Early fiscal data points to another year of blowout budget deficit in 2022

• According to Treasury data, govt. revenue rose 31% to Rs.311.5bn in Jan.-Feb. period
• However, expenditure rose by 18.4% to Rs.551.7bn; recurrent expenses up 15.8%
• Many experts attribute current economic crisis to budget deficits, which were financed through printed money
• Another segment says crisis was caused by deficit in BOP, due to loss of foreign inflows

The early data available on the government’s fiscal performance in the first two months of 2022 indicated signs of yet another year of blowout budget deficit in 2022, after three back-to-back years of gaping budget holes, which was partially responsible for the current seismic economic crisis. 

According to the Treasury data, the revenue rose notably, as the economy came out of the pandemic-induced restrictions but the expenditure, which is nearly twice the size of revenues, soon caught up, resulting in a widened budget deficit in the first two months. 

The data showed that the revenues, of which more than 80 percent consisted of taxes, rose by 30.7 percent to Rs.311.5 billion in the January-February period over the same period in 2021. 

The corresponding period tax income also came closer to meeting its budgeted figures last year when the economy was off to a fine start only to be cratered from April onwards, due to fresh restrictions and lockdowns imposed, claiming to stem the new strains of the virus. Many experts attribute the current economic crisis to the budget deficit, which was financed predominantly through the printed money, causing the current bout of hotter inflation. 

 However, another segment says the crisis was caused less by the deficit in the budget, instead by the deficit in the balance of payment (BOP) caused predominantly due to the loss of foreign inflows from tourism, remittances, exports, investments and fresh commercial borrowings and the global commodities price boom, which is rattling the global economies, due to record-high inflation.   

Meanwhile, the expenses rose by 18.4 percent to Rs.551.7 billion in the two months, with the recurrent expenditure rising by 15.8 percent. 

As a result, the budget deficit in the two months expanded to Rs.240.2 billion, compared to Rs.227.7 billion in the same period in 2021.  The Central Bank in April forecasted the budget deficit at 10.2 percent of the gross domestic product (GDP) for 2022, the third straight year of double-digit deficits since 2020. 

In 2021, the deficit hit 12.2 percent of the GDP, as revenues languished and recurrent expenditure ballooned, due to the pandemic. 

However, the situation may have turned worse since March, when the economy crash landed, resulting in lower tax revenues, as business and consumer spending slowed down while the imports weakened after several demand destruction policies instituted. 

As a result, even after the restoration of the pre-2020 tax policies, only Rs.125 billion in additional revenues to the state coffers in the remainder of the year is estimated. 

 
Meanwhile, during the two months through February 2022, domestic financing increased to Rs.368.8 billion, compared to Rs.274.5 billion in the corresponding period of 2021.  The foreign financing recorded a net repayment of Rs.128.6 billion during the period from January to February 2022, compared to a net repayment of Rs.46.8 billion recorded in February 2021. 

However, the balance could change in 2022 and thereafter, as the government is compelled to raise more money from multilateral and bilateral partners to keep the sputtering economy afloat at least during the next couple of years.