Budget deficit contracts


According to data released by the Central Bank last Friday, the budget deficit for the first eight months of this year as contracted by 9.25 percent to Rs. 314.6 billion from a deficit of Rs. 346.7 recorded during the corresponding period of 2009.

Total revenue, including grants, increased 17.94 percent to Rs. 502.9 billion from Rs. 426.4 billion a year ago. Tax revenue increased 18.04 percent to Rs. 441 billion from Rs. 373.6 billion a year ago while non-tax revenue increased 52.95 percent to Rs. 54.3 billion. Grants declined by 56.81 percent from Rs. 17.6 billion a year ago to Rs. 7.6 billion.

Total expenditure increased by 5.74 percent during the first eight months of this year to Rs. 817.5 billion from Rs. 773.1 billion a year ago.

Recurrent expenditure increased 3.33 percent to Rs. 635.3 billion from Rs. 614.8 billion while capital expenditure, usually on infrastructure and long term public works, increased 15.09 percent to Rs. 182.2 billion from Rs. 158.3 billion a year ago.

Our calculations show that the budget deficit as a percentage of GDP is estimated at around 5.7 percent, a welcome improvement from 7.18 percent a year ago.

Economists point out that the rise in revenue is a result of natural growth spurred by post-conflict economic activity and this has contributed towards contracting the deficit from the previous year. For this favourable fiscal performance to be sustainable, hard reforms to revenue and expenditure management would have to be introduced sooner or later.

The much awaited reforms of the tax system would only be announced later this month when the budget for 2011 is presented in parliament. Here again, we would probably hear the recommendations of the Presidential Taxation Commission the government would choose to accept.

On the expenditure side, the government is committed to rationalise its expenditure. Recurrent expenditure growth has slowed down but needs to be better controlled over the next few years if the budget deficit, which ballooned to 9.9 percent last year, is to be brought down to 5.2 percent by 2012.

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