COLOMBO: Sri Lanka’s revenues rose 11 percent to 1,656.8 billion rupees up to November 2017 and current spending rose at a slower 9 percent to 1,742 billion rupees, generating a revenue deficit of 85 billion rupees, lower than a year earlier, despite rising interest costs, official data showed. In the nine months to December Sri Lanka posted a revenue deficit of 104 billion rupees or 0.9 percent of gross domestic product compared with about 0.6 percent of estimated GDP for 2017.
Capital spending rose 12 percent to 551.2 billion rupees, giving an overall deficit of 633.7 billion rupees for the 12 months or about 4.7 percent of GDP, higher than the full year target of 635 billion rupees.
The government had already said that the full year target of 4.6 percent of GDP will be missed, mostly due to drought related expenses. The primary balance (all expenses before interest costs) was a positive 38.9 billion rupees, higher than a deficit of 30.5 billion rupees a year earlier as interest costs soared above capital spending. Sri Lanka recorded a primary surplus as interest costs outstripped capital expenditure. Interest cost was the fastest growing item rising 19 percent from a year earlier to 672 billion rupees. Public investment, the next highest growing expense rose 10.7 percent to 506 billion rupees.
The International Monetary Fund generally monitors the primary balance during a stabilization program as interest costs tend to rise after a balance of payments crisis and there is no pressure on authorities to keep interest rates down. A central bank creates a balance payments crisis by printing money to keep rates down as credit demand goes up. The excess printing of money and willy-nilly releases of liquidity by the domestic operations departments undermines the credibility of the dollar peg driving out foreign investors in bonds, creating further pressure on interest rates.
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