Budget deficit in first four months expands to 2.9%

„Total revenues down to Rs.478.7bn, from Rs.598.4bn „Tax revenue declines to Rs.408.5bn, from Rs.551.5bn „Capital expenditure declines; recurrent expenditure up

Sri Lanka’s budget deficit for January through April expanded to 2.9 percent of gross domestic product (GDP), from 2.3 percent in the corresponding period, last year, as the coronavirus lockdowns sapped the tax revenues while the government had to step up spending on containing the virus and keeping the essential services up and running.

However, the government cut down on its capital expenditure by half, in an attempt to contain an otherwise highly stretched out fiscal deficit.

Sri Lanka was on a solid path to recovery from the beginning of the year, with strong consumer demand and robust corporate earnings, before the coronavirus outbreak in March.

The lockdowns that followed deprived the government of the opportunity to make more tax revenues, as the government missed out two of the most economically active months in the festive season.

Total revenues to the government during the four months, including the grants, came in at Rs.478.7 billion, compared to Rs.598.4 billion recorded in the year earlier period.

This translated into a revenue equal to 3.0 percent of GDP, compared to the 3.8 percent of GDP collected in the same period in 2019, the Central Bank data showed.

The tax revenue declined to Rs.408.5 billion, from Rs.551.5 billion in the corresponding four months last year.

However, the non-tax revenues rose to Rs.68.2 billion, from Rs.46.6 billion.

The grants amounted to Rs.2.0 billion, up from 0.3 billion in the same period a year ago.

Meanwhile, despite the higher recurrent expenditure incurred during the period, the total government expenditure and lending minus repayments declined to Rs.930.9 billion, compared to Rs.961.9 billion in the year earlier period.

Much of the expenditure containment was possible from the significant curtailing in the capital expenditure.

The total expenditure, as a share of estimated GDP, was projected at 5.9 percent, compared to the 6.2 percent recorded in the corresponding period in 2019.

The government spent Rs.820.7 billion as recurrent expenditure, compared to Rs.750.5 billion incurred in the same period in 2019.

The capital and lending minus repayments were Rs.110.2 billion, which was down from Rs.211.3 billion in the same four months in 2019.

The Central Bank recently revised its full fiscal deficit target to 7.9 percent for 2020, after taking into account the coronavirus-related impact on the economy.