Govt. tax revenue down, but budget deficit goal seen achievable
Thursday, 3 July 2014 02:59
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Reuters: Sri Lanka’s tax revenue has fallen more than 15% from its target in the first four months of the year but it can still achieve its 2014 budget deficit target of 5.2% of GDP, the Finance Ministry said on Wednesday.
The Government had estimated a tax revenue of Rs. 368 billion ($ 2.82 billion) at the end of April, but the collection is down 15.6% to Rs. 310.6 billion, the Ministry’s mid-year fiscal position report showed.
The International Monetary Fund said last month that “low tax revenue mobilisation remains a concern” amid relatively high debt levels and an ongoing shift from concessional to more expensive loans on commercial terms.
The Budget deficit in the first four months hit Rs. 347 billion, or 3.5% of Gross Domestic Product (GDP), compared with the full-year deficit target of 5.2% of GDP or Rs. 516.1 billion, data showed.
However, the Finance Ministry said revenue would be higher during the second half due to improved tax collection and stronger domestic economic activities from lower interest rates.
“This improvement together with closer monitoring of public expenditure management within the overall budgetary ceilings is expected to be conducive to maintaining annual budget deficit at 5.2% of GDP as announced in Budget 2014,” it said.
The deficit fell to 5.9% of GDP in 2013 from 6.4% a year earlier.
Sri Lanka’s credit growth decelerated 3.3% in April, its worst performance since January 2010, and compared with 4.3% growth in March.
Despite lower credit growth and imports, the $67 billion economy expanded 7.6% in the March quarter, which analysts attributed to strong government spending on massive infrastructure projects financed with external commercial funds.
Some banks and economists say that even with policy rates at multi-year lows, they do not see much demand for imports and borrowing for investments, as consumer spending is declining due to higher taxes and lower disposable income.
Sirimal Abeyratne, an economics professor attached to Colombo University’s Economics Department, said the reason for the fall in tax revenue was due to lower consumer spending amid a lack of investments despite lower interest rates.
“I think investor confidence is low because of a lack of policy reforms, while non-economic factors like corruption and violence are hindering the investments,” he said.
Despite the end of a nearly three-decade war, the island nation is yet to see sustainable peace. The country’s military and police in April, after killing three suspected rebels, said there had been attempts by radicals to revive a terrorist outfit that was defeated at the end of the war in May 2009.
