More economic negatives than positives last year

But progress likely in 3-5 years, says 2015 Annual Performance Report

The Government borrowed more, repaid more debts and spent more on public service emoluments while receiving fewer foreign grants in 2015 than in the previous year, reports presented to Parliament show.

Higher public service emoluments (salaries, allowances, pensions and gratuities) and Samurdhi subsidy caused the Government’s recurrent expenditure to increase by 22 percent last year when compared with the previous year, the 2015 Annual Performance Report of the Department of Treasury Operations reveals.

The Government spent 26 percent more in 2015 to service its debt. At the same time, total gross borrowings rose by 23 percent — the Government borrowed Rs. 1,745 billion last year when compared with Rs. 1,425 billion the previous year.

Domestic debt service costs, when taken separately, surged by a massive 68 percent in 2015. This included both settlement of principal (amortisation) and of interest. The Government also borrowed significantly more from domestic sources last year to finance the budget deficit.

Foreign borrowings were raised mainly through issuance of sovereign bonds in international markets and project and programme loans. Meanwhile, domestic borrowings — from issuance of Treasury Bonds and Sri Lanka Development Bonds — were up by 19 percent.

The report states that tax revenue also jumped higher by 29 percent in 2015 as a result of increased monitoring of collection by the General Treasury. But the main contributors were the new Super Gains Tax, Betting and Gaming Licence Fee and revised excise duty on motor vehicles.

Cash inflow from foreign grants was Rs. 1,540 million in 2015 — a marked 38 percent drop when compared with revenue in this category the preceding year. Meanwhile, total domestic debt service payments as a percentage of GDP has now reached double digits (11.7 percent in 2015 from 7.9 percent the previous year).

The 2015 Annual Performance Report of the Treasury’s Department of External Resources divulges that there was a “considerable decline in commitments and disbursements in foreign loans” recorded last year.

The Department of External Resources is responsible for mobilising and coordinating foreign development assistance to Sri Lanka. “Almost a 70 percent decrease in foreign financing commitments through development project loans and grants was observed in 2015 against the commitments in 2014 while about 18 percent decrease was recorded in disbursements,” its report states.

“One reason for the above slowdown was the transition of political administration through Presidential and General elections in the country occurred during 2015,” it explains. “The newly elected government took some time to study the existing loan agreements and paid attention to review the loan agreements under negotiation. Moreover, on-going projects were closely monitored and executed adopting more transparent procedures. All unsolicited proposals were gone under review process with the policy decision that government will not encourage unsolicited proposals in future.”

“Slowdown of economic growth of China, which has become one of the major lenders of the country, has also caused the decrease in their financing commitments and disbursements during 2015 in contrast to the favourable conditions enjoyed in 2014,” the report says.

“This situation will have an adverse impact towards the growth of the global economy as well,” it elaborates. “However, since Sri Lanka has almost US$ 8 billion of undisbursed foreign financing to be disbursed from the loans already signed with development partners, the country can look forward to uninterrupted implementation of development projects and programmes in next 3-5 years.”

At the end of 2015, the total outstanding external debt of the Government (obtained to finance development projects) was US$ 22.5 billion. Of this, about13 percent will mature during next five years while another 28 percent will mature in 10-20 years.