Deficit climbs as Govt borrowings rise

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By 2017-11-14

By Ishara Gamage

Sri Lanka's total outstanding Government debt stock increased by Rs 898.6 billion to Rs 10.2 trillion as at end August 2017, from Rs 9.3 trillion for the same period in 2016, stated the Central bank of Sri Lanka (CBSL) in its recent economic developments report.
According to CBSL, Sri Lanka's relatively high budget deficit and the depreciation of the Sri Lankan rupee against major foreign currencies were major causes of the higher debt levels. Meanwhile, speaking to Ceylon FT, Ministry of Finance Secretary Dr. R. H. S. Samarathunga said that in addition to these reported debt figures, there were other unreported hidden debts in certain Government entities.

"It is an urgent need to establish a centralized Public Debt office to unearth this hidden debt and efficiently manage the Government debt burden," he said. The Government has aimed to slash the country's reported external debt to 70% of Gross Domestic Product (GDP) by 2020. The reported external debt rose to 79.3% of GDP last year (2016), from 71.3% recorded in 2014.
According to next year's budget estimates, Sri Lanka's total borrowing requirement in 2018 is around Rs 1.9 trillion.

In addition to that, the Government of Sri Lanka (GOSL) plans to utilize the provisions of the proposed Fiscal Liability Management Act to outstrip its 2018 borrowing limits by 15-20% and tap international markets to obtain funds, according to Treasury officials.
The World Bank (WB) group recently warned that Sri Lanka's tightened global financial conditions would increase the cost of debt and make rolling over the maturing Eurobonds from 2019 more difficult.

Therefore, under favourable market conditions, the Government next year plans to raise as much funding as they can, subject to the annual borrowing limitations of the proposed Fiscal Liability Management Act.

During the first eight months of 2017, the overall budget deficit increased to 4% (Rs 520.1 billion) of the estimated GDP during the first eight months of 2017 from 3.9% (Rs 485.1 billion) of the GDP in the previous year. Net domestic budget financing during the first eight months was around Rs 273.5 billion, while Net foreign budget financing was Rs 246.7 billion (from Rs 175.6 billion in 2016). Under the International Monetary Fund's flexible exchange conditions, the Sri Lankan Rupee has eased around 2.5% so far this year, after falling 3.9% in 2016.

During that period, domestic debt increased by Rs 317.9 billion to Rs 5.6 trillion, while foreign debt increased by Rs 580.7 billion to Rs 4.6 trillion.
The outstanding foreign currency denominated domestic debt increased to Rs 702 billion at the end of August 2017, from Rs 602 billion at the end of 2016.

Accordingly, the outstanding debt on account of Sri Lankan development bonds amounted to Rs 638 billion, while the outstanding debt to offshore banking units of commercial banks amounted to Rs 64.2 billion as at end August 2017.
The share of foreign currency denominated domestic debt to total domestic debt increased to 12.4% at end August 2017, from 11.3% at end 2016.

Non-concessional debt as a share of the total foreign debt stock increased to 55.5% by end August 2017 from 53.1% at end 2016. However, the share of concessional debt in total foreign debt declined to 44.5% by end August 2017 from 46.9% at end 2016. Non-concessional debt increased by 19.4% to Rs 2.5 trillion, mainly due to higher commercial borrowings, largely on account of international sovereign bond issues.

During that period, domestic and foreign debt service payment was around Rs 1.3 trillion.
Minister of Finance Mangala Samaraweera last week presented a 'Blue-Green' enterprise-oriented development budget for the year 2018, slashing the budget deficit to 4.8% of GDP next year from this year's revised estimation of 5.2%.
The Government has revised revenue and grants to Rs 1.9 trillion this year and estimated Rs 2.2 trillion for next year, while revising Government expenditure to Rs 2.58 trillion this year and estimating Rs 2.9 trillion in expenditure next year.

Moreover, the Government expects a revised budget deficit of Rs 680 billion this year and Rs 675 billion in 2018, with indirect taxes to account for 80% of overall taxation in 2017, while this value is estimated to reduce to 74% in 2018.

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