The fiscal deficit has expanded a further 30 percent during the first nine months of this year with revenue improving by 12 percent and total government expenditure and net lending increased by 19 percent while capital expenditure declined 2.7 percent.

The overall budget deficit for the first nine months of 2009 reached Rs. 322.6 billion or 6.5 percent of GDP increasing 30 percent compared to a deficit of Rs. 246.9 billion for the corresponding period of 2008 which was 5.6 percent of GDP, latest data from the Central Bank shows.

The fiscal deficit increased by 56.42 percent to Rs. 297.2 million during the first seven months of the year from Rs. 190 million for the same period last year.

The Central Bank says revenue collection for the year would be below the estimated target in the 2009 budget.

"According to revised estimates prepared by the Ministry of Finance and Planning in July 2009, the total government revenue for 2009 would be Rs. 727 billion (14.8 percent of GDP), reflecting a shortfall of about Rs. 127.3 billion compared to the original target of Rs. 855 billion," the Central Bank said.

Tax revenues are expected to fall short against budgeted estimates across the board except in SCL and NBT, according to the Central Bank, but tax revenues are expected to increase by 12 percent during the year from the previous year while non-tax revenue is expected to increase marginally.

Government revenue increased 12 percent during the first nine months of 2009 to Rs. 522 billion due to increases in income tax revenue and non-tax revenue.

Total expenditure and net lending increased 19 percent to Rs. 844.7 billion for the first nine months of 2009.

Recurrent expenditure for the first nine months of this year amounted to Rs. 661.5 billion, a 26.2 percent increase from Rs. 524.1 billion for the corresponding period last year.

"This increase was mainly due to the increases in interest payments (an increase of 63 percent to Rs. 253 billion from the corresponding period of 2008), salaries and wages (20 percent increase to Rs. 204 billion) and pension payments (17 percent to Rs. 62.6 billion).

"High interest rates that prevailed in the domestic market and the significant amount of domestic borrowings during the latter part of 2008 and the first quarter of 2009 where the main reasons for the significant increase in interest payments," the Central Bank said.

It said the wages bill increased due to new recruitments to defence, government ministries and institutions.

Samurdhi relief payments amounted to Rs. 8.3 billion while fertilizer subsidies amounted to Rs. 21.5 billion.

"According to revised estimates, total expenditure and net lending in 2009 is likely to decrease by about Rs. 117.6 billion to Rs. 1.07 trillion compared to Rs. 1.19 trillion expected in the original budget," the Central Bank said.

"However, recent developments indicate that recurrent expenditure would increase over and above the revised estimates mainly due to the high domestic interest payments," the Central Bank said.

Capital expenditure however, declined marginally by 2.7 percent to Rs. 183.2 billion from Rs. 188.3 billion for the corresponding period of 2008.

"Capital expenditure would be below the targeted level given the difficulties in maintaining domestically funded capital expenditure and mainly due to the lower than expected performance in government revenue," the Central Bank said, pointing to the continuance in the trend of sacrificing capital expenditure—long term public investments—over recurrent expenditure.