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Impacted by the drop in revenue and rising expenditure due to the COVID pandemic, the Government has decided to raise the 2021 Budget borrowing limit by Rs. 400 billion to Rs. 3.4 trillion.
The move was approved by the Cabinet of Ministers at its meeting on Tuesday.
The Government said the Appropriation Act No. 7 of 2020 had originally approved a borrowing limit of Rs. 2.99 trillion for the year 2021.
However, the approved limit has to be raised for the year 2021 due to declining Government revenue under the pandemic and increased expenditure in several other sectors, including healthcare as well as social security protection for those who have lost income. Additionally, the Government had to make extra provisions for salaries and other expenses due to the loss of income of institutions.
In view of this predicament, the Cabinet of Ministers approved the proposal to increase borrowing by Finance Minister Basil Rajapaksa and take necessary steps to amend the Appropriation Act.
As per latest available published data by the Central Bank (CBSL), Government revenue in the first half amounted to Rs. 714.5 billion, up from Rs. 663.4 billion in the corresponding period of last year. Tax revenue rose to Rs. 641 billion from Rs. 581 billion, whilst non-tax revenue declined to Rs. 73.3 billion from Rs. 82.5 billion. Expenditure and lending minus repayments amounted to Rs. 1.5 trillion in the first half of 2021, up from Rs. 1.4 trillion a year ago. Deficit financing was Rs. 780.1 billion, of which Rs. 759 billion was domestic. Last year in the first half, domestic financing amounted to Rs. 882.4 billion.
In his first speech as Finance Minister, Basil, on 7 September, told Parliament that Rs. 1.6 trillion of Government revenue has been lost due to the impact of COVID-19.
He said incomes from the three main sources – the Customs, Excise and Inland Revenue Departments – have plummeted.
“A large portion of Customs duties came from taxes on vehicles but for more than a year-and-half, there was a ban on vehicle imports due to a lack of foreign exchange. Hence, income from customs duties is almost nil. Excise income too has dropped due to lockdowns, during which sales were zero, while the collapse of tourism means excise duties from that sector too have dropped.”
Rajapaksa said income tax revenue too has dropped drastically.
“Whether we like it or not, the reality is that the bulk of tax money from taxes such as VAT comes from indirect taxes. During the lockdown, 75-80% of VAT revenue is lost per day.”
The Minister also said that while revenue is dropping, expenditure is on the rise.
“We have had to pay for 80% of the vaccines we imported. Similarly, lockdown or not, we have to pay those in the public sector, which we have done without reducing a single cent. In some sectors, we have given additional allowances too.”
“We know that our expenditure has always been higher than revenue. There has also been waste, corruption and unnecessary expenditure over the years. We are making a sincere effort to address these issues,” the Minister added.
