Jan-April fiscal deficit widens amid sharp revenue decline

Sri Lanka’s budget deficit during the first four months of the year has widened by Rs.112.8 billion year-on-year (YoY) to Rs.363.4 billion, driven by a significant decline in revenue from import-based taxes and excise duties, the Finance Ministry data showed. 

In the four-month period, the total revenue declined slightly by 3.9 percent YoY to Rs.598 billion, compared to Rs.623 billion in the same period, last year.

“Government revenue declined in the first four months of 2019 mainly due to the decline in revenue generated from the excise tax on petroleum and motor vehicles, telecommunication levy and cess together with contraction of 17.4 percent in imports and the decline in non-tax revenue,” the Finance Ministry said.

Further, the government’s primary account returned to red as it recorded a deficit over Rs.66 billion during the period under review, against a Rs.20.9 billion surplus in the same 
period of 2018.

The data showed that the excise duty on import-related activities fell significantly by 40.7 percent YoY to Rs.58 billion in the first four months of 2019 due to the decline in revenue from motor vehicles, petroleum products, cigarettes and tobacco.

The revenue generated from motor vehicle imports halved by 46.2 percent YoY to Rs.40 billion during the period, which was 16.5 percent of the total annual estimate for 2019.

The revenue from petroleum products declined by 23.8 percent YoY to Rs.18 billion, while the excise duty collected from cigarettes fell by 2.2 percent YoY to Rs.29 billion.

On a positive note, the revenue generated from income tax was up by 9.6 percent YoY to Rs.104 billion, compared to Rs.95 billion as the revenue collection from corporate and non-corporate income taxes, pay-as-you-earn tax and Economic Service Charge picked up.   

Further, the non-tax revenue declined by 10.3 percent YoY to Rs.46.5 billion, with the non-receipt of profits transfers from the Central Bank during the period.

However, the revenue generated from profits and dividends from SOEs, rent income, social security contributions, sales and charges and interest income in the non-tax category increased in the first four months of the year.

Meanwhile, the government expenditure rose by 10.1 percent YoY to Rs.962 billion in the first four months of 2019. 

The Finance Ministry reasoned that the settlement of unsettled payments in 2018 was a key factor contributed to the increase in government expenditure in the first four months of 2019.
During the period, the recurrent expenditure increased by 9.4 percent to Rs.751 billion, driven by sharp increases in pension payments and interest payments. 

The pension payments increased sharply by 17.8 percent YoY to Rs.74 billion, while the expenditure on salaries and wages increased by 3.9 percent YoY to Rs.218 billion.

The expenses on salaries and wages and pensions of government employees contributed to over 30 percent of the state expenditures during the period. 

In addition, the government spent Rs.36.55 billion on welfare payments and subsidies during the period, which mainly included the Samurdhi relief, elders’ allowance, assistance to differently-abled soldiers, food package for pregnant mothers, differently-abled allowance and special grant for kidney patients.

The capital expenditure increased by 12.8 percent YoY to Rs.211 billion in the first four months of 2019, which included Rs.65.56 billion in expenditure for national roads, expressway development, construction of bridges and flyovers.