 billion rupees was collected up to November.
Though tax revenues were revised down to 1,284 billion rupees in the November out-turn the latest data shows that 1,152 billion rupees had been collected up to November 2015.
Monthly tax revenues had increased from 89 billion rupees in January 2015 to 121 billion rupees by October and 152 billion rupees in November.
In 2015 a retrospective ‘super gains tax’ which undermined the country’s investment regime and just rule of law was expected to bring in 60 billion rupees.
Minister Karunanayake said a surge in vehicle imports had brought in 240 billion rupees in 2015.
Sri Lanka state finances were severely damaged by a sharp increase in public sector salaries with current spending projected to rise to 1,612 billion rupees in 2015 from 1,323 billion in 2015.
The full year current spending was revised up to 1,648 billion in November. By November current spending was 1,478 billion rupees. Capital and net lending was 457 billion rupees giving an overall budget deficit of 690.5 billion rupees
In 2016 vehicle imports are expected to ease.
The 2016 budget however cannot be compared directly with past budgets as in contains non-cash imputed revenues and expenses.
The new administration had also started to charge tax on vehicles imported by the state in a correction which will show the actual cost of the state to the people.
With spending rising, domestic borrowings rose sharply to 442 billion rupees by November up from a planned full year target of 248 billion. Foreign borrowings were 248.5 billion rupees by November against a full year target of 251 billion rupees
Money printed to keep rates down amid heavy state borrowings led to the collapse of the currency from 131 to 144 to the US dollar over the year.
Low interest rates and printed money also boosted private credit and demand.
In addition to domestic borrowing, money printing also undermined the credibility of the currency peg, making foreign investors sell-out putting further pressure on domestic credit markets.
A weakening in the rupee from 131 to 144 to the US dollar however is expected to boost nominal tax revenues. In 2016 some new tax proposals outlined are yet to be carried out.
In 2016, there were no sharp increases in state worker salaries allowing private sector workers to work hard and increase output and taxes so that state worker salaries can be paid.
But interest costs are expected to rise. (Colombo/Feb10/2016)