Budget deficit in first four months narrows marginally

10 July 2017 09:59 am - 0     - {{hitsCtrl.values.hits}}

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By Chandeepa Wettasinghe 
The government’s budget deficit for the first four months of 2017 edged down 0.1 percent to Rs.233.17 billion compared to the same period in 2016, falling short of expectations for the period, Treasury data indicated.
The primary deficit—the gap between revenue and recurrent expenditure—fell to Rs. 37.03 billion from Rs. 87.01 billion year-on-year (YoY), appearing to be on its way to becoming a primary surplus, which the World Bank too recently indicated could become a possibility for the year 2017.
However, the World Bank’s logic of the budget deficit for 2017 falling short of the government target of 4.7 percent of gross domestic product (GDP) to rest at 5.2 percent of GDP, compared to the 5.4 deficit in 2016, was becoming somewhat apparent through the figures published.
Revenue for the first four months was Rs.589.02 billion, short of the Rs. 654.1 billion target for the period. However, revenue growth for the period was 24.6 percent YoY.
The Inland Revenue Department (IRD) managed to exceed the targets given to it, while other revenue generating agencies for the Finance Ministry fell short of 
their targets.
However, within IRD, collection of tax on income and profits, or direct taxation which the government is attempting to improve, fell Rs.18.2 billion short of target, generating Rs. 84.5 billion in revenue with a growth of 30.2 percent YoY.
The difference was made up by the domestic value added tax (VAT) component, which generated Rs.96.8 billion in revenue compared to a target of Rs.75 billion, due to VAT rates increasing from 11 percent to 15 percent, and removal of exemptions and the lowering of the VAT 
liable threshold.

In total, VAT on domestic and imported products composed 26 percent of government revenue with Rs.152.57 billion, growing 90.9 percent YoY.
The VAT effect on revenue growth may be lower in the remaining 8 months of 2017, since the higher VAT rate was in operation for four months of the comparable period in 2016. On the expenditure side, the government overspent Rs.2.8 billion, recording a total expenditure of Rs.822.8 billion, which was a 16.5 percent YoY increase.
Recurrent expenditure was the cause of overspending with Rs.626.05 billion, increasing 11.9 percent YoY, and going above the Rs. 600 billion target.
While there were modest increases in expenditure across most recurrent expenditure segments, interest payments were the main cause of escalation, costing the government Rs.243.50 billion compared to Rs.196.68 billion YoY. Eighty percent of the interest payments were for domestic borrowings.
Capital expenditure was cut to Rs.196.79 billion from a planned Rs.220 billion, although recording a growth from Rs. 146.44 billion YoY.
Meanwhile, the Treasury said that expenditure on education, one of the country’s key reform areas, increased 20 percent YoY to Rs.38.81 billion during the four months.
Borrowings during the period were controlled at Rs.233.17 billion, down a marginal 0.1 percent YoY. Domestic net financing fell to Rs.218.83 billion from Rs.250.50 billion YoY, while foreign financing, which recorded a net repayment of Rs. 17.06 billion in 2016 recorded a net borrowing of Rs. 14.34 billion in 2017.
The World Bank said that while the government may not achieve its budget deficit target for 2017, it has the capability to achieve the 3.5 percent of GDP deficit target for 2020, which is the main target for the reform agenda under the International Monetary Fund programme.

 

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