Government revenue declined to a historic low level of 8.7 per cent of GDP in 2021 as against 9.1 per cent of GDP in 2020, Central Bank of Sri Lanka’s (CBSL’s) 2021 Annual Report released on Friday (29 April) said.
Actual revenue collection significantly deviated from the original budget estimate of 11.1 per cent of GDP owing to the loss of revenue flows which was a result of the tax relaxations implemented in late 2019 and early 2020, slower than expected economic revival as well as the continuation of some import restrictions, it said. These tax reductions were implemented soon after President Gotabaya Rajapaksa was elected to power at the 16 November 2019 Presidential Poll.
On the other hand, Government of Sri Lanka’s (GoSL’s) expenditure, as a percentage of GDP increased to 21 per cent in 2021 from 20.2 per cent in 2020. Higher expenditure on salaries and wages and interest expenses which stood at 11.3 per cent of GDP in 2021 and 130 per cent of GoSL revenue drove the growth in recurrent expenditure cent, it said. However, capital expenditure declined by 2.7 per cent in 2021, CBSL said.
Primary Deficit Rises to 6% of GDP
Meanwhile, the primary deficit in 2021 increased from Rs. 687.4 billion (4.6 per cent of the GDP) in 2020 to Rs. 1,009.5 billion (six per cent of GDP) in 2021, it said.
The current account deficit also widened in nominal terms from Rs. 1,180.4 billion in 2020 to Rs. 1,290.4 billion in 2021, though declining marginally to 7.7 per cent in 2021 from 7.9 per cent in the previous year, as a percentage of GDP.
With these developments, the primary deficit, current account deficit, and overall budget deficit, as percentages of GDP, notably deviated from the respective estimates of four per cent, 2.9 per cent, and 8.9 per cent, set out in “Budget 2021.”
Meanwhile, the Sri Lankan economy grew by 3.7 per cent in 2021, recovering from the Covid-19 pandemic induced fall back of 3.6 per cent in 2020. The recovery was observed across all three major economic activities, namely Agriculture, Industry and Services, propelled by the pent-up demand and the gradual easing of pandemic-related disturbances, and also aided by the favourable base effect that resulted from the significant contraction in the economy in 2020, it said.
CBSL data further showed that the budget deficit, 2021 over 2020 expanded to 12.2 per cent of GDP from 11.1 per cent and public debt increased to 115.1 per cent of GDP from 109.4 per cent in the previous 2020.
By Paneetha Ameresekere