Sri Lanka’s 7-month budget deficit at Rs.433bn

Sri Lanka’s budget deficit for the first 7 months of 2016 stood at Rs.432.73 billion, against Rs.503.34 billion Year-on-Year (YoY) data released by the Finance Ministry showed.

Against a parliamentary approved estimate of a Rs. 740.15 billion, or 5.9 percent of Gross Domestic Product (GDP) deficit for this year, the Treasury is estimating the deficit to narrow down to Rs. 659 billion.

Revenue from January to July stood at Rs. 863.67 billion, up from Rs. 721.47 billion YoY. Tax revenue made up Rs. 798.74 billion so far this year.

Revenue in July fell to Rs. 121.84 billion, the lowest since March, due to the suspension of Value Added Tax (VAT) by the Supreme Court in the middle of July. Charging of VAT in May and June pushed revenue up over Rs.130 billion.

The Treasury is estimating revenues of Rs.1.55 trillion for the year, as opposed to parliamentary approved estimates of Rs.1.82 trillion.

The VAT increases are expected to be passed by the third week of this month, and come into effect for the final two months of the year, totalling four months of increased VAT rates for 2016, as opposed to the eight months earlier expected. Cigarette taxes were increased this month, and production taxes on diesel was increased recently as well, while higher taxes imposed on vehicles led to the opposite of the intended effect with lower tax collection on vehicle imports.
Expenditure for the first seven months stood at Rs. 1.3 trillion, compared to Rs. 1.23 trillion YoY. The Treasury is estimating to spend Rs. 2.22 trillion compared to the Rs. 2.58 trillion the parliament has approved.

Expenditure in July was the highest so far this year, increasing to Rs. 226.28 billion, compared to the next highest of Rs. 202 billion in January. The July increase was mainly due to interest payments, which nearly doubled to Rs. 80.73 billion from June. Interest payments for the first seven months increased to Rs. 370.43 billion from Rs. 348.15 billion. Salaries and spending on wages increased to Rs. 331.48 billion during the same period from Rs. 319.62 billion YoY, despite a cut in such spending this July.
Pension pay outs increased to Rs. 99.39 billion for the 7 months, from Rs. 87.01 billion YoY. Capital expenditure increased to Rs. 290.11 billion from Rs. 270.84 billion YoY.
The government may have to clear the SriLankan Airlines’ liabilities totalling over Rs. 461 billion by the end of this year or early next year in order to finish the process of choosing a foreign partner to manage the airline.

The country’s current account balance was a Rs. 143.08 billion deficit, compared to a Rs. 232.74 billion deficit YoY. The Treasury estimates place the current account deficit at Rs. 178 billion at the end of the year, compared to a parliament approved deficit of Rs. 105.73 billion. Net financing for the 7 months improved to Rs. 432.73 billion from Rs. 503.34 billion YoY, while July registered the highest level of net financing with Rs. 104.44 billion.

Net foreign financing increased to Rs. 35.72 billion, from Rs. 23.45 billion YoY, as foreign borrowings increased while repayments fell. Domestic net financing fell to Rs. 397.02 billion from Rs. 526.79 billion YoY amidst lower borrowings and repayments.