Sri Lanka revenue crunch continues in 2012

Apr 09, 2012 (LBO) – High state spending is continuing to put pressure on the economy with billions of rupees being printed in April to meet expenses on top of earlier bank borrowings, official data shows. In countries with more stable currency pegs, such as Hong Kong or Singapore, seasonal cash demands are met, not by the creation of new money but by a running down of statutory reserves, which tends to keep reserve money stable.

Budget Gaps

Data released by the finance ministry said that in 2011, total revenues and grants at 974.29 billion rupees was 33.5 billion rupees less than the planned 1,007.8 billion rupees, a shortfall of 33 billion rupees.

However in January the state borrowed 67.5 billion rupees from banks indicating an even greater fiscal crunch. Borrowings from the Central Bank, was another 25.8 billion rupees.

In January the Central Bank gives a so-called provisional advance with printed money to the budget due a flaw in Sri Lanka’s monetary law, which causes inflation or currency weakness or both.

Total borrowings from the banking system in January alone were 93.2 billion rupees, which is one fifth of the entire 468 billion rupee budget deficit projected for