Sri Lankan economy drags into a modest recession
Sri Lankan economy is set to face a modest recession of around – 0.6 or a slow growth of 1.4 per cent if the coronavirus is contained within two or three more months under moderate global recovery even with high overall impact on the island nation, economic analysts said.
The COVID-19 economic shock is now affecting government revenue with almost half of the income (revenue) flowing from import taxes (much reduced now), and one third from taxes on consumption, including that of cigarettes and alcohol.
The Finance Ministry, with expenditure controls in place coupled with the savings from the tax reductions in government service delivery, expects a saving of 0.6-0.7 per cent of GDP in government expenditure.
During the first four months of this year, cash inflows from revenue collection authorities including the Inland Revenue Department, Customs Department, Excise Department, and Motor Traffic Department have slowed down since mid-March due to the lockdown. All liquor shops which were kept closed since March 21 re-opened on Wednesday. The drop in excise duty during this 52-day period was around Rs.26 billion, provisional estimates revealed.
The total drop in revenue collection of other three departments was in the region of around Rs 100 billion up to now, a senior Treasury official said.
Cash flows to the Treasury by way of revenue and other receipts amounted to Rs.331.5 billion while total cash outflow for recurrent expenditure stood at Rs.381 billion. The estimated government expenditure for this period is Rs. 420 billion.
The interim government has to raise funds for the maintenance of public services and essential expenditure by resorting to more domestic borrowing or allowing the Central Bank to continue pumping money into circulation.
A sum Rs.8.73 billion has been pumped so far this month, releasing a total of Rs.232.37 billion in money circulation up to now this year, Central Bank data showed.
The reserve money increased to Rs.935.6 billion mainly due to the increase in currency in circulation.
According to the Vote on Account revised on March 6, 2020, a sum of Rs.715 billion could be withdrawn from the Consolidated Fund on a warrant issued by the President. But the Fund has been overdrawn by around Rs.83 billion by last month, informed sources said.
Cabinet Spokesman Minister Bandula Gunawardana told the Business Times that although the Fund has dried up in the first quarter, receipts from state institutions are still to be credited to the Treasury due to delay in revenue collections owing to the lockdown.
“The Government has taken proactive measures in mobilising funds from multiple sources of market-based and official sources of financing to effectively improve terms and conditions of financing,” he said.