Govt. revenue in first 7 months up 18% amid higher VAT

The government revenue during the first seven months of the year rose 17.95 percent year-on-year (YoY) to Rs.1.02 trillion, nudged along mainly by indirect taxes due to the increase in the Value Added Tax (VAT) rate.

According to the Finance Ministry data, expenditure for January through July increased 15.08 percent YoY to Rs. 1.49 trillion, of which recurrent expenditure amounted to Rs. 1.14 trillion with an increase of 12.84 percent YoY.

The 2017 budget had provisioned for the Treasury to cut expenditure each following quarter to meet shortfalls in revenue in a preceding quarter with parliamentary consent in order to achieve the 4.6 percent of GDP deficit, although this has not occurred as planned.

The interest payment component of recurrent expenditure increased 26.44 percent YoY to Rs.468.38 billion, pushed up by payments made in July, which made up a quarter of the total interest payments for the first seven months.

Salary and wage payments expanded at a slower pace of 3.37 percent YoY to Rs.342.63 billion, despite a 14 percent YoY increase witnessed in July.

Meanwhile, under capital expenditure, public investment for the seven months increased 21.47 percent YoY to Rs. 359.92 billion.

The government’s current account, which is the difference between revenue and recurrent expenditure, narrowed 17.97 percent YoY to a Rs. 117.37 billion deficit, while the primary balance, which is the overall deficit minus interest payments, narrowed to Rs.3.47 billion from Rs. 62.30 billion YoY.

The government had expected the current account balance to become a Rs.64 billion surplus, and the primary account balance to become a Rs.55 billion surplus by the end of this year. The IMF stated that a primary account surplus would be the key metric for government fiscal consolidation for 2017, which has remained within arm’s reach throughout this year, with some months recording a primary surplus.

The overall fiscal deficit snowballed at a rate of 9.04 percent over the first seven months of this year compared to the same period last year to reach Rs.471.85 billion, although the primary balance, which is more important this year, registered improvements, according to Treasury data.

Taking into consideration the 4.5 percent economic growth projection of the Central Bank for 2017, the deficit from January through July ran up to 3.81 percent of GDP.

The World Bank and the Central Bank of Sri Lanka are both expecting the budget deficit target of 4.6 percent of GDP for this year to be missed, with projections of 5.2 percent and 5.1 percent of GDP respectively.

Meanwhile, net government financing for the first seven months increased 9.04 percent YoY to Rs. 471.85 billion. Net foreign financing was just Rs. 117.25 billion of the total, although this belied the fact that net foreign financing increased fivefold on a YoY basis, mainly due to increased foreign borrowings since May.

Net domestic financing fell 25.79 percent YoY during the seven months up to July, reaching Rs. 294 billion.(CW