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Government spends 80 percent of its revenue to pay loan interest

The Government relied entirely on domestic sources to reduce exposure to foreign liabilities over the medium term last year, while the access to conventional global markets remained limited amidst rating downgrades by sovereign rating agencies. 

However, foreign exposure of central government debt declined with maturing ISBs, among other net repayments of foreign debt. By end July 2021, the relative share of outstanding foreign debt of the Central Government decreased to 38.4% of total central government debt, compared to 40.0% at end 2020.

Sri Lanka has spent 80 percent of its total revenue during the first seven months last year to pay loans and its interest, Central Bank’s recent report of economic developments divulged.

The governmet’s revenue during this period was Rs 798.9 billion and of that amounta sum of Rs. 637.4 billion was spent pay loan intrest only. 

The balance amount was Rs 161.5 billion available from the revenue for ther activities of the government the report shoed. 

  Expenditure and net lending rose to Rs. 1,814.4 bn (11.0% of estimated GDP) during the seven months ending July 2021 from Rs. 1,637.9 bn (10.9% of GDP) in the corresponding period of 2020. 

This increase reflects the escalated recurrent expenditure mainly due to the pandemic, as well as the rise in interest payments, and salaries and wages. 

Public investment increased to Rs. 242.7 bn (1.5% of estimated GDP) during the seven months ending July 2021 from Rs. 192.3 bn (1.3% of GDP) in the corresponding period of 2020. 

The increase in government expenditure offset the nominal increase in government revenue, causing the budget deficit to expand to Rs. 1,014.5 bn (6.2% of estimated GDP) during the period from January to July 2021 from Rs. 872.6 bn (5.8% of GDP) in the corresponding period of 2020. 

The current account deficit, which reflects the dissavings of the Government, increased to Rs. 779.1 bn (4.7% of estimated GDP) during the seven months ending July 2021 from Rs. 694.5 bn (4.6% of GDP) recorded in the same period of 2020. 

The primary balance, recorded a higher deficit of Rs. 377.2 bn (2.3% of estimated GDP) during January-July 2021 in comparison to the deficit of Rs. 288.9 bn (1.9% of GDP) during the corresponding period of 2020.

Net domestic financing amounted to Rs. 1,204.6 bn during the seven months ending July 2021, compared to Rs. 1,067.0 bn during the corresponding period of 2020, while foreign financing recorded a net repayment of Rs. 190.1 bn during the period under review, compared to a net foreign repayment of Rs. 194.5 bn recorded in the corresponding period of 2020.

 The Central Bank’s contribution to net domestic financing rose to 45.6% in the seven months ending July 2021, compared to 17.5% in the same period last year. 

The Central Bank supported the Government in terms of providing financing in an unprecedented scale to meet the rising expenditure and debt servicing requirement. 

The central government debt, which stood at Rs. 15,117.2 bn at end 2020, increased to Rs. 16,751.7 bn at end July 2021. 

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