A balancing act
The budget deficit for 2013 is estimated to be around Rs13.9bn (3.7% of GDP). This is way above what was announced in last year’s speech (around Rs8.5bn). The Rs5.4bn overrun reflects both an undershoot in tax revenue and an overshoot in public spending. The Minister of Finance forecasts that budget deficit will decrease to around 3.2% of GDP for 2014. However, an expected growth rate of 3.8% for 2014 may be somewhat optimist given the slow global economic recovery.
The Government is predicting a period of sustained budget deficits with the deficit for 2015 amounting to Rs12.8bn billion (2.9% of GDP) and declining to Rs11.8bn (2.5% of GDP) in 2016.
2013 Public Sector Revenue amounts to Rs78.9bn which is Rs4.4bn lower than initially planned. We note that tax take was lower than planned: 18.5% of GDP instead of 18.7% announced last year.
For 2014, Public Sector Revenue is expected to rebound to Rs86.3bn. Tax revenues should increase by 8% though tax take is expected to remain stable at 18.5% of GDP. Additionally, the Government is expecting Rs1.4bn from the Financial Services Commission and Rs1.9bn from transfers from Special Funds. Grants are expected to increase by Rs800m mainly from Japan and from the European Development Fund.
Total Government expenditure amounts to Rs92.7bn; Rs1.2bn higher than forecasted. This is mainly due to higher capital expenditure incurred during the year.
For 2014, the Minister remains disciplined in limiting the expenditure growth, keeping expenditure at Rs98.9bn representing a 7% growth over last year.
Capital expenditure remains roughly the same in 2014 at around Rs12.2bn. Total public sector investment program is expected to amount to Rs26.8bn out of which Rs8.6bn is financed by public enterprises.
Government borrowing is estimated at around Rs197.3bn (53.2% of GDP) in 2013, up from Rs176.0bn (51.7% of GDP) in 2012.
The forecasts show a further increase in Government borrowing to around Rs209bn in 2014 though borrowing as a percentage of GDP declines to 52.3%.
Government debt is sourced from the domestic market. Of these, 47% are short term, that is reimbursable within one-year