Fiscal deficit expands through November but revenues jump on higher taxes

The deficit in the budget expanded in the 11 months to November 2023, on the back of the higher expense base.

However, the higher taxes appear to be bringing in substantially higher revenues for the government, signalling that it is on track towards revenue-based fiscal consolidation.

The latest fiscal figures made available by the Central Bank showed that the government has recorded an overall Rs.2,020.3 billion deficit in the budget, in the 11 months to November 2023, up from Rs.1,601.33 billion recorded in the same period in 2022.

This compares with the full-year deficit estimated at Rs.2,402.0 billion in the revised budget estimate for the year, which translates to about 8.5 percent of gross domestic product (GDP).

The government’s stretched deficit is on the back of a 53.14 percent increase in revenues to Rs.2,771.30 billion in the same period. This was possible, due to the considerably higher income raked in from the elevated taxes, most of which were imposed in 2022, in the middle of the economic crisis as early reforms going into the International Monetary Fund.

The taxes brought in Rs.2,551.98 billion in revenues in the period, up 56.19 percent from the same period in 2022, as the full effects of the previous year’s tax increases were coming in, in 2023.

Meanwhile, the expenditure and lending minus expenses totalled Rs.4,791.60 billion in the 11 months, which was a 40.47 percent increase from the same period in 2022.

The recurrent expenditures were at Rs.4,292.70 billion, up 45.76 percent, due to a combination of the inflationary impact and interest expenses, which rose sharply, as a result of the higher interest rates in the economy.

The government aims at a budget deficit of Rs.2,851.0 billion in 2024, including the Rs.450.0 billion assigned for state bank recapitalisation, which might be required post the foreign debt restructure.

This roughly comes to 9.1 percent of GDP. Barring the bank recapitalisation cost, the budget deficit is estimated at 7.6 percent of GDP for 2024.