* Small signs of consolidation appear
* Year-end targets likely to be missed but IMF banking on govt. commitment to stay on course
The budget deficit for the first five months of this year grew 64.82 percent to reach 4.09 percent of GDP as expenditure growth continued to outpace revenue growth, although small signs of consolidation are emerging, latest data released by the Central Bank showed.
Total government revenue grew 8.86 percent to Rs. 389.1 billion as at end May 2012, from Rs. 357.4 billion a year earlier. Total expenditure grew 28.03 percent to Rs. 696 billion from Rs. 543.6 billion a year ago.
The budget deficit reaching 4.09 percent of GDP grew 64.82 percent to Rs. 306.9 billion as at end May 2012, from Rs. 186.2 billion a year ago, which was 2.84 percent of GDP.
Tax revenue during the first five months of the year grew 11.87 percent to Rs. 353.3 billion while non-tax revenue declined 13.50 percent to Rs. 33.3 billion. Grants fell 19.35 percent to Rs. 2.5 billion.
Recurrent expenditure grew 22.58 percent to Rs. 506.4 billion while expenditure on public infrastructure grew 45.28 percent to Rs. 189.6 billion.
The government is expected to contain the budget deficit at 6.2 percent of GDP and several analysts have appointed out that this target would be missed, for instance Standard Chartered Bank has forecast the deficit would reach 7 percent of GDP.
However, the International Monetary Fund (IMF) which does not look at the fiscal target per se, but how the deficit is financed by domestic resources believes the government would be able to meet the 6.2 percent deficit target by the end of this year, according to end June data made available to it, if it continues to remain committed to the target.
A recent IMF staff report on Sri Lanka says: "The authorities’ commitment to meet the 2012 budget deficit target is commendable, particularly given the weakening revenue and growth outlook and higher interest expenses. The target is achievable given the authorities’ track record of prudent expenditure control. However, decisive improvements in revenue administration and base widening are needed to sustain fiscal consolidation while financing increased infrastructure investment, key for supporting robust growth over the longer run. In this context, staff welcomes the authorities’ intention to strengthen VAT administration, and supports their request for IMF technical assistance".
The IMF said government revenue is likely to fall short of the year-end target by ¾ percent of GDP while expenditure could increase by 0.3 percent of GDP on raising interest rates.
Meanwhile, the total outstanding debt stock as at end May 2012 reached Rs. 5,902.2 billion, up 22.93 percent from Rs. 4,800.9 billion a year ago. Domestic debt amounted to Rs. 3,142.5 billion, up 15.12 percent, while foreign debt amounted to 2,759.7 billion, up 33.24 percent from a year earlier.
There are some signs that the government is consolidating its fiscal performance when comparing year-on-year growth rates as at end May 2012 and April 2012.
As at end May 2012, tax revenue grew 11.87 percent year-on-year as against a growth rate of 10.7 percent as at end April 2012. Total revenue which grew 8.86 percent year-on-year grew 7.49 percent in April.
Year-on-year expenditure growth as at end May 2012 was 45.58, down from a growth rate of 46.6 percent in April. Recurrent expenditure fell from 23.6 percent as at end April to 22.58 percent in May, while capital expenditure growth fell from 46.6 percent to 45.28 percent.
The budget deficit grew 64.82 percent year-on-year as at end May 2012, slowing down from 65.89 percent in April.
Government borrowings from the Central Bank fell by Rs. 22.2 billion in May after picking up by Rs. 24.7 billion the previous month. However, borrowings from the domestic banking sector grew by Rs. 15.6 billion in May, as against Rs. 4.6 billion the previous month.
Outstanding loans to the government from the Central Bank reached Rs. 329.5 billion as at end May 2012, up 243.7 percent from Rs. 95.9 billion a year earlier. The outstanding debt stock from the domestic banking system amounted to Rs. 566 billion, up 18.7 percent from Rs. 476.9 billion a year ago.
Loans to the government from off shore banking units declined 4.5 percent to Rs. 129.3 billion from Rs. 135.5 billion a year earlier.
Loans to public corporations declined 2.9 percent to Rs. 73.8 billion as at end May 2012. Loans from foreign banking sources rose 268.2 percent to Rs. 193.1 billion.