Fiscal management: High 24% rise in capex leads to Rs. 95.3 b cash deficit at Treasury

A high 24% rise in capital expenditure in the first five months of this year has resulted in the cash deficit in the Treasury increase by 13.5% to Rs. 95.3 billion.

According to the Government’s mid-year fiscal report, cash inflow to the Treasury during the first five months of 2011 increased by 18% compared to the same period of 2010.

Cash deficit after outflow for recurrent and capital expenditure amounted to Rs. 191.3 billion which is Rs. 7.5 billion higher than the corresponding value for the same period in 2010. This was mainly due to the increase in cash outflows for recurrent and capital expenditure by 9% and 24%, respectively compared to the corresponding period of the previous year.

The overall closing cash balance (deficit) as at end May 2011 was Rs. 95.3 billion, an increase of Rs. 11.4 billion of the cash deficit that prevailed as at end May 2010.

The report said the high capital expenditure reflects the Government’s commitment to continue the public investment programme at a higher pace.

The cash deficit at Rs. 95.3 billion was higher as against the estimate of Rs. 90.2 billion. In 2010 January to May the figure was Rs. 84 billion. Total cash flow for capital expenditure of Rs. 130.7 billion, was higher as against the original estimate of Rs. 119.7 billion. In the first five months of 2010 the figure was Rs. 105.7 billion.

With the revival of the economy after the ending of the terrorist insurgency coupled with the expansion in the international trade related activities, the Government revenue grew by 19.8% to Rs. 358.26 billion in the first five months of 2011 with tax revenue recording an increase of 23.8% compared to the same period of 2010. The import duty concessions granted on petroleum products, LP gas, selected food items and milk powder had a negative impact on the revenue performance during this period.

“The improved performance in the overall domestic economic activities coupled with the increase in imports contributed for this growth in revenue collection during this period,” the Finance Ministry report added.

Total government expenditure during the first four months of 2011 was Rs. 458.5 billion, an increase of 11.6% over the corresponding period in 2010, consisting Rs. 360.28 billion of recurrent expenditure and Rs. 103.94 billion of public investment. Finance Ministry said there was only a 10.2% increase in recurrent expenditure mainly benefiting from the relatively low interest expenditure while major development projects in the areas such as power generation, ports, roads and irrigation etc. as well as rural development initiatives contributed to the increased expenditure on public investment during this period.

Reflecting the improved revenue performance and the slower growth in recurrent expenditure, the deficit in the revenue account during the first four months of 2011 declined further to Rs. 75 billion and was 1.2% of GDP compared to the deficit of 1.5% recorded in the same period of 2010. The overall budget deficit, in nominal terms, indicated a marginal increase to Rs. 172 billion but declined to 2.7% of GDP compared to 3.0% recorded in the corresponding period in the previous year.

The Government was able to mobilise US$ 382.5 million as gross project related loans during the first four months of 2011.

The report also said the Government debt operations indicated a total gross borrowing of Rs. 410.7 billion during the first five months of 2011. The repayments of government debt, both domestic and foreign, amounted to Rs. 231.3 billion thus limiting net borrowings to Rs. 179.3 billion during this period.