Sri Lanka’s budget deficit expands to 12.2% of GDP in 2021

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Sri Lanka’s budget deficit expanded to 12.2 per cent of GDP in 2021 with Government revenue dropping to 8.7 per cent of GDP while State expenditure increased to 21 per cent.

According to the Central Bank of Sri Lanka annual report, Sri Lanka’s State revenue reached Rs 1,457.1 billion mainly from higher tax revenue collection posting a growth of 6.5 per cent year-on-year.

However, as a percentage of GDP, total revenue slipped to 8.7 per cent in 2021 from 9.1 per cent in 2020.

On the other hand, State expenditure and net lending during the year reached Rs 3,521 billion posting a growth of 15.8 per cent compared to the previous year.

As a percentage of GDP, State expenditure during 2021 reached 21 per cent compared to 20.2 per cent in 2020.

According to the Central Bank of Sri Lanka, State revenue during 2021 increased, benefitting mainly from the higher tax revenue collection from VAT, income tax, PAL, and CESS.

Tax revenue increased by 6.7 per cent to Rs 1,298.0 billion in 2021 from Rs 1,216.5 billion in the preceding year.

Non-tax revenue of the Government increased to Rs 159.1 billion in 2021 from Rs 151.4 billion in 2020 due to the rise in revenue collection from profit and dividend transfers from SOEs and social security contributions.

Tax revenue, as a percentage of GDP, which stood at a low level of 8.1 per cent of GDP in 2020, further declined to 7.7 per cent during 2021.

Meanwhile, non-tax revenue, as a percentage of GDP, declined to 0.9 per cent in 2021 compared to 1.0 per cent recorded in 2020.

Grants received by the Government recorded a marginal improvement to Rs 6.7 billion in 2021 in comparison to Rs 5.3 billion registered in 2020.

Recurrent expenditure increased to Rs 2,747.5 billion in 2021 compared to Rs 2,548.4 billion recorded in 2020, reflecting higher expenses on account of salaries and wages, and interest payments.

Expenditure on salaries and wages increased by Rs 51.5 billion to Rs 845.7 billion in 2021, compared to Rs 794.2 billion in 2020, which accounted for 58 per cent of state revenue and 30.8 per cent of the total recurrent expenditure.

Interest payments also rose by 6.9 per cent to Rs 1,048.4 billion in 2021 from Rs 980.3 billion in 2020 reflecting the impact of the rise in domestic interest payments, following the increased interest payments on Treasury bonds.

Capital expenditure and net lending increased 57.2 per cent to Rs 774.2 billion in 2021 over 2020, while capital expenditure and net lending as a percentage of GDP increased to 4.6 per cent in 2021 over 3.3 per cent registered in 2020.

By Mario Andree