New government gears to tackle cash flow shortfalls
View(s):The new Government is facing the immediate challenge of finding additional financial resources to meet increased spending both on health and fiscal stimulus packages amidst volatility in cash flows and balances, economic analysts said.
As an immediate remedy appropriate tools will be activated to manage cash flow and provide liquidity to tackle this issue, official sources divulged.
The country’s manufacturing slowed due to a contraction in new orders while employment and services also recorded a drop owing to reduction in new businesses, business activity and expectations during the past three months, Central Bank purchasing managers index indicated.
Furthermore, Sri Lankan manufacturers and service providers anticipate this trend to go downhill with the imposition of travel restrictions and work from home periods in Sri Lanka.
This will be further worsened by the increasing disruptions to people and goods movement with measures taken to tackle the spread of COVID-19, economic analysts emphasised.
At the same time, revenue collection is decreasing or delayed as the recession reacts to the immediate future, a senior Treasury official, said adding that liquidity management will be critical to enable the government to meet extended obligations.
These challenges highlight the importance of accessing liquidity as quickly as possible to manage unanticipated cash flows.
Tools or safety nets that governments can use to manage cash flow and provide liquidity include increased issuance of short-term treasury bills (T-bills) in financial markets, contingency credit/repo lines from commercial banks, and overdraft facilities from the Central Bank, he added.
During the first four months of this year, cash inflows to the Treasury by way of revenue and other receipts amounted to Rs. 457.7 billion as against the estimate of Rs. 755 billion which was a decline of 34.3 per cent, compared to Rs. 696.8 billion in the same period of 2019, Finance Ministry data showed.
Another sum of Rs.228.6 billion has been credited to the Treasury during the past two months making a total cash inflow of Rs.686.3 in the first half of this year, the data revealed.
This was mainly due to the lag effect of revision of taxes to the economy with the outbreak of the COVID-19 pandemic in mid-March 2020.
According to Finance Ministry data, the cash outflows including both recurrent and public investment amounted to Rs. 897.9 billion in the first four months of 2020 as against the estimate of Rs. 1,126.0 billion which was a 6.8 per cent decline compared to Rs. 963.5 billion in the same period of 2019.
Total cash deficit as at end April 2020 expanded by 65.1 per cent to Rs. 440.2 billion, compared to Rs. 266.7 billion as at end of April 2019.
The expansion of cash deficit was mainly due to the combined effect of the decline in cash inflows to the Treasury by 34.3 per cent and the increase in operational expenditure by 10.6 per cent to Rs. 800.2 billion from Rs. 723.7 billion.
This has resulted in the expansion of closing negative cash and bank balance to Rs. 304.4 billion as at end of April 2020, compared to Rs. 130.2 billion as at end April 2019, the senior Treasury official said.
(BS)