Budget deficit hits Rs.1.3tn as revenues languish

• Fiscal deficit expands by Rs.488bn from Jan. through Aug.2020
• Tax revenues fall by Rs.440bn due to COVID-19 disruptions, tax cuts 
• Non-tax revenue at Rs.124bn, almost on par with previous year
• Govt. slashes public investments significantly amid revenue decline 

Sri Lanka’s fiscal deficit for the first 10 months of 2020 expanded by nearly Rs.488 billion from the same period in 2019 as revenues, mainly coming from taxes declined. According to the latest fiscal data available from January through October, the government recorded a budget deficit of Rs.1, 317.2 billion compared to Rs.829.3 billion in the same period in 2019. 

This was caused by Rs.440 billion loss in tax revenues resulted from the disruptions to business and other income generating activities, on top of sweeping tax cuts announced at the beginning of 2020, which were aimed at creating aggregate demand before the pandemic broke out. 

According to the data available through August, income from corporate income tax rose by a robust 12.1 percent to Rs.132.1 billion, on the contrary to the claims that tax cuts granted at the beginning of 2020 killed revenues to the government. But tax revenue from personal income taxes fell sharply, due to the increase in tax-free allowance.
The total tax revenue in the 10 months was at Rs.1, 009.5 billion compared to Rs.1, 450.0 billion in the corresponding period a year ago.

Meanwhile, non-tax revenue was recorded at Rs.124.1 billion in the ten months compared to 
Rs.126.4 billion a year ago. 

All in all, the total revenue which is made up of tax, non-tax and grants was recorded at Rs.1, 136.5 billion compared to Rs.1,580.2 billion in the year earlier period. 

The government meanwhile continued to be cautious in its spending as total expenditure for the 10 months stood at Rs.2, 453.7 billion, little changed from Rs.2, 409.5 billion in the year earlier period. 

The recurrent spending rose from Rs.1, 911.4 billion to Rs.2, 161.5 billion predominantly due to pandemic-related expenditure and other fiscal stimulus provided to support economic revival beset by the lockdowns. 

Meanwhile, ‘capital & lending minus repayments’ fell sharply to Rs.292.2 billion in the 10 months from Rs.498.1 billion in the similar period in 2019, in a glaring indication that the government slashed its public investments in 2020. 

Sri Lanka targets a budget deficit of 7.9 percent of GDP in 2020 and 8.9 percent in 2021 before gradually reducing it to 3.5 percent by 2025 in its commitment to consolidating the budget in the medium term.