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Trillions borrowed to keep economy hobbling along in 2022, while expenditure galloped
View(s):By Kapila Bandara
Domestic borrowing was Rs. 2.03 trillion in 2022, the banker to the Government said in its financial health report card for Sri Lanka’s economy. This accounted for 82.7% of all financing of a Government running on empty and with foreign financing dried up. In 2021, domestic borrowing was Rs 2.07tn, making up 100.7% of total financing.
The disconcerting budget gap was patched up with domestic borrowing. The budget deficit, in nominal terms, ballooned to Rs. 2.46tn in 2022, from Rs. 2.05tn the year before.
The gross borrowing limit was raised to Rs. 3.84tn in September 2022 and raised again in November by another Rs. 663bn to Rs. 4.50tn. The limit of outstanding Treasury bills was raised from Rs. 3tn to Rs. 4tn in June 2022 and was further increased to Rs. 5tn in November.
The Central Bank of Sri Lanka Annual Report for 2022 shows that borrowing was heavy through Government securities. Net domestic borrowings through instruments increased to Rs. 2.66tn in 2022 compared with Rs. 1.86tn in 2021.
Borrowings via Treasury bills (short-term debt instrument) “increased significantly’’ to a net Rs. 1.608tn from Rs. 635.1bn in 2021. Net borrowings through Treasury bonds (medium to long-term debt instrument) increased to Rs. 1.44tn from Rs. 1.30tn in 2021.
Borrowings through US-dollar denominated Sri Lanka Development Bonds recorded a net repayment of Rs. 380.1bn versus a net repayment of Rs. 68.3bn in 2021, CBSL notes.
Net domestic borrowings from non marketable instruments recorded a net repayment of Rs. 633.2bn, mainly due to settlement of Government overdraft balances, in contrast to the net borrowing of Rs. 203.5bn in 2021, CBSL says.
Provisional advances from CBSL made under Section 89 of the Monetary Law Act, came in at Rs 85.51bn. Net financing from the central bank increased to Rs. 1.33tn from Rs 1.22tn in 2022.
There was also financing from the World Bank and Asian Development Bank that helped keep the economic nose above water. For example, US$70m was provided by the World Bank for Litro Gas to buy LP gas for homes and business and ease the anger and chaos from the gas shortage. WB data also show that US$145m was allocated to help about 3 million poor and vulnerable with emergency cash transfers from May to July 2022.
The CBSL report card shows Rs 525.3bn net financing through loans for foreign projects and programmes, including from multilateral and bilateral sources, versus Rs 39.3bn in 2021.
Medicines, fertiliser, and gas as well cash transfers for desperate Sri Lankans were made possible with funding from sources including the World Bank and ADB, which repurposed funding from existing projects.
In keeping with its ‘neighbourhood first’ principle, New Delhi offered credit lines to import fuel, fertiliser, medical items, and essential foodstuff.
The State Bank of India provided a US$1bn credit line for essentials, while the EXIM Bank of India offered short term credit lines of US$500m and US$55m to import fuel and fertiliser, respectively. About US$200 million was used from the credit line of the State Bank of India for fuel imports, the CBSL says.
Higher tax collection (income taxes, value-added tax, Ports and Airports Development Levy, and excise duty on liquor and cigarettes), and the non tax take boosted Government revenue by 35.8% in 2022, versus 2021.
Revenue from corporate and non corporate income taxes, including the surcharge tax (Rs 120.7bn collected in April and July), increased by 78.5% to Rs. 488.4bn in 2022 from Rs. 273.6bn. But trade-related tax revenue fell, as did revenue from the Special Commodity Levy, which dropped sharply to Rs. 40.2bn from Rs. 55.8bn in 2021. CESS revenue dropped to Rs. 70.3bn in 2022 from Rs. 75.5bn.
Despite measures by the Ministry of Finance, Economic Stabilisation and National Policies, expenditures climbed.
Capital expenditure and net lending, in nominal terms, increased by 23.1% in 2022, compared with 2021. Capex on economic services shot up by 60% due to lending to Ceylon Petroleum Corporation and capital transfers to the Ceylon Electricity Board, the National Water Supply and Drainage Board, and the Bank of Ceylon.
Government’s recurrent expenditure ticked over largely because of domestic interest payments from substantial borrowing and high interest rates, rising salaries and wages, and subsidies and transfers. Interest payments increased to Rs 1.56tn, of which, domestic interest payments climbed to Rs 1.43tn.
Recurrent expenditure on goods and services climbed to Rs 1.13tn in 2022 from Rs 1.01tn. Out of this, salaries and wages ate up Rs 956.21bn (Rs 845.68bn in 2021). Total recurrent expenditure increased to Rs 3.5tn from Rs 2.74tn in 2021.
The jobless rate that was artificially low for decades because Sri Lankans continued to leave a country that has not generated jobs, remained low, even in bankruptcy.
In 2022, the jobless rate dropped to 4.7% from 5.1% in 2021. The explanation lies in the 311,056 Sri Lankans who packed their bags, an increase of 37% versus the annual average of 226,510 from 2015-2019.
A Government jolted from a public debt tremor got generous helpings of grants of Rs. 33.4bn from bilateral and multilateral sources compared with Rs. 6.7bn in 2021.
Bilateral sources handed out Rs. 18.9bn versus Rs. 3.3bn in 2021. Grants from multilateral sources shot up to Rs. 14.5bn from Rs. 3.5bn in 2021. Capital expenditure on social services was shaved to Rs 116.81bn in 2022 from Rs 189.73bn, while education capex was trimmed to Rs 38.52bn in 2022 from Rs 48.89bn, data show.
Recurrent expenditure on health has risen slightly in 2022 to Rs 279.80bn from Rs 275.16bn, while that for community services has been cut to Rs 38.20bn from Rs 40.59bn in 2021.
Education recurrent expenditure has risen to Rs 328.96bn from Rs 261.71bn in 2021.
CBSL estimates the Government saved US$2.8bn of foreign currency outflows after the suspension of bilateral and commercial debt from April to December 2022.
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